Territorial Generating Company TGK-2

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On 14 March, 2008 Kores Invest on behalf the German’s RWE and Russia's Syntez Group, submitted the winning bid in the sale of a 33.5% state stake in the Territorial Generating Company number 2 (TGK - 2) sold by the RAO UES, Russia’s former power monopoly. Kores Invest was a 100% owned subsidiary company of Sintez, a Russian utilities investor. TGK - 2 was joint operating company covering generating and heat network assets of six regions: Arkhangelsk, Vologda, Kostroma, Novgorod, Tver, and Yaroslavl. The company managed 16 combined heat and power plants, ten boilers and four heating network enterprises. The company had installed capacity of 2,582.5 MW and 12,471 Gcal/h. TGK-2 was being spun off from the RAO UES together with other generators as part of broader power industry reforms designed to spur competition in the sector and attract more money via privatizations. Kores Invest paid US$392.6 million (9.3 billion rubles) for the 33.5% stake of RAO UES. Prior to March divestiture RAO UES owned 49.4% of TGK-2. Following the sale of the 33.5% government stake in TGK-2, the TGK-2 issued new shares worth about 9 billion rubles the following month. Kores Invest purchased additional shares of the TGK-2 for US$280 million (6.6 billion rubles) and raised its stake to 44.8% share. After aquiring minority stakes in TGK-2 on the market Kores Invest consolidated it stake to 51%. Following the additional capital increase the Government was left with 1.03% in TGK-2. After the deal RWE was expected to take over 51% of the shares acquired by Syntez through Kores Invest. However, on September 19, 2008, RWE announced it decided not to buy into Russian regional power supplier OAO TGK-2, citing high costs involved, and withdrew from its joint venture arrangement with Syntez. Over 2003-2008 period, the Russian power sector underwent significant restructuring. Until 2003 the main assets of RAO UES, the state-owned holding for energy companies, were united into regional vertically integrated energy companies: 73 regional power utilities or Energos which produced and transmitted electricity and heat. RAO UES also centrally managed 32 Federal Power Plants, the Central Dispatch, High Voltage Grid plus Grid Service. 2003 energy sector reform envisioned a new organizational structure that included companies involved in potentially competitive activities (power generation and sales, repair and services) and natural monopolies (transmission, dispatching). As a result of the reform RAO UES was to be dissolved on July 1, 2008. The companies replacing RAO UES were: a System Operator was to receive functions and assets of regional dispatch administrations; a Federal Grid Company (FSK) was to manage the trunk grids; 11 interregional distribution grid companies were to manage regional distribution grids; RAO Eastern Energy Systems Holding was to manage energy companies of the East and isolated power systems of the Far East region; six wholesale generation companies (OGKs) were formed on the basis of large federal plants; one Hydro OGK was to manage large hydro plants; 14 territorial generation companies (TGKs) were formed on the basis of combined heat and power plants and Inter RAO UES was to remain the major investor and a leading exporter and importer of electric power in Russia. Rosenergoatom was to include all nuclear power plants. Wholesale generation companies (OGKs) were formed in 2004-05 on the basis of large federal power plants with a typical installed capacity of 1000-2000 MW. These large power producers were to become the largest participants and the main competitors on the wholesale power market. Seven of such companies were created in the process of reform: six of them incorporated large thermal power plants (OGKs) and one incorporated large hydro power plants (Hydro-OGK). In an effort to restrict the monopoly influence on the competitive wholesale power market, each of the OGKs was established on the basis of power plants geographically dispersed across the country. The reform also created Territorial generation companies (TGKs) by uniting combined heat and power plants with a typical installed capacity of 100-500 MW which were located in a few neighboring regions or one macro region. The territorial generation companies would sell electricity as well as supply regional consumers with heat energy. Interregional Distribution Companies were formed as operating companies to manage electricity distribution networks located in a number of neighboring regions. utility website http://www.tgc-2.ru/about/index.html

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