Territorial Generating Company TGK-8

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Territorial Generating Company TGK-8 provided electricity and heat to six southern regions Astrakhan, Volgograd, Rostov Oblasts, Krasnodar and Stavropol Krai and the Republic of Dagestan. The company had 3,601 MW of installed generating capacity and 18 power stations and held 17% and 60% share of the electric energy and heat market respectively in the regions of its operation. In October 2007, RAO UES announced a sale of government shares in TGK-8 (493 billion shares or 23.9% of the charter capital) and a parallel issue of additional shares by TGK-8 (686 billion additional shares or 49.84% of the initial and 33.26% of the increased charter capital). Gatecraft Ltd, affiliated with the IFD Capital financial group owned by LUKoil, won the bidding by offering was Rb 0.035 ($0.0014) per share, which was 20% higher than the market valuations at the time when it was announced or roughly $550 per kilowatt of generating capacity. Gatecraft Ltd completed the purchase in April 2008 by paying US$690 million for the government shares and US$960 for the additional shares. After, Gatecraft’s stake grew to 47.15%. The other minority shareholders included Premregion Holding (14.07%) and Energostrategiya (15.22%). Both companies were reportedly affiliated with LUKoil. As of end 2009, Lukoil consolidated about 80% stake in the generating company. Over 2003-2008 period, the Russian power sector underwent significant restructuring. Until 2003 the main assets of RAO UES, the majority 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 planned 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. In September 2009, EBRD approved a US$300 million A/B loan in favor of Lukoil subsidiary, TGK-8, to fund the construction of a 410MW CCGT unit at the Krasnodar CHP plant.