Generators Said to Renege on Building

The country's biggest engineering companies said Friday that power producers were backing out of talks to build new generating capacity through 2010 -- even at the relatively modest price of $5 billion.

The estimate comes in sharp contrast to figures given by the power generators themselves. In October, a group of electricity producers sent a letter to the government saying they needed loans of $50 billion to continue building through the financial crisis. They did not specify the length or terms of the financing.

Engineering firms have faced a difficult market lately, as half the tenders they have won have fizzled out before actual agreements could be signed, Pyotr Bezukladnikov, chief executive of E4 Group, Russia's biggest engineering company, said in a telephone interview.

"My company and our peers in the sector calculated the combined sum of our contracts with the generators from the middle of 2009 until the middle of 2010 -- it's only about $5 billion," Bezukladnikov said. According to his calculations, most generators should have money to build until July 2009.

"The generators should be modest and just ask for the money to get through the crisis instead of scaring off the state with huge sums," he said.

During the power sector privatizations, generators took on a total of 4 trillion rubles ($145 billion) in mandatory investment programs to build new capacity.

In some cases, generators have simply reneged on contracts, Bezukladnikov complained, and they owe hundreds of millions of rubles for maintenance work.

E4 had won tenders to build stations for OGK-1 in Perm, OGK-2 in Stavropol and to reconstruct power stations for TGK-11 in Omsk for almost 46 billion rubles ($1.7 billion). All of the generators have had trouble attracting loans in the last two months.

The National Association of Engineering Companies, whose establishment was announced Friday, said it had sent a letter to the government to ask for a bigger say in solving generators' problems.

"Our partners say they can't commit to the obligations and don't have the financing needed for the construction because of the crisis -- and we have no way to press them," Bezukladnikov said.

Vladimir Khlebnikov, chief executive of OGK-1, confirmed that his company was having problems paying engineers and machinery producers. "We simply don't have money for that now," he said. "But we are committed to fulfilling the contracts that we signed with them as soon as we get the financing."

Bezukladnikov said E4 could halve its investment program next year to $1 billion because of the decrease in orders. "We will vigorously fight for the contracts provided by the state, the only reliable partner in the times of crisis," he said.

Sergei Molozhavy, chairman of Tekhnopromexport, Russia's second-biggest engineering firm, told reporters Friday that he had also pinned his hopes on the government.

State orders to prepare for the 2014 Olympics in Sochi and the Asia-Pacific Economic Cooperation summit in Vladivostok in 2012 would help the sector get by, he said.