Eon makes push into Russian market

Eon, Germany’s largest energy group, on Thursday founded a joint venture to take advantage of the forthcoming privatisation of the Russian electricity market.

The German utility has teamed up with STS, an electricity supplier in western Siberia with assets in power generation and distribution, as part of its push into one of the fastest-growing energy markets in Europe.

Following its failed attempt to take over Spain’s Endesa, Eon has identified the Russian market as one of its priorities to deploy its massive cash pile.

The venture comes against a backdrop of political discontent in Europe over Russia and worries about many countries’ perceived dependence on it for energy.

But Eon’s move, coming alongside investments by BASF, Volkswagen and Adidas, underscores the commercial pressure that politicians, especially in Germany, are under to keep friendly relations with Russia.

Eon is playing a high-profile role in Russia as it is the largest foreign shareholder in Gazprom and is partnering the monopoly along with BASF in a Baltic Sea pipeline and Siberian gas field.

However, it has experienced difficulties in negotiations with Gazprom, in spite of its 6.5 per cent stake, amid disagreement over the type of assets that it should hand over to take part in the projects.

The Russian electricity sector is in the midst of a restructuring, driven by the need to invest nearly $80bn over the next five years in building new power stations and upgrading electricity transmission and distribution networks.

Russian power groups are keen to do deals with foreign companies that can bring funds and technology, while foreign groups are attracted by the high growth potential of the emerging Russian market.

Eon will next Thursday tell markets about its plans for investments in Europe after its failed Endesa bid.

But as part of a compromise with Italy’s Enel – which is bidding for Endesa – it is due to receive assets in France, Spain and Italy and will detail how they fit into its strategy.

Investors will be keen to know if it intends to return cash, as activist funds are circling Germany’s second-largest company by market capitalisation.

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