By Simon Shuster
SURGUT, Russia, July 17 Germany's E.ON EONG.DE began building two 400 megawatt turbines at a power station in Russia's oil heartland, which when completed would make it the largest station in the world, the utility said on Thursday. The construction is part of a 76 billion rouble ($3.29 billion) investment programme that Germany's E.ON plans to carry out at its newly acquired Russian company, OGK-4 OGK4.MM, by the end of 2011.
The construction of two combined cycle gas turbines (CCGT) will cost 19 billion roubles ($821.8 million) and is being carried out by General Electric (GE.N) in partnership with Turkish engineering firm Gama.
When the construction of the two turbines is finished, Surgut Power Station No. 2 will have a total capacity of 5.6 gigawatts, OGK-4 said.
The power station is located in the oil-rich region of Khanty-Mansiisk, and the city of Surgut is home to Surgutneftegas (SNGS.MM), Russia's fourth-largest oil company.
"This is a vital place to build new capacity," said Andrei Kitashyov, OGK-4's general director.
Russian power generation and grid firms plan to invest over $100 billion in new infrastructure in the next few years, an important part of Russia's overall plan to spend up to $1 trillion on all infrastructure projects in the next decade.
FOCSUED ON GENERATION
Unlike its main competitors in the Russian electricity sector, EON is not seeking to vertically integrate electricity generation, supply and grid assets, focusing instead on power production.
"We looked into the issue (of vertical integration) and we decided not to move in this direction," said Berndt Dubberstein, development director for EON Russia Power, one of the company's Russian units.
EON's largest Russian competitors, Integrated Energy Systems, the power investment of billionaire Viktor Vekselberg, and gas giant Gazprom (GAZP.MM), have said they want to consolidate their power generation, distribution and sales units.
The pair have also used construction companies and engineering firms that are linked to them to build new turbines. [ID:nL09207947].
Dubberstein said he was not concerned that this would amount to unfair competition on the electricity market.
"We are not experts in construction. Construction is someone else's specialty," he said, adding that EON had found the supply and distribution business too risky for now.
The company's main goal is to complete OGK-4's investment programme through 2011, which would bring OGK-4's total installed capacity to more than 11 gigawatts at its five power stations, including one in Moscow.
Kitashyov, the general director, said the company had secured long-term gas supply contracts to fuel the new turbines being built, including from Gazprom and independent suppliers Novatek (NVTK.MM) and Surgutneftegas (SNGS.MM).
Surgutneftegas's associated gas, a by-product of oil production, accounts for 80 percent of supplies to the Surgut Power Station Number 2. (Reporting by Simon Shuster, editing by Will Waterman)