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Russia: Electricity Monopoly Threatens With Power Cuts

As Russia's electricity monopoly threatens consumers with power cuts, the country's exports of fuel oil are reaching record levels. Russia is now facing the same problem as Azerbaijan. Both countries are torn between exports for hard currency and energy shortages at home. RFE/RL correspondent Michael Lelyveld reports.

Boston, 13 July 2000 (RFE/RL) -- A threat by Russia's Unified Energy Systems to cut electricity to consumers who do not pay their bills by Saturday is a sign of a growing fuel crisis throughout the region.

A spokesman for the EES electricity monopoly said Tuesday that the tough step will be taken in order to build winter stocks of coal and fuel oil, which are now eight percent and 41 percent below targets respectively.

EES spokesman Andrei Trapeznikov said that "Customers who do not pay their electricity bills are jeopardizing the industry and households. That is why EES plans to impose the harshest measures." Debts to the company have risen to 147 billion rubles, or about $5,2 billion, which represents an 11 percent increase since the start of the year.

It is unclear how even an immediate payment would solve the problem, since coal and fuel oil cannot simply be created. Presumably, EES seeks to reduce its own fuel needs by enforcing discipline among customers who have grown used to avoiding their bills. Behind the headlines, the threat is also not as strong as it seems.

The Moscow Times reports that under questioning, Trapeznikov conceded that it may be illegal to cut off electricity to households. EES is trying to maintain supplies for other users, such as hospital and schools. Customers will be required to pay their debts immediately only for May and June, with previous bills for this year to be restructured over the next three months.

There are questions as to whether even these modified measures could be softened for some customers. The Defense Ministry owes EES over 9 billion rubles, for example. The Russian government owns over 52 percent of EES, making a shutdown seem unlikely for the military.

Aside from the winter shortage, EES is at the center of a series of conflicts. It is being pressured to pay its debts to Gazprom and its tax obligations at the same time. Its reorganization plans to split its electricity grid from its power plants have been under fire from the State Duma and investors. And it has been trying to end barter and raise electricity rates, tackling two of the country's toughest problems for economic reform.

In the past, Russia's energy monopolies have used pressure on consumers to make reform measures unpopular, forcing the government to backtrack on price hikes or tax collection plans. But the current situation suggests that other forces may also be at work.

The concern over winter shortages comes at a time of a similar crisis in Azerbaijan. Last month, Azerbaijan stopped its oil exports through a pipeline to Novorossiysk despite a contractual commitment and the threat of a $29 million fine from the Russian pipeline company Transneft. The reason is that Azerbaijan's government has ordered its state oil company to stockpile winter fuel, hoping to avoid a repeat of the electricity rationing that was imposed last January.

Like Russia, Azerbaijan has been caught in an economic trap between high world market prices for energy and lower charges at home. When oil prices started rising last year, producing countries like Azerbaijan and Russia took advantage of the upturn to raise their hard-currency earnings. But some of the benefits proved to be short-lived.

In the summer of 1999, countries including Russia suffered gasoline shortages and soaring prices. Azerbaijan's electricity cuts followed last winter. Now, Russia is facing the same trouble for the coming winter.

In each case, the problems have resulted from the incentive to export more energy to markets that are willing to pay more. This week, for example, the Reuters news agency reported that Russia exported a record volume of fuel oil in June. The higher exports can only worsen the winter shortages at home.

The solution is to bring domestic energy prices into line with world market levels, so that producers earn the same profits, whether they sell at home or abroad. But because prices and wage scales in these countries have always been based on low energy charges, such a change would be likely to sweep throughout the entire economy.

This week, EES said it is seeking a 25 percent increase in electricity rates starting in August. Gazprom has already raised its prices by 30 percent as of May 1. It is uncertain whether the results will be gradual reform of the economy or a sudden shock. But it seems clear that Russia and its neighbors can no longer afford to treat energy as a limitless resource.