HELSINGIN SANOMAT
INTERNATIONAL EDITION - BUSINESS & FINANCE

Proposed undersea cable would double electricity imports from Russia

31.12.2005

Fingrid feels project is dangerous

The Russian state nuclear power company Rosenergoatom has proposed setting up a large undersea electric cable to Finland. The cable,which would run from the south shore of the Gulf of Finland to the Finnish city of Kotka, could nearly double the amount of electricity that Finland imports from Russia.

Fingrid, the company that operates the national electricity grid in Finland, opposes granting permission for the project. In a statement to the Ministry of Trade and Industry, Fingrid says that the regional grid in the southeast of Finland operates at maximum capacity, and could not handle the additional power.

Proponents of the project see the treatment of the initiative as a test of how free the Finnish electricity market really is.

The largest owners of Fingrid are the electricity companies Fortum and Pohjolan Voima, which have a combined 67 percent stake in the electricity distributor, and a new importer of electricity would be a competitor.

United Power - the company that represents Rosenergoatom in Finland - submitted an application for the undersea cable and a transformer station to the ministry last year, and is waiting for an answer sometime in the spring. If permission is granted, construction will last for two years, and electricity transmission could begin in 2009.

The cable would start at Kernovo, a transformer station linked with the Sosnovyi Bor nuclear power plant next to St. Petersburg. From there the cable would run along the bottom of the sea, emerging again at Mussalo in Kotka, where a new transformer station would be set up.

Working with it is the Kotka electric utility Kotkan Energia, which has a six-percent stake in United Power.

Rosenergoatom has a majority holding in United Power. In addition to Kotkan Energia, a number of capital investors are minority holders, including the Bulgarian Atanas Tilev, the son-in-law of the late Ahti Karjalainen, who was a key Centre Party politician and former Minister for Foreign Affairs.

United Power appears to feel that Tilev’s name still has political clout in Finland. "We hope that his involvement will promote our cause", says Andras Szep, a Hungarian, and the Chairman of the Board of United Power.

The CEO of United Power is Pentti Koivikko, a retired director of the Bank of Finland.

The proposed cable project has been under preparation for a long time. Koivikko set up an office in Helsinki in 2003.
     
The cable would have a capacity to carry 1,000 megawatts of electricity to Finland.

Fingrid currently controls the electric power connections, and it auctions the annual import licences for Russian electricity. As cheap Russian electricity is a lucrative business, demand far outstrips supply.

Both Fortum and Pohjolan Voima, the main owners of Fingrid, are major importers of Russian electricity.
     
The cable project differs from existing cross-border electric supply connections in that the right to distribute the power would not be sold to others. United Power would build the physical connection, and import its own electricity.

Andras Szep emphasises that the power imported by the company would not, strictly speaking, be nuclear power, even though it would come from a transformer station next to the Sosnovyi Bor nuclear power plant; as is the case in Finland, all electricity generated in Russia is fed into a common grid.

Szep sees the application of United Power as a test of the level of competition on the Finnish electricity market.

Szep points out that the legislation governing the activities of Fingrid says that the company must promote competition and develop its networks so that more companies could enter the market.

In spite of this, Fingrid opposes the cable, and its CEO Timo Toivonen has criticised the project in newspaper interviews.

He says that the electricity grid in the southeast of Finland could not handle the increase without extensive expansion.

He has urged United Power to bring the cable to Sweden, where demand for electricity is greater than in Finland, both now and in the future.
     
A direct link with Sweden is an attractive idea for Szep, but at this point he wants to focus on Finland. The estimated costs of the cable and the transformer station would be EUR 250-300 million, and United Power would pay Fingrid an annual EUR 20 million in transmission fees, which would allow Fingrid to upgrade its transmission capacity.

Szep says that financing is no problem. "There are many investors around the world, who are looking for these kinds of long-term projects with a guaranteed return."

All in all, Szep feels that his company’s proposal is an excellent opportunity for Finland to strengthen its energy connections to the east. "It is a risk to remain an onlooker in this development."
     
Supporters of the cable project calculate that doubling imports from the east could significantly decrease the price of electricity in Finland. This is seen as one reason why the main owners of Fingrid take a dim view of the project.

A decision on the matter will be made by the Ministry of Trade and Industry. The same ministry is responsible for maximising the success of the majority state-owned Fortum.