Deripaska expands his energy interests

Putin and Deripaska in 2006 - From Despite running into obstacles in his attempt to acquire Mikhail Gutseriev’s Russneft, Oleg Deripaska is continuing to pursue strategic energy assets. Vedomosti is reporting that Deripaska’s Basic Element is planning on bidding for a stake this fall in the electricity holding TGK-1. Gazprom, Viktor Vekselberg, and the Finnish company Fortum had all previously reported interest in the electricity firm, which powers St. Petersburg and was formed in 2005 from the assets of Lenenergo, Kolenergo, an Karelengro.

TGK-1 is currently controlled by Anatoly Chubais’ UES (of which Deripaska owns about 2%), but the electricity giant has been selling off some of its assets in order to raise money to modernize its aging infrastructure. Earlier this year, Fortum was blocked from gaining control of TGK-1 due to the firm’s strategic role of providing power to St. Petersburg. The Finnish company would likely seek to import some Russian power into Finland, since Finnish electricity rates are higher than Russia’s subsidized prices (and Russian energy sources — natural gas, specifically — are much cheaper than what is available in Finland). It seems Russia may allow Fortum to take part in the upcoming auction, so long as a balancing force could be found.

Gazprom already invested heavily into Mosenergo, the electricity firm that powers Moscow, and has about a 10% stake in UES. The electricity firm relies on natural gas (i.e. Gazprom) for about 70% of its power generation needs, and Gazprom views its investment in UES as a way to coordinate with its largest domestic customer on sales, modernization, and diversification. (Converting power plants to coal frees up more gas for the lucrative export market, for example.)

According to the Vedomosti article, Deripaska has been pursuing power generating assets in areas surrounding his aluminum plants, suggesting he is seeking control over a further extension of his industrial base. Pursuing TGK-1, however, has more strategic–and visceral–reach, due to its importance to St. Petersburg, which is Putin’s city. Some of his top aids in the energy sector were involved in Lenenergo early on, and it is doubtful he’d agree to have the firm passed into unqualified hands.

It will be interesting to see how Deripaska’s attempt to acquire TGK-1 will play out, especially concerning “competition” from Gazprom and Vekselburg (not to mention the foreign Fortum). Deripaska is already seemingly running into problems with Rosneft over the fate of Russneft — it would likely be tough for him to butt heads with Gazprom at the same time. One thing to look out for is whether Deripaska would be willing to cede control over Russneft in order to secure access to TGK-1.


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