OGK-1 Goes to Dubai for $5.34Bln

OGK-1, the country's biggest wholesale power producer, will be sold to Dubai World for a record $5.34 billion, UES chief Anatoly Chubais announced Monday as he lowered the flag on Unified Energy System.

Chubais also said UES's privatization, which started in earnest in 2006 and ended Monday, shows that other state companies can and will be placed in private hands.

State-run Dubai World has signed a preliminary agreement to buy OGK-1 through its Moscow-based partner Roskommunenergo for 125 billion rubles, the biggest deal ever in the country's electricity industry, Chubais said at a news conference.

"We have agreed to sell each kilowatt [of installed capacity] for $516, which is 25 percent more expensive than the market price," he said.

UES, the former electricity monopoly, had been determined to get top dollar for OGK-1, which operates six plants and was the company's last major asset. UES rejected a $4.3 billion offer in May.

OGK-1 shares, which started trading in March, jumped 26 percent to close at 2.23 rubles on the MICEX.

Dubai World, which has $100 billion in assets including ports and casinos, has already given an investment guarantee of $100 million, Chubais said.

Final details of the acquisition, the first by a Persian Gulf investor in Russia's electricity sector, are being worked out by two UES successor companies, the state-run Federal Grid Company and RusHydro.

OGK-1 spokeswoman Yana Dubeiskovskaya said the deal needed to be finalized within a month, or her company would face delays on its investment program.

Roskommunenergo is seen as close to the Kremlin. It was founded in 2004 and is chaired by Igor Kozhin, son of Vladimir Kozhin, the long-time chief of the Kremlin's Property Department.

Dubai World and Roskommunenergo had no immediate comment about the deal.

With the latest sale, UES will reach its goal of raising 1 trillion rubles in the privatization of the electricity sector.

When asked whether other state monopolies might be privatized, Chubais said, "They are already moving in that direction."

"Russian Railways and, I am afraid to say, Gazprom are already working on separating their competitive operations from their monopolistic ones," he said.

This was the main principle of Chubais' reform at UES, which saw the state retain a monopoly on the national grid and make power generation competitive.

Chubais said he was glad that "authoritative foreign companies have come to the Russian electricity sector," which he called a sign that the industry has risen to a world level. "I had thought there would be a couple of foreigners among our buyers, but there turned out to be giants — Germany's E.On, Italy's Enel and Finland's Fortum," he said.

He reiterated his pledge that electricity prices would be liberalized as planned by 2011, saying he wanted to assure foreign investors that he would keep his word. He noted that the government on Sunday approved the creation of an exchange where generators can trade excess capacity at competitive, liberalized prices. The exchange will open Tuesday.

Chubais — the architect of the controversial 1990s privatizations that saw plum state assets sold cheap to a small group of businessmen — grew indignant when asked about criticism of the UES reform.

"Those who criticize are irresponsible and lack a conscience," Chubais said. "They can say anything they want."

He recalled the winter of 2006, when Moscow temperatures fell below minus 30 degrees Celsius and UES could barely generate enough electricity to heat the capital. The severe cold ended up giving Chubais the trump card he needed to win government support for his reform plans.

In all, UES privatized 20 generating companies, while grids, hydro-generation and electricity exports and imports remained in state hands.

"UES, which was created in 1992, went through an evolution, from working in a deep financial crisis to becoming a blue chip with a capitalization of more than $50 billion," the company said in its last press release Monday.

Over the past 15 years, the company board held 500 meetings at which it considered 5,000 questions, while senior managers flew 500,000 kilometers on business trips and almost 10,000 babies were born to UES employees, the statement said.

Chubais thanked UES employees and journalists who covered the reform "under bullets in Chechnya, where UES was opening a new electricity unit, and in the cozy company offices."

Some things, however, remained unsold on UES's last day — company furniture. Only 12 percent of the furniture has been sold, earning 4 million rubles, company officials said. A total of 9,784 items from UES's offices — including thousand of printers and microwaves and even beds and karaoke players — were put up for auction on the Internet in May.

What is arguably the most important item, Chubais' armchair, also has not been sold.

"There have been attempts to take my chair away from me, but I successfully resisted," Chubais said. "The chair will be sold among a limited circle of bidders at a special auction on Tuesday."

The UES building itself has already come under the auctioneer's gavel, sold to the little-known company Intercessia for $175 million in March.

Later, Chubais spoke at an outdoor ceremony to close UES, and tears welled up in his eyes as he listened to UES' rousing corporate song. He lowered UES' flag in front of the company's headquarters, and workers removed the name of the company from the facade.

There was chaos in the building as employees packed their belongings. Piles of paper seemed to be everywhere.

"I feel very sad," said a board member Andrei Trapeznikov, taking the furniture out of his office. "I spent 10 years here.

"I was looking through our corporate photos last night, and it's hard to come to terms with the fact that UES doesn't exist anymore. We have been a great team of 600,000 people all over the country. It isn't easy to realize that we don't exist anymore."

Trapeznikov and many other UES employees said they had no immediate job plans and intended to go on vacation.

Chubais said he would retire.