OGK-1 Building New Tyumen Unit

MTLocals in their national costumes performing at the building site for a new power unit in Urengoi on Wednesday.
NOVY URENGOI, Yamal-Nenets Autonomous District — Unified Energy System has begun the construction of a new, 450-megawatt production unit at the Novy Urengoi power station to provide much needed electricity for the country’s largest oil- and gas-producing region, although financing for the project remains in doubt.

The combined-cycle 450-megawatt unit will cost 22 billion rubles ($929 million) and is scheduled to come on line in 2011, but that may be delayed as its owner, OGK-1, the country’s biggest generating company, has yet to secure the necessary funding.

“Electricity is in greater need here in Novy Urengoi than ever before,” UES CEO Anatoly Chubais said at the foundation-pouring ceremony. “We are supporting the growth of our oil and gas companies responsible for most of the production in the region, and we have to build the unit as soon as possible.”

Chubais, who has overseen the sell-off of the production assets of the state electricity monopoly, which will officially cease to exist on July 1, poured 1 cubic meter of concrete for the unit’s foundation as part of the ceremony on Wednesday. This was followed by less formal festivities, complete with a performance of indigenous dances and boiled venison and vodka served up in yurts — tent-like dwellings traditionally used by local peoples — that had been erected for the occasion.

The Urengoiskaya station currently has an installed capacity of just 24 megawatts. Plans in the 1980s for the construction of more than 2,400 megawatts of generating capacity were put on hold because of the state’s precarious economic position in the 1990s.

Although construction is to be resumed, finding the necessary investment remains a problem. UES has been asking for at least $5 billion for OGK-1, one of the few assets it has yet to sell off, but there have been no takers at that price.

As long as the company remains unsold, OGK-1 doesn’t have enough money to complete the construction of the unit, general director Vladimir Khlebnikov said Wednesday.

“Our credit position allows us to take loans until the end of the year, and we are now negotiating a bank loan,” Khlebnikov said. “We also hope to benefit from an emission of at least 10 billion rubles worth of shares by UES by the end of the month.”

The amount expected from the planned OGK-1 initial public offering was more than doubled in November 2007, from 22.8 billion rubles ($963 million) to 47.8 billion rubles, with the construction of the Urengoi unit in mind.

Gazprom, which will be the station’s biggest customer, had been in talks to invest in the construction but broke off talks after disagreements over the degree of control it would have over the project, sources close to the deal said.

Gazprom spokespeople were not available for comment on Sunday.

The majority of companies in the Tyumen region, which accounts for two-thirds of all oil and more than 90 percent of all gas produced in the country, receive their electricity from two power stations in Surgut with an overall capacity of about 8,000 megawatts.

“The demand for electricity in the region has been growing rapidly over the last six or seven years, and the construction of generating capacity hasn’t kept pace,” said Dmitry Bulgakov, a utilities analyst with Deutsche.