OGK-1's Net Profit Tumbles 63.7% on Growing Gas Prices

Electricity producer OGK-1 saw its net profit fall 63.7 percent in the first half of 2008 as rising gas prices and repair costs cut into its margins, the company said Wednesday.

For the six months ending June 30, net profit stood at 291 million rubles ($11.85 million) compared with 801 million rubles in the same period last year.

"The main reasons for this are that the cost of fuel is outpacing the price we can charge for electricity, and at the same time we saw the peak repair season for our hardware in these six months," spokeswoman Yekaterina Dobrogorskaya said.

The financial results to international accounting standards showed revenues had grown to 24.8 billion rubles, from 21.3 billion rubles in the first half of 2007, up 16.4 percent.

But operating costs grew 21.8 percent year on year to 24 billion rubles, from 19.7 billion rubles.

The firm's investment spending, mostly on new turbines for its six power stations, more than tripled in the first half to 2.7 billion rubles as OGK-1 pursues a 120 billion ruble development plan through 2011.

The size of these spending plans was one of the key obstacles this year when OGK-1's parent company, former electricity monopoly Unified Energy System, tried to sell control of OGK-1 to a group of Russian billionaires.

The consortium, led by metals and oil magnate Viktor Vekselberg, wanted UES to lower its asking price to help compensate for the investment commitments, which the new owner will be obliged to take on.

After talks with the group broke down over the issue, UES announced that Dubai World, the sovereign wealth fund of the Dubai government, had agreed to invest in OGK-1.

The fund has committed $100 million and is conducting due diligence on the acquisition, which could be worth more than $5 billion.