Big Firms Missing Electricity Payments

Several metals and mining companies have stopped paying their electricity bills, threatening winter heating and electricity supplies for households, the head of the country's biggest private electricity producer said in an interview Wednesday.

"We are now facing an increase in payment delays from big consumers, mainly metals and mining companies, both ferrous and nonferrous," Mikhail Slobodin, president of Integrated Energy System, said in a telephone interview.

He declined to elaborate on the companies.

"The industry is using a legal loophole that prevents us from cutting them off from electricity supplies immediately," said Slobodin, who also heads the Council of Electricity Producers, which comprises all major electricity generators.

"The payment delays take the planned money out of the whole financial system of the generators, which strains our winter-period preparation spending," he said.

Big industries have started to cut jobs, salaries and output as demand has begun to fall and bank loans have become less accessible amid the financial crisis.

At the current rate, electricity demand will only grow by 2 percent in October, less than half of the 5.5 percent growth seen last month, according to data from Integrated Energy System, or IES, controlled by billionaire Victor Vekselberg. IES has controlling stakes in electricity generators TGK-5, TGK-6, TGK-7 and TGK-9.

Other generators and distributors also raised concerns about payment collection Wednesday.

"Compared with September, we have 10 percent fewer payments from the industry so far," said a senior manager with the Kostroma Electricity Distribution Co., who asked not to be identified because of the sensitivity of the issue.

Electricity producer OGK-1 is anticipating tough times. "We haven't faced delays yet, but unfortunately we understand that this kind of problem will arise very soon," said OGK-1 director for sales Vladimir Paley.

One major electricity consumer, Polyus Gold, said Wednesday that it was paying its bills on time. Novolipetsk Steel and Severstal did not return requests for comment.

The delinquent metals producers might be waiting for state loans to come through, said Irina Filatova, utilities analyst at Brokerckreditservis.

"According to the law on electricity, the generators don't have the right to cut off some consumers, and industries are on that list," she said.

Slobodin said he expected that electricity distributors would also delay payments. "Electricity distributors don't have any assets big enough to use as collateral and have borrowed a significant amount of money, which has resulted in banks closing credit lines for them and taking the money back," Slobodin said.

The Kostroma distribution manager confirmed that his company was facing problems with the banks.

Industry payment delays were to be discussed Wednesday at government meeting chaired by Deputy Prime Minister Igor Sechin, who is responsible for the electricity sector. The Energy Ministry did not disclose the results of the meeting. One of the issues on the agenda was a state loan sought by electricity producers in an open letter to Sechin last week. Slobodin said the decision would be made "in the next week or two."

"The electricity sector needs 600 billion rubles from next year to build new electricity production facilities under our investment programs to expand capacity," Slobodin said.

"If the situation improves, we may refinance the state loans on better conditions as early as 2010," he said. "The main goal is to survive the next year."

He predicted a wave of job cuts and production optimization throughout the electricity sector as soon as the difficult winter period ended next year.