E.ON Goes East

E.ON announced on Thursday that both partners own a 50 percent stake in the new company, E.ON-STS Energia.

The deal would give E.ON access to an electricity market which is growing at an annual rate of five to six percent, the company said in a written statement.

"The upcoming liberalization of Russia's wholesale electricity sector will create an attractive business environment for investment in electricity generation," it added.

Ambitious Plans

E.ON said that its long-term goal was to build up a strong position in the rapidly growing industrial regions in the Urals, western Siberia, Volga, as well as in central Russia.

The new joint venture, which will be based in Tyumen in western Siberia, is also aiming to reinforce its market presence in the region by participating in the privatization of Russian state power company TGK-10.

STS is involved in both power production and distribution and supplies some 1.1 million gas and electricity customers in western Siberia. It plans to transfer some of its own generating capacity into the new joint venture, E.ON said.

The German company has not revealed how much money it will be investing in its project. The news comes shortly after E.ON's plans to takeover Spain's Endesa failed at the beginning of April.

Sector Privatization

E.ON has been keen to gain access to the Russian electricity market for some time, but the sector has remained firmly in state hands.

Russia's state-owned holding compay RAO UES is now taking steps to liberalize the electricity market to respond to the growing demand for power.

The industry, according to E.ON, will require annual investments of some 15 billion euros over the next 15 years. This is not merely a matter of modernizing power plants and grids, but also building new plants.

E.ON said by increasing the efficiency of Russian power plants it will also be able to help improve the environment.