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Russia: Bleak Winter With Fuel Shortages Lies Ahead

London, 1 September 1998 (RFE/RL) -- Energy analysts in London say Russians may face a grim winter because coal and heating fuel reserves are at a low level, causing further problems for an industry struggling with the non-payment of utility bills.

The analysts were commenting on prospects for Russia's energy sector in the wake of the chaos caused by the debt default and devaluation of the ruble two weeks ago.

A report circulated today by Salomon Smith Barney, one of the world's leading investment banks, says there is a "worrying lack of fuel at the main power plants, especially in Siberia and the Russian Far East." In comparison with last year, coal stocks are estimated to be 21 per cent lower and fuel oil levels are three percent down.

The report says coal and fuel oil stocks are at an "even more alarming" low level in some regions, and, with the ongoing financial crisis, "the fuel situation is expected to worsen."

Energy analysts say several factors are behind the crisis: strikes by coal miners, the use of fuel reserves to compensate for cuts in gas supplies, and a relatively cold summer. The analysts note that the energy giant, Gazprom, reduced its supplies of fuel to federal power plants in July, forcing them to use their winter reserves of fuel oil or coal. Another factor is a general lack of funds.

The Russian government has set up a special committee to identify regions in greatest danger of fuel shortages this winter, and which urgently require federal government funds to buy fuel.

The Salomon Smith Barney report says the financial crisis will have a heavy impact on the utility sector, in particular because consumers will be less willing to pay for energy they use.

Energy concerns are already struggling with a non-payments crisis which has deepened in recent months. Outstanding debts of Russia's large and medium-sized companies and enterprises are said to have increased by five per cent a month this year. Since the beginning of this year, the Ministry of Defense is said to have paid for only 20 percent of the energy it has consumed.

Now, with the latest financial crisis, utility bills are even less likely to be paid because Russian consumers are holding onto to their savings in anticipation of worsening living conditions. Many regard the payment of utility bills as an "unnecessary luxury."

Energy companies are caught in a bind because the devaluation of the ruble will bring sharply higher inflation, meaning that their costs will soar (even if fuel costs remain unchanged), but the government is unlikely to raise regulated utility tariffs.

What does this mean for the energy sector? Analysts say there will be further decline in the overall collection of outstanding debts, with a corresponding decline in earnings and revenues.

The production of coal and fuel oil is likely to fall, or supplies will be disrupted, as energy firms prove unable to pay for supplies.

But the expected deep economic recession in Russia will also bring a fall in consumption of energy. Analysts say industrial production shrank by an estimated 10 percent in July, and power consumption is expected to fall sharply in the second half of 1998.

Analysts note the Russian government issued two resolutions three weeks ago aimed at solving the non-payments crisis and decreasing energy costs. But the ruble crisis has intervened.

Analysts say Russia's utilities cannot go bankrupt because of their central role in the economy. One possible scenario is they could be restructured in such a way that ownership issues become irrelevant. Whatever happens, this winter could be bleak.