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Researcher: Horse-trading behind planned Fortum-Fennovoima deal

Russia is an important market for Finland’s largest power utility Fortum. Last year turnover at Fortum’s Russian operations was some 1.1 billion euros and accounted for one-fifth of the company’s total sales. One Helsinki University researcher believes that Fortum’s announcement of an investment that will take Fennovoima’s nuclear project one step closer to reality is part of a wider strategy to safeguard and expand its energy holdings in Russia.

Alexander Chuvaev, Vladimir Putin, Sauli Niinistö ja Alexander Stubb.
Fortumin Venäjän toimintojen johtaja Alexander Chuvaev (vas.), Vladimir Putin, Sauli Niinistö ja Alexander Stubb kaasuvoimalan avajaisissa Siperiassa syksyllä 2013. Image: Alexey Druginyn / EPA

Fortum’s announcement of plans to invest a sizeable amount in 15 percent of Fennovoima’s proposed nuclear power plant project has been linked to a complicated ownership restructuring programme in Russia – a programme that one Helsinki University researcher says amounts to behind-the-scenes horse-trading.

Russia is an important market segment for Fortum. In 2013 the Finnish utility took in 1.1 billion euros from its Russian operations, corresponding to one-fifth of its total turnover. The company also has its hands in a number of major investments in the eastern neighbour.

Rosatom, the Russian state nuclear contractor is the common factor linking Fortum, Fennovoima and Russia. The nuclear supplier has been selected to deliver the proposed nuclear power facility to be constructed in northwest Finland - and owns 34 percent of the project.

“In the case of Fortum there is a fear of financial risk: If we say 'no' to Rosatom here in Finland, it might endanger Fortum investments in Russia. So because of this Fortum’s involvement in Fennovoima and Fortum’s hydropower holdings in Russia are hobbled together,” said Veli-Pekka Tynkkynen, Helsinki University’s professor of Russian energy policy.

Tynkkynen: Fortum looking to expand into hydropower

“In exchange for Fortum’s participation in saving the Fennovoima project – which is part-owned by Rosatom – Fortum will get its hands on Russian hydropower,” Tynkkynen claimed.

Fortum is planning to establish a joint company with Rosatom, which would in turn own the hydropower generated by the Russian power production company TGC-1. Fortum would have the majority share in the new power company – 75 percent to Rosatom’s 25 percent.

TGC-1 currently owns and operates heating and hydropower plants in northwest Russia. It also owns the heat distribution network in St. Petersburg.  At present TGC-1 is partly owned by the Finnish utility (29.5 percent) and Gazprom Energy Holding (51.8 percent). In effect TGC-1 will be picked apart and reconstituted with new owners.

“The reorganisation would mean that Fortum’s operations in Russia will expand from coal and gas to include hydropower,” Tynkkynen explained.

He also commented on previous speculation that the government of Finland could come on board the Fennovoima project directly.

“The government is now involved via Fortum,” the university professor observed, referencing government’s 51 percent ownership in Fortum.

The researcher concluded by pointing out that Fortum’s forays into Russia will bind Finnish energy policy even more closely to its eastern neighbour.

The Parliament will begin debate Wednesday on whether or not to give a greenlight to beging construction of the nuclear power plant in Pyhäjoki, northwest Finland. MPs will vote on the issue on Friday.

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