Wholesale generation company OAO OGK-5

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On October 30, 2006 the Russian fifth wholesale generating company (OAO OGK-5) sold 5.1 billion of new shares (14.4% of increased capital) through an initial public offering (IPO) for US$459 million. As a result of the IPO, the Russian state-owned electricity monopoly RAO UES saw its stake in the company decreased from 87.67% to 75.0%. Strategic investors, including the European Bank for Reconstruction and Development, bought shares equivalent to 5% of OGK-5's increased capital while institutional and portfolio investors bought the remaining 9.4% stake being sold. Not a single IPO participant received more than 1.1% of the company's increased capital. The proceeds of the IPO were expected to be investment in renovating OGK-5’s four main power plants and in additional generation capacity. OAO OGK-5 was one of the Russia’s six wholesale thermal generating companies spun off from Russian state-owned electricity monopoly RAO UES under major restructuring plan designed to create competition in the sector. The company was established in 2004 and had a total installed capacity of 8,672 MW and 2,242 GCal/h in four generation plants around Russia (Reftinskaya HPP and Sredneuralskaya HPP in the Ural region, Nevinnomysskaya HPP in the northern Caucasus, and Konakovskaya HPP in Central Russia. The company sold electricity and heat to local power distribution networks which served industrial enterprises and residential consumers. The shares of OAO OGK-5 owned by private entities were divested through the Russian voucher privatization program which partially divested the regional power utilities or Energos in 1993. On June 6, 2007, RAO UES sold a 25%-plus-one share (25.03%) stake in OGK-5 through an open auction to Italian Enel SpA for US$1.52 billion (39.2 billion rubles). Other bidders in the auction included German E.On AG, Russian aluminum producer UC Rusal, and Russian natural gas producer OAO Novatek. Enel won the tender by offering to pay the highest price for the stake, whose starting price was about US$986 million (RUB24.66 billion). After the transaction, RAO UES selling down its post-IPO stake from 75.03% to 50% plus one share. Enel subsequently bought OGK-5 shares raising its stake to 37.15%. Enel finished consolidating a controlling stake in the company in February 2008, following a partial takeover bid submitted to OGK-5 minority shareholders launched in November 2007. The shares tendered into the Public Tender Offer (PTO) launched by Enel amounted to 22.65% of OGK-5’s share capital. The PTO allowed Enel a total ownership of 59.80% of OGK-5’s share capital. On May 07, 2008 the EBRD acquired an additional stake of around 4.1% in OGK-5 by purchasing common shares from Enel. The transaction raised the EBRD’s total stake in the OGK-5 to around 5.2%. At the end of 2009, OGK-5's principal shareholders were Enel (55.86%), Federal Property Management Agency (26.43%), EBRD (5.12%), Gazprombank (5.27%) and other minority shareholders (7.32%). Over 2003-2007 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 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. OGK-5 signed a credit line facility totalling EUR 240 million (US$351.39) with ABN Amro in July 2008 to finance the construction of a new EUR350 million (US$512.45 million), 410-MW unit at the existing gas-fired thermal power plant, Sredneuralskaya GRES, in the central region of Ekaterinburg. On March 3, 2009, financial close was reached on a EUR120 million (US$167 million) EBRD loan to help finance the construction of highly efficient CCGT units (410MW) at Nevinnomysskaya GRES, one of OGK-5’s plants. The total project cost was EUR400 million (US$556 million). The Project will achieve enhanced environmental performance and add 100 MW of net generating capacity in this constrained region without increased utilization of natural gas. http://www.ogk5.ru; http://www.rao-ees.ru; http://www.enel.it