Publication: Eurasia Daily Monitor Volume: 5 Issue: 4

Distracted by the country’s longest festive season, Russia has faced a series of power outages in early January, including in areas where temperatures plummet to extreme lows. The accidents came as an ominous reminder that Russia needs to improve and redevelop its basic infrastructure, specifically to rehabilitate power and heating supply systems after years of under investment.

The festive season turned unpleasant for many people in Yakutia, an eastern region known for its extremely harsh climate conditions. On New Year’s Eve, nearly 60 houses lost heat in the regional capital, Yakutsk, forcing the evacuation of nearly 600 people. Local authorities rushed to dispatch some 200 emergency personnel to deal with the accident.

Furthermore, on December 26 68 houses in Artyk township in Yakutia lost heating supplies. It took the authorities more than two weeks to tackle the consequences of the incident, while Artyk recorded temperatures as low as –55C. Yet, on January 6 Russia’s top medical official, Gennady Onischenko, announced that the government saw no need to set up special evacuation centers in order to deal with such emergencies (Interfax, Itar-Tass, RIA-Novosti, January 1-6).

Separately, on January 4 some 140 residential buildings were left without heating in the Siberian town of Krasnoyarsk, and another 200 houses in Berezovka village nearby. About 7,000 local residents were affected, and it took the authorities two days to repair the damage caused by worn-out pipes. On January 8, Krasnoyarsk Mayor Pyotr Pimashkov suggested that local power companies should pay compensation to local residents affected by the incident (Interfax, January 6-8).

Outages were not limited to the remote regions. On January 6, a total of 68 residential and office buildings in the eastern part of Moscow lost electricity. Thanks to the availability of alternative transmission lines, the power supply was promptly restored, according to Moscow municipal authorities (Interfax, January 6).

On January 4, a minor power outage disabled pumping stations and left about 40,000 local residents in the Southern town of Krasnodar without heat. It took local emergency services several hours to repair the damage (Interfax, January 4).

Outages have already sparked a measure of social unrest in at least one region. On December 31, the emergency services in Makhachkala announced they had dealt with power outages in the Dagestan capital. Nonetheless, on January 7, Makhachkala residents blocked several streets to protest continued outages during unusually cold weather (Interfax, January 7).

Russia’s public utilities have been built according to the centralized Soviet-era model. These days, so-called central heating and water supply utilities have emerged as wasteful and inefficient entities, while customers can hardly afford to pay the full costs of their services. On the other hand, tariff rates of the debt-ridden monopolistic public utilities are still regulated, and the economic efficiency of the sector remains low.

According to one opinion poll, 57% of Russians disapprove of the performance of public utilities. Some 39% of those interviewed noted serious water and heating supply failures and outages (FOM website, December 2007). Meanwhile, in its 2008 forecast, Russia’s Emergency Situations Ministry predicted the country could face up to 350-400 technical emergencies (Interfax, January 1).

These days, Russia’s electricity and heating giant Unified Energy Systems (UES) is moving toward completion of its major overhaul. Simultaneously, UES has also encountered ominous reminders that its generating facilities are becoming dangerously worn-out. On January 4, the roof partially collapsed at the Surgut GRES-2 power station, forcing an emergency shutdown of two of the plant’s six generation units. However, Russia’s UES insisted that power supplies to consumers were not interrupted, and UES re-launched one of the two affected units on January 8 (Interfax, January 4-8).

UES, 51% state owned, once was the largest power company in Russia; it generated some 70% of the country’s total electricity output and owned controlling stakes in 73 regional energy companies and 44 power plants. UES has been pursuing reforms since 2002, and it is expected to be dissolved by mid-2008, when it is scheduled to sell all of its power generating and distributing assets.

UES is restructuring its assets into two types of inter-regional companies: wholesale generation companies, known under the Russian acronym of OGK, and territorial generation companies (TGK). OGKs include electricity generation plants, while TGKs are formed to include combined heat and power plants, which generate both electric and thermal power.

UES is currently selling off all of its regional utilities in order to raise funds to upgrade its aging infrastructure. UES sold two big power generators, TGK-5 and OGK-3, in the first half of 2007 and more sales are to follow.

UES executives, led by CEO Anatoly Chubais, have argued that the restructuring aims to separate UES competitive (generation, supply, and services) and non-competitive (transmission and distribution) businesses. The restructuring implies that generation, sales, and repair companies will become private, while power transmission would remain under state control.

Critics of Chubais argue that the UES restructuring adversely affects the interests of UES shareholders and consumers. They also claim that the ongoing break up of the once unified UES technological complex would inevitably diminish the reliability of power and heating supplies (RBK Monthly, December 2007, p.100).

A Russian federal law adopted in 2004 introduced the investment component of the tariff by turning a payback tariff into a development tariff. In November 2006, the Russian government decided to replace regulated power supply contracts with unregulated transactions by 2011.

However, household solvency in Russia remains low, as the current heating tariff often fails to cover even production costs. Therefore, any significant increases of tariff entail sharp growth in budgetary expenditures on subsidies for the population, while the government’s failure to allocate sufficient subsidies may cause social unrest.