Finnish energy company Fortum OYJ to purchase stake in Russia hydro plants

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Fortum OYJ, Finland’s largest utility company, is planning to expand its hydro portfolio by purchasing additional shares of hydro plants from Russia’s Territorial Generating Co. No. 1 (TGC-1). The purchase is part of the TGC-1 restructuring plan being implemented through a signed protocol that includes Fortum, Gazprom Energoholdings and Rosatom State Atomic Energy Corp.

Currently, Gazprom Energoholdings owns 51.8% of the TGC-1 shares and Fortum owns 29.5%. Rosatom is a state-owned company based in Moscow and is the nuclear regulatory agency for Russia.

If the agreement is executed, a new company will form, and Fortum would obtain 75% ownership and Rosatom would take the minority holding. The investment will result in an increase of Fortum's total hydropower generation on the order of 60%, from 20.4 TWh to 34 TWh, according to Fortum’s President and Chief Executive Officer Tapio Kuula.

Restructuring

As part of the TGC-1 restructuring, Fortum will establish a joint venture with Rosatom to own TGC-1’s hydro assets and Gazprom Energoholdings will maintain ownership of TGC-1’s heat and thermal power, according to reports.

TGC-1 operates more than 30 hydroelectric plants that account for 40% of its installed total capacity of 3 GW. TGC-1 says it is the second-largest territorial generating company in Russia, in terms of installed capacity, and the leading producer of electricity and heat in northwest Russia.

As of Dec. 31, 2013, the installed capacity of Gazprom Energoholdings’ key power generating companies in Russia totaled 38 GW, or about 15% of the overall installed capacity of the Russian power system, according to the company.

In addition to its TGC-1 purchase, Fortum is involved in a planned nuclear power plant. Kuula said the TGC-1 deal would allow Fortum to possibly purchase 15% of the shares in Finland’s nuclear endeavor being led by Fennovoima Ltd.

In 2013, Fennovoima selected Rosatom to build the 1,200-MW Hanhikivi 1 nuclear power plant reactor in the northern part of Finland. Although final approval for Hanhikivi 1 is still to come, published reports indicate Rosatom will have a 34% stake in the project through it Finnish subsidiary, RAOS Voima Oy. However, Finnish shareholders will maintain no less than 60% in the Fennovoima project.

In 2008, Fortum's sales totaled US$6.9 billion and operating profit was US$2.5 billion. The company employs about 15,500 people and Fortum’s shares are quoted on NASDAQ OMX Helsinki (FUM1V).
 

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