South China Morning Post published Eric Ng’s new article «Russian to relaunch HK debut next year» on attempts of Eurosibenergo to raise money for hydropower development in Russia and its claims about «highest environmental standards».
EuroSibEnergo (ESE), the power unit of Russian oligarch Oleg Deripaska’s energy and resources conglomerate EN+ Group, plans to relaunch its shelved Hong Kong initial public offering next year while it pushes ahead with feasibility studies on proposed power projects in Siberia with China Yangtze Power.
Russia’s largest privately owned power producer is also holding discussions with environmental groups to address their concerns about potential damage to the environment from the planned damming of ecologically sensitive rivers in East Siberia, according to EN+ deputy chief executive Jivko Savov — although two such groups deny having been consulted.
«Certainly next year is on the cards, but I don’t have a specific date,» Savov said of the listing. «Globally, investors are taking a wait-and- see stance. Our IPO is not driven by external factors so we can [wait].»
The company shelved its IPO in November last year and again in March this year, due to a lack of interest in the firm’s shares at its offer price, and unfavourable regulatory changes in Russia’s power market. It had hoped to raise up to US$1.5 billion, much of which was intended for the retirement of a US$1.4 billion loan owed to Russia’s Sberbank.
A successful float would allow it to restructure debt and cut hefty interest rates on a five-year loan refinancing agreement signed during the 2009 global financial crisis. It was estimated by listing underwriter BOC International to have a net debt-to-shareholders’ equity ratio of 146 per cent at the end of last year.
According to another underwriter, VTB Capital, the interest rate on the loan was to rise from five per cent last year to eight per cent this year and to 19 per cent next year before falling gradually to 11.3 per cent in 2015. The bank was also entitled to up to an extra one per cent per year on the loan amount as long as the aluminium price exceeded US$2,000 a tonne — as it has for most of the time since the refinancing. Aluminium smelters are a major customer.
But Savov said debt refinancing «was never the major driving force behind the IPO,» adding that the key objective was company development. Strong operating profit growth this year and last year meant the company could «afford … to wait for a year or longer» before refinancing.
Still, he noted an unexpected cut in power prices for generators and new caps on price hikes by distributors earlier this year — widely seen as a move by Russian President Dmitry Medvedev and Prime Minister Vladimir Putin to appease voters ahead of next year’s presidential elections — has dented investor confidence in Russia’s power sector.
The price cut for generators meant they had to wait one to two years longer to get back their investment, he said.
«But the fundamentals of the market have not changed, Russia still needs to upgrade and build more power facilities,» he said, adding ESE, as the only power producer in Russia not bound by obligatory power plant construction, fared better than its mostly state-backed rivals under less favourable tariff regulation.
While waiting for the right window to go public in Hong Kong, Savov said ESE was doing pre-feasibility studies on a natural gas-fired power project with up to 1,200 megawatts of capacity, and two hydro-power plants with a combined capacity of 1,000 MW to 2,400 MW. They are being studied by Yes Energo, a joint venture with Shanghai-listed state-backed China Yangtze Power, the nation’s largest hydropower producer.
Last March, environmental groups including Rivers Without Boundaries, Greenpeace Russia, WWF Russia, and the International Socio-ecological Union, wrote to Hong Kong Exchanges and Clearing calling for the exchange, bankers, and investors, to abstain from participating in ESE’s listing. They said the damming of downstream rivers had caused shore erosion and damaged spawning grounds near Lake Baikal, a Unesco World Heritage site.
Savov said ESE was in discussions with various national and international environmental groups.
«Specific issues need to be addressed because we are in the early stages of feasibility work,» Savov said. «There are variations [in] where exactly we can build the plants.»
He added that ESE could be more specific towards the end of the year when pre-feasibility work would be completed, and said the company’s track record in adhering to local standards was «extremely good».
Greenpeace Russia energy unit head Vladimir Chuprov and Rivers Without Boundaries co-ordinator Eugene Simonov said the groups had not received a response from ESE to their concerns and were not consulted. Simonov said Rivers Without Boundaries’ request to visit ESE’s Irkutsk hydro plant was rejected.
He said the proposal by ESE and China Yangtze to build the fifth hydro-power station on the Angara River would hurt wildlife.
EN+ spokeswoman Elena Rollins, said it was difficult to come to agreement with some environmentalists.
«I haven’t seen any hydro projects that Rivers Without Boundaries approve of. They are just generally against hydro power.»
Dear Ms.Rollings, we are sorry to admit that we honestly dislike HPP-jumbo river-killers conceived in mid XX century so far owned by EN+. Good reasons for that have been outlined in our special address to investors and HKExchange.
We always have hoped that ESE\EN+ planning for placement of new power stations would be a transparent process and environmental and social considerations will be duly and openly incorporated into decision making. So far it has not happen.
Unfortunately new HPPs -Nizhneanagarsky and Tras-Sibirsky proposed by Your company and Chinese partners are likely to follow the same environmentally-unfriendly pattern as your old dams. We will be very willing to engage into substantive discussion with EN+ on decreasing environmental impacts of existing and new hydro power plants and have expertise in this field. Unfortunately outr letters to Your company sent by us never yielded an answer from your side. Please consider this comment as another invitation to a dialogue on environmental policies and comparative advantages of different dam locations.
Rivers without Boundaries
Photo: Shilka valley to become a bottom of Trans-Sibirskaya reservoir