Distributors May Face Bankruptcy

The country's electricity distributors are facing bankruptcy early next year because of cash flow problems as consumers delay payments for supplies, Integrated Energy System president Mikhail Slobodin said Tuesday.

Distributors will need some 30 billion rubles ($1.1 billion) in the fourth quarter to refinance debt, Slobodin said at a Federation Council round table on problems in the electricity sector.

"The distributors will all be bankrupt in the first quarter of 2009," he said, adding that consumers delayed 15 percent of payments to IES' distribution branch this month.

"I know that some distribution companies have had payment delays of up to 50 percent," said Slobodin, whose IES is the largest private power generator in Russia.

Alexander Shkolnikov, deputy general director of the Smolensk Energy Distribution Company, said Tuesday that 18 percent of payments to his company were being delayed.

"It may become a very serious problem," Shkolnikov said. "The difficulty is that most of the distributors get the money from the generators and the consumers at different times, and that is why we have to live on the bank loans."

Electricity distributors typically pay generators before they receive payment from consumers, forcing them to seek financing from banks even when customers are paying on time.

Slobodin said the situation was "very bad," and that "serious crisis management" was needed.

"Distributors will either underpay the generators or the grids," he said. "We may end up with generators having nothing to pay for the fuel."

Dmitry Ponomaryov, head of the Market Council, a government watchdog for the sector established after the break up of Unified Energy System, said on the sidelines of the round table that help for distributors was on the way.

"The Energy Ministry and our council are talking with state banks about discounted loans of 35 billion to 40 billion rubles for the fourth quarter of this year and the first quarter of 2009 for the distribution companies," Ponomaryov said.