March 22, 2017 in Berlin, the first meeting of the...
Russian economy is growing at a steady pace after the collapse of Soviet Union and formation of separate federation. There is growing demand for electricity due to economic expansion of different regions. The State-owned Unified Energy Systems, which control different aspects of power generation and distribution, has put forth a detailed plan to reorganize electricity sector. The Unified Energy Systems wants to wind up and exit the sector. This has spun many investment opportunities to the foreign investors to participate in activities such as generation, transmission and distribution by investing in Territorial Generation companies.
The restructuring plan calls for creation of Territorial Generation companies on a regional basis and wholesale electricity companies (known as OGKs). Each TGC will function as a stand-alone operating company. Many foreign entities have already invested huge premiums for strategic control and control of stakes in these territorial generation companies and OGKs.
Years of negligible investment in Russia’s electricity generation, transmission and distribution infrastructure has prevented the system to function in full capacity. The economic growth of Russia is putting strain on this sector. The driving force of liberalization policy for the economy is to attract foreign investment in new power generation plants and development of delivery infrastructure.
Majority of the equipment required for refurbishing and expansion of Russia’s electric industry is imported. New government of Russia has introduced complete structural reforms for energy sector to fulfill growing demand for electricity and attract foreign investment in energy sector. A new nuclear plant ahs been announced in Baltic exclave of Kalingrad region where private foreign investors will be allowed to take ownership. The nuclear power generation is consider to be a high profile sector which will play an important role in fulfilling domestic electricity production a s well as vendor for international projects.
40% equipment in Russia Hydro electric plants has become obsolete due to lack of funds. RusHydro has recently announced a scaled back programmes which will seek $2.2 billion of investment for repair and maintenance of these facilities for increasing the generating capacity to 145 MW.
Foreign investors also have investment opportunities in turnkey projects of constructing power plants and handing it over after completion. Foreign Investors who wish to participate in energy projects would be chosen in tender process held by System operator and representatives of local administration. The Government will provide a guarantee to investors, which would assure the investor of fixed level of availability payments in new power projects. This guarantee is particularly intended to attract foreign investment in the power sector.
Foreign Investors can either chose to acquire existing company involved in power generation, transmission or distribution or invest in establishment of a new company. Both types of investments have their own advantages and disadvantages. If the investor buys stake in an existing company, the investor acquires immediate access to licenses, permits, infrastructure, client’s base and supplier relationship. However, acquiring existing company also means acquiring hidden liabilities, tax issues, environmental issues associated with company.
An investor who plans to invest in establishment of new company does not have to face the problems mentioned above but has to face problems such as talent acquisition, bear costs and time needed to build infrastructure, build relationship with customers, and acquire permits and licenses. A new green field project also needs service agreements for dispatch and transmission to national grid.
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