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. Last Updated: 07/27/2016

Boguchansk Deal Expected by Summer

RusHydro said it would agree with United Company RusAl by the summer on financing the $1.7 billion Boguchansk electricity plant, ending a dispute over the biggest post-Soviet power project.

"The government has made its position very clear: It has to be built," acting RusHydro chief executive Vasily Zubakin said Monday in an interview.

Talks will be completed by the summer, he said.

RusAl has delayed payments for Boguchansk and has sought to stop construction, citing weaker power demand in Russia. Energy Minister Sergei Shmatko said April 9 that the Siberian hydropower project will still go ahead.

RusAl has agreements from creditors allowing it to continue financing Boguchansk, said an official for the aluminum producer who declined to be identified, citing company policy. RusAl agreed with foreign banks including BNP Paribas and Merrill Lynch to stop payments on $7.4 billion in loans until June 11.

The government's decision to proceed with building the plant "means a way to finance the rest of the construction will be found," said Matvei Taits, an analyst with UralSib. "Should the financing come via RusHydro, however, the utility will need to take a bigger stake in the project, which may increase risks for its shareholders."

RusHydro and RusAl are struggling to attract financing for the project because banks need to see that it will be profitable, the RusAl official said.

The two companies, owning 50 percent of Boguchansk each, still haven't agreed on electricity sales from the power plant or the construction of aluminum smelters nearby.

RusAl says it needs to add two smelters in the region to justify the power plant's construction and attract financing. The aluminum company would have to raise $450 million to build the smelters, the RusAl official said.

RusHydro agreed in 2006 to build a smelter with RusAl near the power plant. While it has a buyer for Boguchansk's power output should a smelter be built or not, RusHydro still supports the building of an aluminum plant.

"An aluminum smelter, if you like, is a possibility for us to export electricity," Zubakin said.

RusHydro intends to spend 3 billion rubles ($90 million) this year on preparation works to build a smelter near the power plant, he said.

RusAl offered 1.24 billion rubles last week to help pay wages owed to 7,000 workers at Boguchansk.

The partnership between RusAl and RusHydro allows for either to delay financing for three months and the other to make up the difference, the RusAl official said. The company that falls behind later repays the other with interest, the RusAl official said.

RusAl's payment will help cover most of the costs incurred in the first quarter and bring the amounts spent by both companies almost in line, Zubakin said. Unless financing talks stall, the plant will be commissioned in December 2010, he said.