RIA Novosti
May 11, 2005
RUSSIA’S ELECTRIC EXPANSION INTO EUROPE
Russia’s electric expansion into Europe
MOSCOW. (RIA Novosti commentator Marina Pustilnik)
Bulgaria’s privatization agency recently put three thermal power
plants up for sale: Varna, Ruse and Bobov Dol. Russia’s state-run
electric monopoly, Unified Energy Systems (UES), won the tenders for
the Varna and Ruse plants, while Greece’s Public Power Corporation
acquired the third facility.
The tender attracted the world’s leading electricity companies. Ten
of the 14 companies that applied to bid in the tender were selected.
Apart from the Russian monopoly and the Public Power Corporation, the
other companies were Italy’s Enel, the Czech republic’s CEZ,
Austria’s EVN AG, Japan’s Mitsui and J Power, Germany’s Energie,
Britain’s International Power Global Development Ltd., France’s
Dalkia International, and America’s AES.
Some market watchers are inclined to believe that these famous rivals
made UES bid far more for the assets than they are really worth. The
Russian company offered 389 million euros for Varna, which has an
installed capacity of 1,250 megawatts, and 120 million euros for
Ruse, which has an installed capacity of 400 megawatts. CEZ offered
only 192 million euros for the former, half the UES bid. Enel valued
the plant at only 150 million euros. UES made an even bigger mistake
when it came to putting a price on Ruse. The Czech company was only
willing to put 24.3 million euros on the table, whereas the Italians
offered a miserly 4.8 million euros.
After the winning bids of the tender were announced, a detached
onlooker might have taken the view that UES had won a Pyrrhic
victory. The Russian giant’s shareholders took the upcoming purchase
in different ways. Private shareholders have already said the
purchase of the Bulgarian thermal power plants will be of little
benefit to them. And Alexander Branis, the director of Prosperity
Capital Management, told the RusEnergy agency: “It is an immense sum.
At least acquisitions in Georgia and Armenia would have been
cheaper.” Branis also said it remained unclear who would get the
foreign assets after the Russian energy company is reformed and UES
is liquidated.
However, Mikhail Matytsin, the deputy director general of the
Integrated Energy Systems Holding, told RusEnergy, “It is a strategic
purchase that allows UES to be present in the Balkan region, which
will develop rapidly.” Meanwhile, a source in Gazprom added:
“Bulgaria occupies an important place on the map of Europe, and it is
logical and correct to buy such assets.” Gazprom representatives also
said that the location of these power plants opened up the Balkan and
Turkish markets for UES.
Although it may be considered a bitter victory for UES, it is
nevertheless a victory. The Russian company is continuing to
successfully implement its strategy of expanding to neighboring
countries. With the Varna and Ruse plants, UES will have hitherto
unknown access to the European market. In 2003, it did not get
through the screening of companies for the privatization of
Bulgaria’s distribution networks and in 2004, lost a tender for the
privatization of the Slovak electric company, Slovenske Elektrarne.
Many analysts accuse UES of failing to pursue economic interests in
conducting its aggressive expansion but following the political
instructions of the government, which is still the company’s main
shareholder. Perhaps there is some truth in these charges, and the
Kremlin is trying to obtain economic levers of influence in countries
that recently fell out of the zone of its political influence. But it
would be more reasonable to presume that UES is simply following the
worldwide practice of consolidation in accumulating foreign assets.
The Russian company wants to be a global operator on the global
electricity market, and so its strategy of acquiring foreign assets
and expanding to overseas markets is the only correct option.