UES said: "The UES board of directors has approved the issue of additional shares in Mosenergo through a closed subscription in favor of a strategic investor."
The shares in the main producer of electric and thermal power for Moscow and the Moscow Region will be issued around March 2007, following a December shareholders' meeting. The majority of Mosenergo's plants are gas-fuelled.
Russian energy giant Gazprom confirmed that it is the 'strategic investor' referred to by UES: "by strategic investor, our company is implied," a Gazprom source said.
However, Economic Development and Trade Minister German Gref said Thursday that a decision by Gazprom to buy the additional Mosenergo share issue could only be taken after a vote by the Gazprom board of directors.
Funds raised from the issue will be used to finance several of Mosenergo's investment projects, including the construction of four new gas-vapor power units. The maximum number of shares to be issued has been set at 11.5 billion common shares, at a par value of 1 ruble.
The price at placement will be based on the average-weighted share price during the six months of trade on the RTS and MICEX preceding the December shareholders' meeting to approve the issue, but will not be less than 5 rubles, implying that a minimum of $2.1 billion in investment will be raised.
Following the additional placement, UES will retain at least a blocking stake of 25% plus one share.
Mosenergo became the largest of Russia's 14 territorial generating companies in 2005, through the restructuring of the country's power sector, and is undergoing gradual privatization along with UES's other generating assets.
The power sector has undergone radical changes in recent years aimed at increasing the efficiency of power plants and developing the industry by attracting investment. During the restructuring process, specialized structures have been created in place of the old vertically integrated companies.
By the end of the reforms, potentially competitive parts of the industry - generation, sales and repair companies - will become mainly private and will compete with each other. However, natural monopoly functions - power transmission and dispatching - will remain state-controlled.
Mosenergo's plants meet 80% of Moscow's heating requirements, and 85% of the power demand in the capital and the Moscow region.
The company has 17 power plants in the region with an installed power capacity of 10,600 MW, while installed heat capacity is 34,200 Gcal/h (39,800 MW).
The company's main shareholders are electricity monopoly Unified Energy System (50.87%), and energy giant Gazprom (more than 25%).
