Is foreign operation a viable means of running a power-generation business?

Dubai World and a local partner offered to buy Russian utility OAO OGK-1 for 125 billion rubles ($5.34 billion) to profit from the breakup of the national power monopoly and the end of regulated electricity prices.

State-run Dubai World and energy trader OAO Roskommunenergo signed a preliminary accord to pay $516 per kilowatt of installed capacity for OGK-1, Marita Nagoga, spokeswoman for national utility OAO Unified Energy System, said by phone in Moscow. OGK-1 operates four plants in European Russia and two in Siberia.

The acquisition by Dubai World, which has $100 billion of assets ranging from ports to casinos, would be the first in Russia's energy industry by a Persian Gulf investor. State-run Unified Energy, which has raised about $34 billion selling generation and distribution assets since 2006, will cease to exist.

"This deal is a mix of business, social responsibility and internal politics," said Semyon Birg, fund manager with Alfa Capital in Moscow. "OGK-1 will be managed by people close to the government and loyal to the state's course."

Roskommunenergo is chaired by Igor Kozhin, the son of Vladimir Kozhin, who runs the Kremlin's property department. Dubai World Chairman Sultan bin Sulayem declined to comment when contacted on his mobile phone.

Shares Jump

OGK-1 jumped as much as 21 percent, the most since the shares started trading March 30, in Moscow today and were 16 percent higher at 2.03 rubles (9 cents) on the Micex Stock Exchange. The Dubai World offer values OGK-1 at 10.6 U.S. cents per share, Birg said.

Power demand in Russia will grow by almost 5 percent a year through 2012, and be 70 percent higher in 2020 compared with last year, Prime Minister Vladimir Putin said. Russia wants the new owners of its utilities, which include Italy's Enel SpA and Germany's E.ON AG, to increase nationwide capacity by 40,000 megawatts, or about 18 percent, by 2012.

Dubai World and Roskommunenergo are negotiating the final details of the deal with state-run Federal Grid Co. and OAO RusHydro, which will become OGK-1's parent company after Unified Energy is dissolved.

Dubai World's assets include DP World Ltd., the world's fourth-biggest ports operator. In August it agreed to invest $5.1 billion in Kirk Kerkorian's MGM Mirage casino company as part of the emirate's plan to diversify its economy into entertainment, financial services and trade.

Dubai World last year said it had talks with Russian government officials about developing an inland port and economic zone on the outskirts of Moscow. The group's Limitless LLC real estate unit in February said it will build a Moscow suburb together with a local partner to provide homes for 12,000 people.

Will this move truly benefit both electrical power-hungry Russia and investment-hungry Dubai?