Publication: Monitor Volume: 3 Issue: 126

Reform of Russia’s public utilities, spearheaded by First Deputy Premier Boris Nemtsov, moved ahead yesterday with the announcement of new pricing policies in the electricity industry. From July 1 Russia’s electricity monopoly, United Energy Systems (UES), will not accept payment in barter or money surrogates in its federal wholesale trade (distribution to regional electricity companies and other major users). In addition, large industrial users are to be offered direct access to the wholesale electricity market, giving them the option of bypassing the regional electricity companies. (Financial Times, June 27)

This move to introduce competition into the electricity market will present problems for regional electricity companies, who have until now subsidized domestic electricity users at the expense of industrial users. The changes were announced yesterday by Boris Brevnov, a former banker and close associate of Nemtsov from his Nizhny Novgorod days. When Brevnov was appointed as UES chief executive in May, he displaced the old guard management (the former director was kicked upstairs to be chairman of the board). In effect, Brevnov now represents the state as a large shareholder in UES, indirectly reimposing government control over domestic electricity policy. This is being heralded as an important move to reduce the role of barter and money surrogates in the economy in general, but strong incentives still remain for industrial firms to evade taxes by making payments in ways that avoid the banking system.

Russian Tax Code: Less than Meets the Eye.