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. Last Updated: 07/27/2016

Lenenergo Expands Its Reach


Lenenergo chief Andrei Likhachyov

In what it bills as a political crusade, Lenenergo said Tuesday it plans to expand its electricity monopoly in St. Petersburg by taking over other utilities in the northern capital and the surrounding Leningrad region.

"The situation in the housing sector in the region is such that every three months a building collapses in St. Petersburg," said Andrei Likhachyov, general director of Lenenergo, the nation's No. 2 energo.

Likhachyov, a former deputy governor of St. Petersburg, said he plans to create a new company, based on Lenenergo's heating and electricity grids, that will include the city's water, sewage, garbage and other communal services.

The corporate move by Likhachyov coincides with his political ambitions. A founder of the St. Petersburg branch of the Union of Right Forces, he recently quit that party to launch his own, Our City, which he said would campaign for better living standards through better housing services.

"The motto of Our City is housing reform," he said.

Lenenergo, which provides heat and electricity to some 7 million people and generates $700 million per year in revenues, plans to eventually manage all the residential infrastructure assets in the region, he said.

The new company would unite Lenenergo's assets with the grids and boilers of state-owned TEK StP, the gas network of Lengaz, and the water system of Vodokanal.

"The unification will allow us to cut maintenance expenses on infrastructure by 20 percent [while increasing the quality of service]," he said.

Likhachyov said Lenenergo could borrow up to $100 million for the project, and that local lawmakers and the new presidential envoy to the Northwest Federal District, Valentina Matviyenko, are all onboard.

"It is a big sector in terms of significance and business opportunities, but so far the door to capital markets has been closed," he said.

Lenenergo has already reached agreements with the mayors of several cities in the region and the process of uniting assets could start in the fall, he said, adding that discussions with the St. Petersburg administration will have to wait until after gubernatorial elections in December.

St. Petersburg Governor Vladimir Yakovlev is stepping down after two terms and Likhachyov had said he would run himself, but now he is throwing his support behind Matviyenko, a former deputy prime minister who is favored by the Kremlin.

The entire plan, however, could be derailed if Lenenergo shareholders reject it during the annual shareholders meeting next month.

If so, the project will be postponed until after Lenenergo is restructured as part of an industry-wide overhaul, which is expected to begin early next year.

He said the new company could work together with Russian Communal Systems -- a new company forged by industrial giants like electricity monopoly Unified Energy Systems and gas giant Gazprom to streamline and improve communal services nationwide.

Alexander Branis, who represents minority shareholders on the Lenenergo and UES boards, said it makes more sense for regional subsidiaries of UES, like Lenenergo, to launch communal reform projects than it does for UES because they have direct access to consumers.

"However, I doubt these projects as a business project [because they are not] in the interest of minority shareholders," Branis said.