Moscow Electricity Supplier Rebuked

Unified Energy System on Thursday lashed out at Gazprom-owned Mosenergo, Moscow's main electricity supplier, accusing it of failing to build new capacity to meet burgeoning demand.

Mosenergo was the only electricity generating company to receive an "unsatisfactory" rating in a national survey on power-sector investment, UES said in a statement.

"The reason for the low rating is the failure of the company's board of directors to approve a range of projects, which must be realized in the next two to four years," UES said. "[The lack of development] puts at risk … the development plans [in] one of the fastest-growing regions of the country, where power consumption is steadily rising."

Mosenergo declined immediate comment on the survey.

The damning assessment comes just weeks after the city utility's general director, Anatoly Kopsov, quit the firm amid a dispute over its investment program.

It also chimes with criticism from sources inside Mosenergo and industry experts, who warn that Gazprom is seeking to squeeze out maximum profits, at the expense of its commitment to building new capacity at the utility, where it took majority control two years ago.

"It's quite clear to us that Gazprom is focusing on getting as much profit as possible, probably by cutting our investment program," a senior Mosenergo manager, who spoke on condition of anonymity for fear of reprisal, said in a recent interview.

"Moscow's economy is expanding at a breathtaking speed, and we will dramatically lag behind if we don't build more capacity," the manager said, adding that electricity consumption in the city was rising by 10 percent to 12 percent per year.

He said other managers he knew shared his concerns but were afraid to talk because they feared repercussions.

UES chief executive Anatoly Chubais has clashed repeatedly with Gazprom over what he sees as the gas giant's attempts to partially remonopolize the power sector. With controlling stakes in four of the 20 generating companies being spun off by UES, Gazprom is the country's biggest electricity player.

The huge sell-off is Chubais' brainchild, aimed at creating competition and raising an estimated $135 billion of urgently required investment to upgrade the country's aging electricity network.

Mosenergo unites 17 power stations in and around Moscow with a total generating capacity of 11,000 megawatts. The company provides electricity to 75 percent of consumers in the city and 85 percent of consumers in the Moscow region.

Since the start of the year, Mosenergo's capitalization has fallen nearly 20 percent, to $7.5 billion. Analysts predict that the firm on April 30 will post a net profit for 2007 of about $618 million, a slight rise on 2006 figures after taking into account acquisitions.

According to the company's $5.4 billion investment program, agreed upon when Gazprom took control, it has to increase generating capacity by an additional 4,500 megawatts, or 40 percent, by 2011.

Yet earlier this month Gazprom announced that it would switch the construction of a new 400-megawatt combined gas and steam turbine from a Mosenergo power plant to a power plant in the Kaliningrad region, which it is building with Inter RAO, UES's export unit.

A source in UES said Gazprom's actions at utilities it controlled fit into a pattern.

"Gazprom's actions contradict the very essence of the reform," said the source, who spoke on condition of anonymity because of the sensitivity of the issue. "First, it gets a small monopoly position; second, it changes the acquired companies' investment programs. And we couldn't do anything to prevent Gazprom doing that."

A spokesman for Mezhregiongaz, the Gazprom subsidiary that manages Mosenergo, said building the turbine at the Moscow power plant was unprofitable.

"We hired world-known experts to estimate our electricity assets, and they put the Mosenergo plant where the turbine was to be installed in last place for investment attractiveness," said the spokesman, who declined to be named in line with company policy.

Mosenergo will also not go ahead with the building of a planned 660-megawatt power station in Shatura, the spokesman said. "It would be absolutely unprofitable," he said.

"It seems that Gazprom has come into the industry purely for money, which will put power-hungry Moscow and the region into danger," said Dmitry Terekhov, an analyst at Metropol brokerage.

Chubais probably decided to go public with the survey criticizing Mosenergo to try to sound the alarm over delays in its investment program, Terekhov said.

Mosenergo general director Anatoly Kopsov, 66, an industry veteran, left the firm late last month. He was replaced by Vasily Yakovlev, 35, a former accountant with KPMG, who, for the last three years, has been vice president of Vostokgazprom, a Gazprom subsidiary.

Kopsov was brought in to head Mosenergo in 2005, after a huge blackout in the city left one-third of Muscovites without electricity for more than a day.

Kopsov, widely seen as an effective crisis manager, was tapped within days of his departure from Mosenergo to head generating company OGK-5, now majority-owned by Italian electricity giant Enel.

A source close to Gazprom said Kopsov had disagreed with decisions made by the utility's new owner and had left of his own accord with a golden-parachute payment of more than $1 million.

Some analysts expressed doubt that Gazprom was to blame for the situation at Mosenergo, with some pointing the finger instead at Kopsov.

"He was spending too much money and not counting the cost," said Irina Filatova, a utilities analyst at Brokercreditservis.