Updated September 17, 2008

   Russia's Basic Element Company owned by Oleg Deripaska is hold ing

talks with RusHydro JSC about the construction of the HPP cascade in the Sochi city.

Other investors, as well as foreign ones, may take part in the project. They should share the project's risks, since the ecologists are against the construction, and the HPP's electric energy may be in low demand after the Olympics ends.

   En+ Development, incorporated in Oleg Deripaska's Basic Element, can take part in the project on the construction of the HPP cascade in Sochi. According to the company's representative, the project is discussed with RusHydro JSC. The source in En+ Development said that "the company is taking much interest, though it has the preliminary nature". According to the source, the preliminary agreements with the co-investors of the project are already reached and the various options

of the participation are studied.

One of them is the consortium incorporation, with the participation of the foreign company as well.

   "We are holding talks with the prospective investor", RusHydro's managing director and the head of South division Ilya Gorev said. "Within the project framework, RusHydro will act as a customer, take part in the construction and ink the long-term contract on the operation for the term of 20-50 years". According to the source aware of the talks, En+ Development will get the controlling interest in the project of the Sochi HPP. The HPP's total capacity is 122,7 MW. "The construction of these capacities may total $250-320 million", the analyst of Sovlink Investment Company Ekaterina Tripoten supposes.

   Earlier, RusHydro was working out the versi on of the independent c

onstruction of the HPP cascade on Mzymta river. However, the ecologists were against this project because

the cascade is located in the buffer zone of the Sochi reserve. In RusHydro confirm that the project covers very high risks.

Nevertheless, in spring, the Sochi HPPs were integrated in the prospective projects of RusHydro' s inve stment program.

   The installed capacity of Sochi's power plants is 350 MW, however, RAO UES of Russia has promised to increase city's total capacity by 900 MW by 2014. Now, the highest demand for the electric energy in Sochi falls to summer. According to the secretary of the Center for completion of RAO UES reorganization Marita Nagoga, after the Olympics, when the winter infrastructure objects will be constructed, Sochi will become not only the summer, but the winter resort as well, and the demand for the electric energy will balance out.

   However, according to Ekaterina Tripoten, "the generating capacities' extra volumes may be in low demand, since the wide range of new industrial productions will not be constructed in the region". At the same time, Alexander Seleznev from Uralsib Investment Company supposes that after the Olympics ends, Sochi will "develop rapidly as a tourist center", therefore the HPP's electric energy will be in demand.