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Russia: Chubais Takes On Electricity Company

Moscow, 6 May 1998 (RFE/RL) -- Having finally secured the top job at Russia's electricity company, Unified Energy Systems, Anatoly Chubais faces the task of cleaning up the debt-ridden energy sector.

Prime Minister Sergei Kiriyenko has given Chubais roughly six months to make some headway as chief executive of UES, Russia's largest company by sales. The lumbering energy giant is at the center of a web of unpaid bills strangling the economy.

Chubais' appointment has sparked vocal protests from opposition deputies in the State Duma and Russian business tycoons, who claim he is unqualified for the job and only wants to use the company for political intrigues.

By most accounts, Chubais will need more than six months to turn the UES around and prove to a public that he is not using the company as a cash machine for the next presidential elections.

Most analysts said UES, which is 53 percent state-owned, is too cash poor to be tapped as a resource for upcoming elections. But cleaning up the non-payments problem at UES could help spur economic growth, which could sway an electorate hit hard by reforms.

Says Sergei Bubnov, a utilities analyst at CS First Boston in London: "If Chubais succeeds and gets tax revenues into budget coffers, then the whole government machinery will function."

UES owns controlling stakes in most regional utilities, known as energos, but is plagued by debts. UES currently accounts for about one-fifth of total non-payments in the economy, with arrears to the company as a whole standing at about 17 million dollars at the beginning of the year. Analysts said bringing order to UES finances will mean turning off the lights on industrial users that don't pay their bills.

Nicholas Henderson-Stewart, a utilities analyst at the Moscow investment bank Fleming UCB, said Chubais will have to force local energos to cut off non-payers.

Cutting out non-payments could also put Chubais at loggerheads with regional authorities, keen to prop up bankrupt factories and prevent lay-offs. As Bubnov put it: "The key element is relations with the regions."

Regional governments appoint representatives to regional energy commissions, which control whether non-paying customers are cut off. The commissions also set local tariffs, a key target of reforms.

The government has sought to reduce rates for industry and raise rates for households, which are heavily subsidized. Reforms have been slow, partly because regional authorities have resisted unpopular price hikes for residential users.

Chubais is expected to try to step up control over the regions to push through these unpopular reforms. But some analysts believe he will have more success introducing competition in the electricity sector by widening the wholesale market, introduced last year to provide cheaper electricity to consumers who pay cash up front.

Says Bubnov: "Disconnecting non-paying customers, that's the stick. The carrot is to promote cash sales through the wholesale market."

Chubais is also expected to continue reforms started by his predecessor, Boris Brevnov, to improve financial transparency at UES. Brevnov moved UES accounts from more than 60 banks to one account in Sberbank and brought in the international accounting firm Price Waterhouse to audit the company's books. The results of the audit are expected in September.