Russia to reform electricity monopoly

Russia's Parliament broke years of deadlock on Feb. 14 to push through far-reaching privatization plans for United Energy Systems - the world's largest electricity monopoly that has been splitting at the seams and dragging down the economy.

Both Russian and Western economists have long pointed to reform of the creaking Soviet-era power monopoly as a key indicator of whether the Kremlin was serious about introducing market principles in the face of opposition from powerful business interests and some lawmakers.

The UES reforms have been lobbied for heavily by the World Trade Organization, the European Union and the International Monetary Fund.

The six-part plan adopted by the State Duma is a compromise version that allows the government to set its own privatization timeline while keeping subsidies for some regions for years to come.

"We interrupted the process of thoughtless UES reforms," said Vyacheslav Volodin on the pro-Putin United Russia bloc. "We have adopted laws which specify who is responsible for reforms - the government."

However, some promarket lawmakers said the government compromised too much, and Western investors were unlikely to come away satisfied.

UES executives say that the company needs up to $100 billion in investment if Russia's energy system is to remain viable in the 21st century.

"The compromise has taken the worst parts of the UES and government proposals," said Sergei Ivanenko of the Yabloko faction. "These reforms will not be transparent. Decisions will be made by the government in the dark, and this can only scare investors rather than attract them," he said.

The general idea of the UES reform is to eventually privatize the numerous power generation facilities sprawled across the country while keeping the grid itself in state hands.

Investors feared that should UES have been allowed to oversee the privatization process, power generators may have been sold off to insiders at a fraction of their market value.

Lawmakers, meanwhile, feared that a radical overhaul would see Soviet-era subsidies cut off in one fell swoop and energy prices soar - a poor prospect for politicians on the eve of December's parliamentary polls.

In effect, the government of Prime Minister Mikhail Kasyanov will take away oversight of the process from UES chief Anatoly Chubais - one of the original post-Soviet market reformers.

Nevertheless, the overall privatization process was given a setback by Putin himself on Feb. 14 when he vowed never to splinter the Russian budget's sacred cash cow - the powerful and murky natural gas giant Gazprom.

"As a strategic company, Gazprom must be preserved as a single entity," Putin said at a ceremony marking the company's 10-year anniversary.

His comments flew in the face of persistent pressure from investors to break up the natural gas giant in order to introduce competition to the energy market and make the company's finances more transparent.

Gazprom is the largest Russian company and holds nearly a quarter of the world's natural gas reserves while accounting for around 20 percent of Russia's budget revenues.

But Gazprom still reaps in profit while UES flounders in deep financial trouble due to subsidized Soviet-era prices which still leave parts of the country without energy throughout the bitter winter months.