Russian metal producers eye hydro power

By Olga Popova and Robin Paxton

MOSCOW (Reuters) - Hydro OGK is in talks to supply Russian and foreign metals firms attracted to stable, cheap hydro power, the generator's chief executive told the Reuters Russia Investment Summit on Monday.

Vyacheslav Sinyugin said metals producers had approached the hydroelectric power firm, which groups 49 power stations across Russia, with a view to forming projects similar to its Boguchany joint venture with United Company RUSAL in Siberia.

"We are in negotiations with a small circle of potentially interested investors," Sinyugin said at the summit in Moscow. He did not name the companies, but said they included international firms.

"Major energy consumers are very important clients for hydroelectric companies the world over. Russia is no exception."

Sinyugin said large energy consumers such as metals producers were attracted by stable prices for long-term supply.

"What attracts these clients? First and foremost, price stability. The only factor influencing prices is tax payments, compared with fuel prices that can fluctuate widely.

"Secondly, if you refer to existing stations, it's the attractive prices."

Hydro OGK posted a tenfold increase in net profit to $831 million last year and will become the world's second-largest hydro power generating company, behind Canada's Hydro Quebec, on completion of a restructuring program.

The company is being spun off from former Russian power monopoly Unified Energy System (UES) EESR.MM under sector reforms aimed at increasing competition.

Hydro OGK and United Company RUSAL, the world's largest aluminum producer, are building a power and aluminum complex in Siberia that will produce 600,000 tonnes a year of the metal from 2011 using hydroelectric power.

Norilsk Nickel (GMKN.MM: Quote, Profile, Research, Stock Buzz), the world's largest nickel miner, has acquired a majority stake in OGK-3 (OGKC.MM: Quote, Profile, Research, Stock Buzz), another of the companies being spun off from UES.

Hydro OGK also signed a memorandum of understanding last year with Hydro Aluminum, a unit of Norwegian energy and metals group Norsk Hydro (NHY.OL: Quote, Profile, Research, Stock Buzz) NHY.N, and SUAL, the Russian aluminum firm since folded into United Company RUSAL.

The firms at the time proposed a 600,000 tonnes a year aluminum smelter in the Russian Far East that would be supplied by Hydro OGK plants in the region.