Finnish utility Fortum Oyj (OMX: FUM1V) has been investing heavily in Russia in recent years. That push is close to a mature stage after the electricity generation and distribution firm noted of two developments in the Eastern neighbour. The returns on the Russian investments have clearly weighed on Fortum’s stock in the past few years. While the projects are seen as potentially very profitable, they are also considered high-risk. Analysts’ are also predicting a gradual decline in the traditionally rock solid dividend as the investments and government regulations eat away at the profits.
Yesterday Fortum said it is selling its heating network assets in the remote Western Siberian city of Surgut to Surgut City Grid LLC. The city is far away from Fortum’s other activities in Russia under OAO Fortum subsidiary and the company does not have a combined electric power plant in the region either, making the asset an outlier. The assets include 30.3 kilometres of trunk heating network, pump station and a peak heat plant with heat capacity of 407 MW that is only used in temperatures under -23 degrees Celsius. Fortum will recognize a minor gain on the sale in Q2 2012 results.
Today the obvious continuation in the news came as we learned that the construction of the last two units in the Russian investment plan will take place in Chelyabinsk instead of Tyumen, Western Siberia as was initially planned. The two 250 MW units support growing energy demand from metal industry in the Urals region. The units are agreed under Capacity Supply Agreement from 2008 amounting to a 2.5 billion Euro investment programme in total. After completion, OAO Forum’s capacity will increase by 85% to some 5100MW. Fortum stated a goal of an operating profit level around 500 million Euros after the investment program has been completed and to create positive value added in the Russian Division. Remaining value of the investment program was recently estimated at 0.9 billion.
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