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. Last Updated: 07/27/2016

German Utility E.ON Joins UES in Modernization

German utility E.ON has become the first foreign company to join up with Unified Energy Systems' modernization plans, agreeing to a study construction of a gas-fired power plant at a UES site south of Moscow.

The companies said Wednesday they had signed a memorandum for a feasibility study on a 450 megawatt combined cycle gas turbine at Shchekinskaya GRES, a 620-megawatt condensate power plant in the Tula region.

Both sides declined to give estimates on the cost of the plant, and UES said that long-term fuel and supply contracts as well as other financial guarantees would be sought.

E.ON will have the option to build a second combined-cycle gas turbine at Shchekinskaya if it wants.

"We have principal agreement on the project. We have chosen a 450 megawatt block that will be built together by UES and E.ON," said Sergei Shmanenkov, the deputy head of UES investment policy, adding that all details were preliminary.

"The structure of the deal is not specified, but E.ON should have a controlling stake," he said.

UES needs to modernize its Soviet-built power plants and is getting ready to split up its generators into competing companies in the hope of drawing strategic investors.

To give investors a foretaste of large-scale investment in the Russian power sector, UES last year offered a list of urgent refit and greenfield projects known as the "5,000 megawatt" program.

"The decision to invest has not been made," E.ON Moscow representative Semyon Gershkovich said by telephone.

The study would help the utilities establish the price tag, he said, declining to give possible figures.

"We hope to finish the study in December," he said.

E.ON was looking for a 50-50 venture with UES, Gershkovich said.

E.ON and UES will either set up the plant as a new company or make a pre-existing UES subsidiary the legal entity into which E.ON and others could invest to build the new generating capacity, Shmanenkov said.

UES will court consumers in the Tula region, where Shchekinskaya GRES is located, as other potential investors alongside banks and equipment producers, he said.

"If consumers are shareholders [in the project], we can get guarantees on sales of the plant's output," Shmanenkov said.

Tulaenergo, UES's Tula subsidiary, which has a small minority stake in Shchekinskaya GRES, could also be a shareholder, he said.

UES owns 85 percent of Shchekinskaya GRES, and its subsidiary Tulaenergo has a minority stake.