Russian energy minister reports to Duma on electricity reforms, strategy

ITAR-TASS news agency, Moscow,
21 Apr 04

Russian Energy and Industry Minister Viktor Khristenko has told the
State Duma that the recently established free market in electricity is
performing well, the Russian news agency ITAR-TASS reported on 21
April.

According to TASS, the minister told deputies during today’s
“Government Hour” that since it started operating in November 2003,
the market “has proved its effectiveness and has become one of the
most important steps of the first period of reform”. He noted that the
average daily volume of sales on the market had grown from 12m kWh in
November 2003 to 142m kWh in March 2004. Khristenko said this increase
had been accompanied by a rise in the number of participants on the
market from 14 to 75. A significant number of these are companies
independent of the national grid company, Unified Energy System of
Russia.

TASS also quoted Khristenko as saying that the “operation of the
market needs some adjustment”. In particular, he stressed the need for
a more balanced mechanism for setting prices.

Another TASS report quoted Khristenko as saying the average price on
the free segment of the market was lower than on the regulated
market. However, he also said prices on the regulated market were well
within the limits set by the government. “The price limits for
electricity in 2004 will be fully observed”. The report said that the
price limit per kWh is R0.846, and the current price is R0.822 per
kWh.

However, TASS reported Khristenko as saying that, unlike electricity
prices, gas prices would increase by more than the consumer price
index. He said serious measures needed to be taken to lower production
costs and increase the efficiency of the fuel’s use for the
electricity sector.

According to TASS, Khristenko said that among the government’s main
objectives in the reform of the electricity sector was the formation
of wholesale generating companies and territorial generating
companies, and the separation of 37 regional energy companies. He also
said that it is “vital to develop state regulation, and create a
system of antimonopoly control and ensure there was non-discriminatory
access to the market.”

“It is also necessary to create an integrated system of tariff
regulation during the transitional period,” TASS quoted Khristenko as
saying. He added that the question of Siberia joining the competitive
electricity market should be decided in 2004.

Khristenko also told MPs that energy integration could contribute to
the solution of political issues in the CIS, according to another TASS
report. “One of the key elements in this process is infrastructure
integration, which concerns not only the acquisition of assets of CIS
companies, but also the main planks of the distribution systems,”
Khristenko was quoted as saying.

The same report quoted the head of Unified Energy System of Russia,
Anatoliy Chubays, as saying that “the acquisition of assets in CIS
energy companies is a new strategy for us.” We have restored a single
energy system in 14 of the 15 former Soviet republics, and this means
that it is possible to take the next step – the acquisition of
companies,” Chubays was reported to have said. He added that, having
started this process in Georgia and Armenia, “we are now conducting
serious and complex negotiations with Ukraine, preparing for
negotiations in Kazakhstan, and planning vigorous activity in the
Baltic States”. Chubays also said that the company was not intending
to limit its activity to the CIS. “We are ready to participate in
tender processes in a number of countries in Eastern Europe,” Chubays
was quoted as saying.