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EBRD acquires minority stake in Russia’s TGK-9

25 October 2007 – The European Bank for Reconstruction and Development (EBRD) has signed a share purchase agreement to acquire a minority equity stake in TGK-9, a regional generating company, as part of a privatization process set in motion under the third and final phase of the country’s power reform.

The EBRD investment of approximately 5.1bn roubles ($205m) will enable the company to finance energy efficiency improvements that will include a 66 per cent increase in electricity production and a 10 per cent increase in heat output through the replacement of inefficient and obsolete capacity.

As part of its agreement with the bank, TGK-9 will adopt an environmental policy, as well as a corporate governance policy.

The EBRD stake will be purchased from Integrated Energy Systems (IES), one of the largest strategic investors in the Russian power sector and part of the Renova group, in a transaction aimed at supporting the switch to private sector control as the state exits from thermal generation assets. The transaction is subject to IES becoming a controlling shareholder in TGK-9.

IES, already a minority investor in TGK-9, is preparing to secure control of the regional generator through a substantial capital increase. It is also due to acquire shares previously owned by the Russian state through RAO UES.

Increasing Russia’s electricity generating capacity is vital to supporting its continued economic growth, particularly in the heavily industrialized Sverdlovsk and Perm regions, and the Komi republic where TGK-9 operates. All three areas currently face a high risk of capacity shortages.

The EBRD has been involved in the unbundling of the Russian power sector since the start of its restructuring in 2001.