New Rules On Power Postponed

The Cabinet postponed the adoption of rules for a liberalized electricity market by more than a year Monday, potentially endangering the interests of investors in the recently privatized power industry.

Unified Energy System, the former state electricity monopoly, said the delay would not affect the pace of the reform.

An electricity reform plan approved by the Cabinet last June said the rules had to be worked out by the fourth quarter of 2008. But the Cabinet decided Monday to put it off until the first quarter of 2010.

The new rules will regulate the way electricity is traded on the market, which is to be liberalized by 2011. About 15 percent of electricity is currently traded at the deregulated prices.

The delay in rules will create uncertainty among investors, said Sergei Pickin, who helped draft power-sector reforms at UES and now heads the Energy Development Fund, a think tank.

"The quicker investors learn the rules of the game, the better," Pickin said. "They are getting no profit from their assets now, and the uncertainty will only aggravate the situation."

UES, which is to sell its last assets by July 1, said plenty of time remained to adopt the rules.

"As the target market model will begin to function on Jan. 1, 2011, we consider it reasonable to adopt the new rules closer to that date," the company said in a statement.

The Cabinet on Monday agreed to consider new anti-monopoly regulations for the industry in the next two months -- another key issue for electricity-sector investors.

"We expect that the regulations will be very tough, giving the Federal Anti-Monopoly Service a lot of power," Pikin said.

Investors declined immediate comment on the Cabinet's decision. "We will need more time to properly consider the document," said Dominique Fache, Enel's country manager for Russia and CIS. Enel holds a controlling stake in OGK-5, the first company to become independent from the UES.