Russian Power Sector Restructuring

Anatoly B. Chubais, Chief Executive Officer of the Unified Energy System (UES) of Russia, discusses restructuring of Russia power sector. By Dick Flanagan.

Anatoly B. Chubais, Chief Executive Officer of the Unified Energy System (UES) of Russia, has been at the helm of UES for two years and started privatizing the power sector with the divestiture of five regional energos as part of a loan agreement with the World Bank.

The restructuring of Russian power is a key element in the agreement between the government and the World Bank as part of the SAL-3 structural adjustment loan. The terms of the deal stipulated that UES create a number of independent electricity generators. This should encourage the liberalization of the sector and become a springboard for future expansion.

UES sees three restructuring stages. UES plans to split up the utilities into generation, transportation, distribution and service businesses. Keeping the high-voltage grid and control transmission lines from the regional energos via share swaps, acquisitions and the offsetting of debt. UES will reduce its ownership in generation, distribution, and service businesses through the sale to strategic investors. The development of the wholesale market is the key at this stage of restructuring, as independent generators will eventually sell electricity to end-customers on a competitive basis. The first stage of restructuring will begin in March 2001 and finish in 2003.

UES owns 100% of a 42,000-km grid of high-voltage transmission lines that transmits electricity between regions.

Gazprom planned to reduce fuel deliveries to UES. UES and Gazprom signed an agreement on gas supplies for 2000.

UES put electricity exports as a priority and announced several export projects. UES has an agreement with PVO (Finland) to export 11.3 TWh of electricity to Finland in the 2000-2004 period. And signed with Belenergo (Belorussia) and PSE (Poland) to export electricity to Germany through Belorussia and Poland. UES has negotiated a deal with Ukrenergo (Ukraine), Verbund (Austria), and RWE and Bayerwerk of Germany. UES and Ukrenergo are to sell electricity to western European energos, which will resell the electricity to Greece, Yugoslavia, Yurkey and northern Italy. Exports are expected to start in 2002.

The restructuring of the utilities should result in a highly competitive environment where private generators will sell electricity to the wholesale market. This should lead to better pricing for consumers and improved efficiency in utilities. The wholesale market is to be broken up into four sectors. UES is introducing an electricity exchange.

All transactions will have 100% transparency ensuring the financial stability of the company and creating an investment-friendly environment.