Electricity Fee May Jolt Housing Costs

Property developers could soon be paying higher rates to connect new buildings to Moscow's power grid, and the increased costs may well drive up housing prices in the city.

At present, developers negotiate the hook-up fee on a case-by-case basis, a chaotic arrangement that is open to corruption. The new regulations, which take effect Oct. 1, are intended to increase revenues and to create a level playing field for all developers.

The new regulations, issued by the city's Regional Energy Commission on Aug. 15, place the Moscow Electric Grid Company in charge of providing power to new buildings, First Deputy Mayor Yury Roslyak said in an article published in Vedomosti on Monday.

Alexander Shapochkin, a spokesman for the Moscow Regional Electric Grid Company, said Monday that a uniform connection rate had been instituted in the Moscow region on June 15, and that his company had received "no complaints" from its customers.

"The old laws are outdated, and when there's a legislative deficit, people can always abuse the system," Shapochkin said, declining to cite specific examples of abuse.

By allowing developers to negotiate the hook-up fee, the current system allows them to gouge property buyers by exaggerating the amount of the fee. The new regulations would provide greater accountability, Shapochkin said.

The new regulations may also ease growing demands on Moscow's over-taxed power grid, which like the national grid is facing what Unified Energy Systems chief Anatoly Chubais last week termed an "acute crisis."

A major blackout last May that affected 1.5 million to 2 million in Moscow and neighboring regions has been followed by smaller outages this summer.

Some of the estimated $1.8 billion in additional revenue that the fee hike is expected to generate will likely be reinvested in the city's energy infrastructure.

In May, Chubais and Mayor Yury Luzhkov announced that $15 billion would be spent to improve the city's power grid.

The new rate will be 38,218 rubles ($1,410) per kilowatt hour for a medium-voltage line and 45,094 rubles per kilowatt hour for a low-voltage line, Shapochkin said.

Many developers say the new rate will cause Moscow's already soaring housing prices to go through the roof. The average price per square meter of residential real estate is already $3,843, an increase of almost 100 percent in the past year, Gazeta.ru reported Monday.

A construction company director who spoke on condition of anonymity told Vedomosti that electrification currently costs $100 to $110 per square meter of residential real estate. After Oct. 1, that cost will rise to at least $210, he said.

The end result, the paper said, would be an increase in the cost per square meter of $100 to $170.

No developers contacted Monday were willing to comment on the rate hike on the record, several saying it was a "political" issue.

Svetlana Beketova, a spokeswoman for the Moscow City Grid Company, said it was still too soon to say how revenue generated by the rate hike would be divided. "The structure [for revenue distribution] still hasn't been decided," she said, adding that discussions were still under way within the city's Regional Energy Commission.

The actual work of connecting buildings to the city electric grid will be contracted out. Beketova said the Moscow City Grid Company would hold an open tender at which electric companies could bid on contracts to connect new buildings to the grid.

Beketova said she could not estimate how many companies would participate, or when the tender would be held, other than that it would take place after Oct. 1.

Gennady Sternik, a professor of urban construction at the Plekhanov Russian Economic Academy, said real estate prices were already artificially high, and that a utilities surcharge would not be enough alone to cause a further hike.

"Any increase would be for other reasons," he said.