LUKoil to focus on electricity

28.01.2008 (11:56) | RBC

LUKoil’s electricity business is developing so dynamically that the oil company decided to spin off its electricity business into a separate unit, RBC Daily has learnt.

The new unit will be chaired by Dmitry Solodyankin, Deputy General Director of TGK-8 generating company.

Over the past few months, LUKoil-linked firms have been buying into TGK-8 to accumulate a controlling interest: IFD Kapital acquired about 23 percent of TGK-8’s shares through a new share issue, also getting an option to buy approximately the same stake in April. Energostrategiya CJSC has a 15.81 percent stake in TGK-8, and Promregion Holding has 14.99 percent. Last week, LUKoil President Vagit Alekperov announced plans to integrate TGK-8 into LUKoil. Earlier this week, media reports said that LUKoil could also join Gaz de France’s bid for TGK-10, but no final decision has been taken yet.

LUKoil said repeatedly that energy would play an increasing role in its business development. A source close to the company told RBC Daily that a new energy department was being formed in LUKoil to oversee electricity business, while LUKoil Energogaz will focus on servicing LUKoil’s internal energy needs. Another source said that Dmitry Solodyankin, Deputy General Director of TGK-8 generating company, would chair the new unit. From 2002 to 2004, Solodyankin worked at LUKoil’s department for strategic development and investment analysis, after which he went to Promregion Holding as the head of the corporate legal department. Since 2005 Solodyankin has been Deputy General Director for strategy and development at TGK-8. In 2006, he was elected to the Board of Directors of Stavropolenergosbyt.

Electricity is playing an ever bigger role with most raw material companies, says Semen Birg, at Alfa Capital. “As soon as this year, electricity sales on the open market could account for up to 30 percent of revenue received by OGK and TGK generating companies, and energy companies could double their profits in 2008,” he said.

Gazprom, with its interest in the electricity sector, has set a good example for all companies in the raw materials sector, Birg reckons. LUKoil’s focus on electricity should have a positive impact on the company’s capitalization, he believes, at the same time noting that electricity business would be LUKoil’s major spending item.

Development of its own energy business will allow LUKoil to sell gas independently from Gazprom, noted Vasily Kanuzin, at ICK Alemar. “LUKoil will be able to sell gas to electricity producers at a higher price than to Gazprom, but cheaper than Gazprom’s price for the domestic market,” he said.

Generating companies would also profit, according to Kanuzin. “TGK-8 will be able to buy gas at a price comparable to that of Gazprom’s gas allocated within certain quotas, but for other gas, the price will be at least 30 percent lower than on the domestic market,” he calculated.

Konuzin expects LUKoil to develop its business using synergy projects. “Probably, the company will build small generating stations run on associated gas, close to LUKoil’s major deposits,” he said.

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