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. Last Updated: 07/27/2016

UES Asset Sales to Raise Up to $5Bln

MTAnatoly Chubais
Russia could raise as much as $5 billion as soon as next year by selling shares in a number of new power firms created under the ongoing electricity sector reform, Industry and Energy Minister Viktor Khristenko said Thursday.

The government plans to issue new shares in three to five power generation companies in a new drive to attract investment in existing infrastructure and build new generation capacity.

The sale of the shares will take place before the reform is completed in 2008, at which point electricity monopoly Unified Energy Systems will cease to exist, Khristenko said as the Cabinet met to discuss the progress of the reforms that are running behind schedule.

Under the reforms, UES -- which currently accounts for 70 percent of the country's power generation -- is spinning off its generation, distribution and sales businesses to create competition in the energy market and bring investor cash to the country's dilapidated infrastructure.

"If the management generation companies can convince investor that by raising additional funds and investing it in new capacity they can generate additional cash flows, I see no reason why existing investors should be concerned," said Derek Weaving, utilities analyst with United Financial Group.

"Certainly they will get a small part of the pie, but it could be a much bigger pie," he said.

The government reform is set to create a total of six wholesale generation companies and 14 territorial generation companies. Firms that are to sell shares will be identified before next April, Chubais said.

Selling a blocking stake of 25 percent in four generation companies would raise $2 billion, said Andrei Zubkov, vice president of Trust investment bank.

"If we accumulate $500 million it will be enough to pay for a thousand megawatt station enough to supply a city of 1 million or one-tenth of Moscow," Zubkov said.

Chubais had previously said UES needed an estimated $50 billion to upgrade its facilities to avoid a repeat of the blackout that stuck Moscow in May.

"We cannot wait until the reform is completed and then invest, we have to launch the investment process during the final stage of reform," Chubais said.

The reforms were originally scheduled for completion next year but are running two years late.

Khristenko and Prime Minister Mikhail Fradkov on Thursday defended that delay of the reform. "Minimizing the risk is more important than some fixed dates," Khristenko said."The risk is so great that you cannot move forward without safeguards," Fradkov said.