VEB Will Purchase New OGK-1 Shares

Vneshekonombank will buy up an additional share issue from OGK-1 for 17 billion rubles ($587 million) to help the company meet its investment plan next year, but it will be at least three months before the money becomes available, the generator's chief executive said.

OGK-1 has said it needs additional funds before the end of the year. The government has earmarked 146 billion rubles ($5 billion) to cover the deficit of state-run electricity companies' investment programs for 2009, including the 17 billion rubles for OGK-1.

"We will build the Urengoiskaya power station with the money," Vladimir Khlebnikov told reporters over lunch on Thursday.

Unified Energy System, the former state-run electricity monopoly, failed to privatize OGK-1 before it was wound up this summer, frightening off potential buyers with a price tag of around $5 billion.

State-run power companies RusHydro and the Federal Grid Company currently hold 65.8 percent of OGK-1's shares. The government will build up its stake in the company to as much as 90 percent after the additional share emission, Khlebnikov said.

All of Russia's wholesale and regional power generators, as well as RusHydro, the Federal Grid Company, the Interregional Distribution Grid Company and Inter RAO, were put on a list of 295 companies prioritized by the government for state help.

But Khlebnikov did not appear to be in a celebratory mood, saying the timing and the parameters of the share issue still had to be approved by VEB's supervisory board, which is chaired by Prime Minister Vladimir Putin.

Additionally, organizing the share sale will take at least three months, and OGK-1 has said it needs the money more quickly, possibly before the end of 2008.

The generator's outstanding debt stood at 10.7 billion rubles in December.

"We're looking to the future apprehensively," Khlebnikov said in an interview after the lunch.

Haggling for state money, sharp disputes with coal suppliers for price reductions, and exhausting negotiations with lenders have soured life for managers in the power sector, which took on a mandatory $138 billion investment program as part of the privatization.

Khlebnikov said he had asked the government for permission to push back the deadline to build his company's Permskaya and Verkhnetagilskaya power stations.

"We aren't getting our hopes up for a positive answer. We're thinking about raising the needed funds through a secondary share issue when the market revives," Khlebnikov said. "It won't get worse. There is nowhere to go but up."

Electricity prices have fallen 40 percent on the spot market in the fourth quarter, but coal miners are not terribly eager to cut the prices for the next year, Khlebnikov said.

"We are now holding negotiations and will do all we can, including going to the anti-monopoly service, to get their prices down."