Siemens AG of Germany and Alexei Mordashov, Russian oligarch and head of Russian steel maker Severstal have signed a strategic partnership agreement for the modernisation and development of OAO Power Machines.

Alexei Mordashov

Mordashov, whose Highlight Ltd. acquired 30.4 per cent of Power Machines from Russian investment company Interros, is now the largest shareholder of the loss-making Russian power equipment maker. He will appoint the chief executive officer of the company.

Siemens, which holds a blocking stake of 25 per cent plus one share, and whose technology and experience will be sorely needed to turn around Power Machines, will appoint the chief operating officer. Russian public sector electricity company Unified Energy System also has 25 per cent plus one share. The remaining shares are with minority investors. It is reported that Unified Energy Systems may soon auction off its holding.

In 2006, Power Machines made a net loss of $132 million. Its revenues were $579 million. Its performance had deteriorated from a level of a $40.5 million loss on revenues of $667 million in 2005.

Rudi Lamprecht

Power Machines, an ''open joint-stock company'', is a leading Russian manufacturer and supplier of equipment for hydro-electric, thermal, gas-based and nuclear power stations, and for power transmission and distribution systems. It runs the Leningrad Metal Factory, Elektrosila, Turbine Blades Factory, and the Energomashexport marketing company. It also has a 35 per cent stake in NPO Polzunov Scientific and Development Association on Research and Design of Power Equipment (St. Petersburg). Power Machines has exported its equipment to 87 countries worldwide.

Siemens surrendered its right to the Interros stake in Power Machines after Russia''s anti-monopoly regulator refused to let Siemens get a majority in the company. Siemens had also failed earlier, in 2005, to acquire Power Machines, because of Russian security concerns since one of Power Machines'' units makes turbines for Russia''s nuclear submarines.

Yet, a strategic 25 per cent-plus stake in the Russian company is the next best thing. Rudi Lamprecht, a member of the Siemens corporate executive committee, says, "Implementation of the agreements reached will be a vital contribution toward targeted further development of Power Machines as a leading company in the construction of power machinery equipment in Russia."

The Siemens management believes that the agreement will enable Power Machines to "gain access to state-of-the-art technology and advanced business and management processes". The German company will also provide experienced managers and experts for the Power Machines'' growth.

The Russian partner is unlikely to be satisfied with catering only to the home market. Says Mordashov, "The partnership will ensure that Power Machines ambitious investment projects can be rapidly implemented. Combining our experience in the management of Russian assets with the technological strength of Siemens will empower Power Machines to gain and develop the most important competencies in power machinery construction and ensure the company''s strong competitiveness not only in the Russian market but also in the most important international markets outside Russia."