OGK-2 Seeking Cash to Buy Coal

Power producer OGK-2 is eyeing a $1.6 billion capital increase to fund the purchase of coal deposits, as other forms of funding dry up amid the credit crisis, the company's head said Wednesday.

A share sale would make OGK-2 the country's fourth major electricity company forced by the financial drought to raise fresh equity capital. Like other power groups, OGK-2 wants cash to buy its own coal deposits as the price of the fuel rises sharply.

Billionaire Viktor Vekselberg's Integrated Energy Systems, or IES, the biggest shareholder of TGK-5, TGK-6 and TGK-9, voiced similar intentions for its companies earlier this month.

OGK-2's board of directors and its investment committee will discuss the new share issue on Sept. 30, said Stanislav Neveinitsyn, the company's general director.

He added that this would be the only way to raise the additional 40 billion rubles ($1.6 billion) that OGK-2 requires.

Long-term loans are no longer an option, and short-term funding does not suit the company's needs, Neveinitsyn said.

OGK-2's main shareholder, Gazprom, has suggested holding share sales of its electricity companies through open subscription.

But analysts have suggested that there may be no buyer interested in these stocks under current market conditions, leaving Gazprom to buy them up on its own.

Last week, German utility RWE pulled out of a deal to buy control of power producer TGK-2 because of market conditions but said it was still interested in buying minority stakes in Russian electricity companies.

RWE may team up with Gazprom to invest in the gas giant's power assets, including OGK-2, a source close to the Russian companies said at the time.

Neveinitsyn, however, said his company was not in talks with RWE.

Neveinitsyn also said OGK-2 was looking to buy its own coal deposits, as the cost of buying the fuel on the market has soared.

"We are searching. We are looking for interesting coal assets both for existing turbines at our Troitsk and Serovsk power stations and for the new generators we are building," he told reporters.

He added that the company has not yet set money aside for such acquisitions.

United Company RusAl is now the main provider of coal to OGK-2's power stations, which have a one-year supply contract with the mining giant.

Many of Russia's power generators have sought to buy coal assets as the price of the fuel has grown dramatically in recent years.

OGK-3, controlled by metals company Norilsk Nickel, has so far been the only one to complete such an acquisition.