Contributing to the capital investment program of a major Russian energy utility, the European Bank for Reconstruction and Development (EBRD) and International Finance Corporation (IFC) extended loans totalling US$50 million (ECU 45 million) to AO MOSENERGO. Representing the first non-sovereign-guaranteed investment in the Russian power sector for the EBRD and IFC, the financing will be used to complete the Zagorsk 1,200 MW pump-storage power station, 60 kilometres from Moscow. The financing is divided into US$30 million (ECU 27 million) from the EBRD and US$20 million (ECU 18 million) from the IFC.
"These loans will help MOSENERGO to access funds not available from the capital markets," said Reinhard Schmoelz, EBRD Russia Team Leader. "The market for long-term finance in Russia is still underdeveloped, yet a utility such as MOSENERGO requires access to long-term funds to implement its investment program. While this gap exists in the market, the EBRD will play a major role in supporting private investment in infrastructure in the Russian Federation."
MOSENERGO is Russia's largest regional energy utility, with installed power production capacity of 14,700 MW. It produces 13 percent of the heat and 10 percent of the electric power used in Russia, and its surplus is sold on the wholesale market.
Vivek Talvadkar, Director of IFC's Power Department, said: "The completion of Zagorsk will allow MOSENERGO to satisfy expected growth in demand for electricity in the Moscow region and will provide greater stability to Russia's energy system. As MOSENERGO is one of Russia's strongest and most transparent privatised utilities, the loan should set a good precedent for further financing of the country's energy sector."
The transaction utilises the banking services and financial structuring expertise of one of Russia’s leading banks, AO INKOMBANK, as well as ENERGOGARANT, a leading Russian insurance company, which will facilitate implementation of this deal. Salomon Smith Barney acted as financial advisor and Latham & Watkins acted as legal counsel to MOSENERGO.
The EBRD was established in 1991 following the collapse of communism, to aid the transition from centrally planned to market economies in Central and Eastern Europe and the Commonwealth of Independent States (CIS). The EBRD is owned by 60 shareholders: 58 countries, the European Investment Bank and the European Community, and operates with ECU 20 billion in authorised capital.
IFC, a member of the World Bank Group, fosters economic growth in the developing world by financing private sector investments, mobilising capital in the international finance markets, and providing technical assistance and advice to governments and businesses. IFC is the largest multilateral source of equity and loan financing for private sector projects in developing and emerging countries.
