UES Plans Asset Sales to Fund Repairs

Unified Energy Systems, or UES, Russia's national power utility, will resume asset sales after a three-year break and invest the funds raised in upgrades and repairs.

The company's board has decided to let the moratorium on asset sales lapse and ruled that net proceeds from such transactions should be used to improve the utility's capital, UES said in a statement on Friday. The government owns 53 percent of the utility.

Russia needs to add generators and replace or enhance existing equipment, much of it built in the Soviet era. Plans to use cash from asset sales to fund upgrades, rather than paying the money to shareholders, may undermine existing plans to restructure the national power utility by deterring investors from putting their money into the industry, analysts said.

"In its anxiety to be seen to be responding to President [Vladimir] Putin's criticism of the power sector in the wake of a power blackout in Moscow, the Economy Ministry has lost sight of its market-based reform vision for the sector," Unified Financial Group said Monday in its morning note.

"Trust that this government understands the relationship between shareholder returns and shareholders' willingness to invest will be an essential prerequisite for the development of successful generation markets," UFG said. "Judged by Friday's decision, that trust could be a long time in coming."

UES shares fell 1.1 percent to 35.20 cents as of mid-afternoon on the RTS index, after earlier sliding by as much as 1.4 percent.

Putin in June said it was unacceptable that equipment had been neglected, leading to breakdowns in Krasnodar, Reutovo, Saratov and Sochi before the May 25 blackouts in Moscow, the Moscow region, Tula and Ryazan.

An electrical substation in Moscow caught fire, triggering rolling blackouts that shut down four Moscow metro lines and disrupted water supplies and Internet traffic.

Russia is breaking up UES into generation, transmission and distribution businesses to attract investment and boost competition in the industry.

UES produces about 70 percent of Russia's electricity. The rest comes from nuclear power plants and some smaller thermal plants owned by other companies.