Publication: Monitor Volume: 6 Issue: 118

While his critics may see this as yet another fleecing of foreign investors by Russian oligarchs, Anatoly Chubais’ restructuring program is broadly consistent with energy policies now being pursued in many countries. In addition to fully owning the high-tension power grid that transmits electricity throughout Russia, United Energy Systems (UES) holds large equity stakes in seventy-three of Russia’s regional power companies (“energos”) which produce and distribute electricity to end users. UES also owns some large generating companies outright, although many of these are operated by the energos under long-term leases. This monopolistic combination of power generation and transmission is not the most efficient institutional configuration for an electricity sector. Among other things, it precludes establishing independent power companies, which would need nondiscriminatory access to the UES transmission grid in order to sell electricity to distributors or end users. Some CIS governments, including Georgia and Kazakhstan, have already begun “unbundling” generating plants from national transmission grids. This process is further along in Poland and Hungary, where this divestiture is a prerequisite for these countries’ accession to the European Union. In short, the separation of generation from transmission and distribution, and guaranteeing non-discriminatory access to the transmission grid, are increasingly seen in developing and developed economies as keys to increasing investment, boosting competition, and lowering prices in the electricity sector.

UES’s “competitive restructuring” was first proposed by a government commission in 1996, and was authorized by a presidential decree of April of that year. Although this decree was never implemented, drafts of the reform program sponsored by Economics Minister German Gref, which have reached the public eye, also call for UES to be “de-monopolized” along these lines. According to one of these drafts, UES’s grid would be transferred to a state-owned “network company” which would transmit electricity on a nondiscriminatory basis. The network company’s role would be similar, in principle, to that of Transneft, the state-owned oil transport monopoly. UES would be further slimmed down by divestitures of at least some of its generating assets. The Federal Energy Commission (FEC) would provide beefed-up supervision of the electricity market, in order to guarantee competing generating companies unfettered access to the power grid. These reforms are seen as essential to creating the investment environment needed to attract the US$50 billion in capital which UES estimates is required to modernize Russia’s electricity sector.