EBRD Approves $90M For UES

The European Bank for Reconstruction and Development signed off Thursday on a 3 1/2-year, 100 million euro ($90 million) loan to Unified Energy Systems to be used for industry restructuring -- the first medium-term facility to UES from commercial banks since the 1998 crisis.

Fifty percent of the loan comes from the European Bank for Reconstruction and Development and the other half from private banks including Citibank, Commerzbank, Moscow Narodny Bank, RZB-Austria, Erste Bank and Nordea.

Analysts said the loan's final approval means the EBRD has endorsed UES's controversial industry revamp.

UES originally applied for the loan in 1998 and discussions on it began in early 1999. "One of the reasons it took so long was the complexity of the UES restructuring plan, which needed approval from the government," said Anthony Marsh, EBRD director for power and energy utilities.

"We were waiting for the final approval before starting the transaction so that everybody knew what the future would look like for both the company and the funds."

Under the restructuring plan, UES is to take control of all the regional power grids and spin off the generating and distributing facilities.

The disbursement is an important signal that the "EBRD has no objections to the declared restructuring plan," said UFG analyst Mikhail Seleznyov. This opens up the door for outside financing, he said.

UES has said that in total, the industry would need $50 billion in investment over the next 10 years, and that figure is included in the memorandum of understanding it signed with the EBRD earlier.

UES will receive the funds in a few months, and a chunk of the loan may be spent on a new telecommunications network that the company is implementing alongside the restructuring plan, analysts said.

UES chief Anatoly Chubais has said the EBRD loan will also be used to finance the construction of a geothermal power plant in Kamchatka, earlier. Once the plant is put in operation, it would allow UES to cut back on fuel supplies to the Far East region.

The utility set up its own telecoms unit, the Moscow Telecommunications Network, back in the 1970s to provide communication between Moscow and its regional utilities. UES is now looking to develop the network to provide services to companies outside the holding.

The power monopoly is in a good position to expand in the telecoms sector, with some of the infrastructure, such as transmission towers already in place, said Troika Dialog analyst Kaha Kiknavelidze, who added that the loan is "good news for UES."