| Russian deputies have given initial approval
to a power-sector restructuring
plan. The move may mark the first major commitment to break up
the country's
natural monopolies, but doubts remain about how the government's
program
will work.
Boston, 16 October 2002 (RFE/RL) -- Russia has taken a step toward
transforming its mighty monopolies with preliminary passage of
a
power-sector reorganization plan. But analysts remain uncertain
about what
the changes mean for the country's Unified Energy System (EES)
and its
controversial chief executive, Anatolii Chubais.
On 9 October, the State Duma approved a series of bills on first
reading to
break up the EES electricity giant, which is 52 percent state-owned.
The
vote by a margin of 261 to 152 followed forecasts of failure and
hundreds of
amendments to win deputies' support. Some lawmakers warned that
they would
vote against final passage unless even more changes are made.
But the complex plan is the first to gain even initial Duma approval
for
restructuring a "natural monopoly." The process could
spur similar efforts
for Russia's gas mammoth Gazprom, the Railway Ministry, and eventually
the
oil pipeline system Transneft.
Anders Aslund, senior associate at the Carnegie Endowment for
International
Peace in Washington, told RFE/RL: "Before [EES] is done,
nothing will be
done about Gazprom or the rest. In other words, it's very important
to
reform EES first."
The program would split the faltering system into a Federal Grid
Company and
regional generators. The country's 72 regional utilities would
be spun off
and possibly consolidated into groups of five. EES would form
a holding
company to merge and manage stakes in distribution and generators
that fail
to consolidate. EES stockholders would get shares in the companies
on a pro
rata, or proportional, basis.
The idea of the reshuffling is to draw investment into the system
by
offering opportunity and the incentive of a market system with
deregulated
rates. But the first steps by Chubais have already sparked so
much suspicion
that the entire plan was nearly lost.
Last month, the former privatization minister was forced to halt
asset sales
before the start of restructuring because of a deal to give Russian
Aluminum
control of the $1 billion Krasnoyarsk power plant in exchange
for a $10
million loan.
Critics accused Chubais of replaying his infamous 1995 loans-for-shares
privatization, which turned the nation's best assets over to a
new class of
oligarchs. Although transfers of EES holdings have stopped, industrial
groups are reportedly continuing to line up blocking shares in
the regional
utilities for takeovers when the program opens up.
Despite the initial passage of the government's plan, the criticism
of
Chubais has continued.
Last week, the Reuters news agency quoted Yabloko leader Grigorii
Yavlinskii
as saying during the Duma debate: "Do we need to reform the
electricity
sector? Do we ever. But instead they have offered us an unspeakable
mess. It
is unacceptable from a social, political, and economic standpoint.
It will
create the political basis for economic and corporate totalitarianism."
In a statement issued by EES, Chubais called the comments "a
shame," saying,
"It is very sad when a person speaks on the subject he knows
nothing about."
But distrust of Chubais and his plan go far beyond Yavlinskii.
Marshall Goldman, associate director of Harvard University's
Davis Center
for Russian Studies, told RFE/RL: "Everybody assumes that
it can't be
straightforward. That's what people think because he has such
a bad track
record."
Other analysts say that the backing of President Vladimir Putin
has given
the plan greater legitimacy. Clifford Gaddy, a fellow in economic
and
foreign policy studies at the Brookings Institution in Washington,
said: "I
don't think this is something coming only out of Chubais's head.
This isn't
something done behind anyone's back. It's with the encouragement
and
approval of Putin."
Ironically, fears of asset stripping may have prompted the Duma's
action to
prevent industrial groups from grabbing up the indebted regional
utilities.
Anders Aslund said: "They will get them through the bankruptcy
courts if
things don't move fast enough. If nothing is done fast, lots of
assets will
disappear."
But a combination of doubt and distrust convinced deputies to
delay
implementation for one year until mid-2005, along with the major
step of
freeing electricity tariffs. The tariff issue may require the
biggest leap
of faith, since the government insists that competition will result
in lower
rates rather than price hikes.
Deputy Economic Development and Trade Minister Andrei Sharonov
said, "We
would be right to count on tariff decreases for end users in those
areas
where competition is possible when these laws are brought into
effect." But
the Fatherland-All Russia party has vowed to vote against the
plan in second
and third readings if households are not protected from tariff
rises,
Reuters reported. The stand could kill the bills.
Without tariff increases, there may be little incentive for investment.
The
alternative would be to sell assets at giveaway prices, as Chubais's
critics
fear.
So far, the government has found it hard to raise tariffs without
triggering
inflation. Next year, rates have already been limited to a 14
percent rise,
leaving little net gain over budgeted inflation of 10 to 12 percent.
Last
week, the Central Bank of Russia conceded that this year's inflation
will
rise above the target of 14 percent.
The government also expects only gradual declines in inflation
of 2 percent
per year through 2005, RBC News reported last week, and it is
already
planning for maximum increases in electricity rates of 14 percent
in 2004.
The careful balancing act may set the stage for a competitive
market in
2005, but the outcome of the experiment remains unpredictable.
See also:
Energy
Sector Reform
| 