A Drain on Russia's Energy

When the power blackout hit Moscow last week, I was attending a presentation of the Russian contribution to the latest Stockholm International Peace Research Institute Yearbook on Armaments, Disarmament and International Security. The SIPRI Yearbook is translated and published with the help of the Moscow Institute of World Economy and International Relations, or IMEMO, one of Russia's best-known state-financed think tanks dedicated to security, defense and foreign policy.

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The presentation was at the IMEMO building on Profsoyuznaya Ulitsa. Most of the speakers, both Russian and foreign, were harping on the threat of the proliferation of weapons of mass destruction coming from North Korea and Iran. As the nearby orange metro line stopped running and the traffic lights went black, I asked the speakers to assess whether they thought a large-scale power failure in the Moscow region -- which is full of various kinds of WMD like hazardous industrial plants, nuclear reactors and military bases -- would be a danger comparable to a rogue state possessing nukes.

A Russian government official responded that everything potentially dangerous in our country has reserve emergency power supplies, that nothing can possibly go wrong. SIPRI director Alison Bailes replied that the institute had recently been conducting extensive research into the consequences of the possible use of "weapons of mass disruption": deliberate, catastrophic blackouts, transportation and communications failures.

As the power crisis in Moscow and the neighboring regions developed, it became apparent that many vital installations did not have any emergency power supplies. Generating equipment had either been stolen or only installed on paper. Russia was lucky that last week's blackout did not lead to major loss of life or to a major industrial accident, but how long will our luck last?

Specialists had predicted a Moscow blackout would strike. Last February, former Deputy Energy Minister Vladimir Milov stated at a Moscow conference that only 10 percent of the Moscow regional power supply comes from sources outside the region. Moscow is the fastest growing regional economy in Russia, and electricity consumption has already surpassed its Soviet-era maximum, but no new generating capacity has been built. Moscow has virtually no spare power to meet emergencies, so a relatively small accident can lead to a huge breakdown. Blackouts could become a regular event.

Milov explained that Russia has one of the highest energy consumption rates per unit of GDP in the world. The collapse of industrial production in the 1990s created the illusion of large reserve energy capacity that could last a long time. Now that production has begun to recover, economic growth has swiftly increased consumption, while artificially low, state-controlled electricity and natural gas prices have discouraged investment in conservation.

This makes the present policy of economic growth utterly unsustainable. The more the state stimulates industrial production, the worse the energy crisis will become.

The reform of the electric power monopoly, Unified Energy Systems, has stalled. The reform of the gas monopoly Gazprom has been abandoned altogether. The state-controlled energy monopolies barely invest: Russia has abundant reserves of natural gas, but Gazprom has been decreasing investment in production in recent years, while using its connections in the Kremlin to prevent independent gas field development.

Milov believes that this mismanagement of the Russian energy sector will continue since Vladimir Putin and many others in Kremlin have a personal interest in keeping the inefficient Gazprom monopoly unreformed. By 2007, gas production in Russia will be in decline, and electricity production will at best stagnate. And Kremlin plans to take over oil production and limit foreign investment will most likely increase the energy havoc.

In a couple of years, the present mirage of a politically stable and economically prosperous nation could vanish without a trace. Russia will again become the economic basket case it was in the 1990s. As constant blackouts cripple the security infrastructure, the unreformed, disgruntled security services and the military may not be able or willing to protect Russia's nuclear arsenal and vital installations.

The weakness and corruption in the Kremlin today are just as great a threat to Russia -- and the world -- as Soviet might was during the Cold War.

Pavel Felgenhauer is an independent defense analyst based in Moscow.