Accessibility links

Breaking News

Russia: Moscow Pushing Ahead With Electricity Restructuring, But Signs Less Hopeful For Gas Sector

Russia is pushing ahead with a plan to restructure its electricity sector after the State Duma cleared a compromise plan for the country's power monopoly last week. But the outlook seems less hopeful for similar progress in the gas sector after Energy Minister Igor Yusufov openly criticized gas giant Gazprom for resisting reforms.

Boston, 18 February 2003 (RFE/RL) -- Russia's government overpowered the opposition to restructuring its electricity system last week, but the signs were less certain that it would do the same for the gas monopoly Gazprom.

On 14 February, the State Duma pushed through a package of measures on second reading to break up the massive Unified Energy Systems (EES) and put it together again in a new form aimed at attracting fresh funds.

Duma deputies wrangled for four months after passing it in first reading last October and then insisted that the government rewrite it. By a vote of 260 to 159, the members approved a pre-election plan that would decentralize EES ownership over 10 regional power producers but tighten the government's grip over their tariffs for years to come.

The changes chart a course between an eventual free market in electricity and assurances that consumers will be protected from the runaway price hikes of decontrol.

EES said in a lukewarm statement, "The reform has become more socially oriented in the transitional period but doesn't lose its final objective of a free and competitive market with liberalized prices." The Reuters news agency said the legislation was "widely seen as a watered-down version of a super-radical plan proposed over two years ago."

In the end, it remained unclear whether the plan could be called a "reform" in the sense of the term as it was used in the 1990s. Much depends on the implementation, while the government's involvement could be seen as becoming more rather than less.

The Agence France-Presse news agency quoted Vyacheslav Volodin, a member of the Unified Russia party, as saying, "We interrupted the process of thoughtless EES reforms." He added, "We have adopted laws which specify who is responsible for reforms -- the government."

Under the complicated plan, the world's biggest electricity company would be split into generation, transmission, and "dispatch" functions, with the government holding at least a 75 percent stake in the national grid. The requirement means the government would actually raise its control over the critical remnant from the 53 percent of EES that it owns now. Much of the reorganization would be mirrored at the regional level, where sell-offs would be allowed.

The government also stepped back from earlier plans for creating an open power market by dropping all deadlines and promising that it would start no sooner than mid-2005. Some experimental trading in power can take place during a transitional period, but the government will say how much, in what regions, and how long the periods will last. The government will continue to set tariffs, at least as long as the transition lasts.

In a key concession, the government will also extend its control over regional tariffs. This week at a government meeting, President Vladimir Putin said it was "inadmissible" that some regions had boosted rates by 40-60 percent after the government approved a 14 percent annual rise, the official RIA-Novosti news agency reported. In ordering a larger pension increase to compensate, Putin said, "It is obvious now that the law is applied inadequately."

It is hard to say whether the thrust of the power plan will succeed without promising investors the higher tariffs that would provide a return. But the government now has the tools to push the process, along with the political burden. Several reports noted that the Duma agreed to the plan only after Prime Minister Mikhail Kasyanov pledged that the government would take full responsibility.

The prospect for a similar compromise on overhauling the gas sector seems even more difficult.

Speaking at a meeting with Kasyanov on 14 February, Energy Minister Igor Yusufov said, "The position of the ministry regarding gas industry reform finds no understanding with Gazprom management, which is actively opposing reforms."

Seeking to provide reassurance to the politically powerful monopoly, Putin promised he would never agree to a EES-style breakup for Gazprom. Speaking at a 10th anniversary event for the firm, which was created from a Soviet ministry, Putin said, "As a strategic company, Gazprom must be preserved as a single entity." He added, "Gazprom is a powerful political and economic lever of influence over the rest of the world."

But even Putin's own appointee as Gazprom chief executive, Aleksei Miller, has been slow if not reluctant to implement measures that might lessen the vast monopoly's domination, leaving independent oil producers with huge gas resources and little access to markets. Last week, Putin mixed criticism with his praise, saying, "A lack of transparency at Gazprom could have a serious effect on attracting investments to this industrial sphere."

Gazprom's intransigence has clearly affected the government's willingness to confront it. A December cabinet meeting on a long-delayed reform plan was billed as a showdown, but it was canceled, reportedly because of disagreements between ministries. Last week, Kasyanov told reporters that another meeting set for this month would be put off until March.

One big difference between the utilities is that EES chief executive Anatolii Chubais was the main advocate of the plan for the power sector, although it has since been changed in the process. By contrast, Gazprom appears to be mounting the main resistance to gas-sector reform.