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. Last Updated: 07/27/2016

As Clock Ticks, UES Plans Still Unresolved

With little time left before Thursday’s Cabinet meeting that is to decide the fate of the nation’s power sector, the government still has a large number of unresolved issues on its checklist.

"Final decisions on ownership issues are yet to be made," said Vyacheslav Sinyugin, board member of national power grid Unified Energy Systems in charge of corporate strategy.

The main parties involved in discussion of the draft restructuring proposal have agreed to increase the government’s share in power transmission to 75 percent plus one share, he said on the sidelines of a conference called by Expert magazine Friday.

The government owns 53 percent of UES, which owns stakes in regional generating companies, federal power stations and the transmission grid.

Sinyugin also said it has been decided to keep state control over hydroelectric stations to mitigate the side effects of the reform effort, which aims to lower government ownership in power generation.

UES will set up an Association of Power Market Participants, which will include producers, consumers and independent experts or analysts, each group being represented by a third of the association members.

"The idea is to have more sellers and buyers in the market within a year from now," Sinyugin said.

But besides increasing the government’s share in transmission, keeping hydropower stations on its books and setting up the association, UES’ other plans are sketchy.

Despite the uncertainty, UES managers want the Cabinet to approve on Thursday a detailed restructuring plan that can be enacted next year.

"Unlike the Railways Ministry, we want to get approval of a detailed plan for next year," Sinyugin said.

Last month, the government approved restructuring reform in the railway sector, but failed to produce any concrete decision besides ordering a plan to be drafted by April.

Sinyugin said that the government is likely Thursday to approve both a general document, outlining the goals and principles of power sector restructuring, and a decree, listing urgent measures to be carried out before the end of the year 2001.

The dire straits of both the power and industrial sectors leave the government with little room to maneuver and little time to act.

It has forecast an electricity shortfall from 2004.

But even in the best-case scenario, power prices will rise, undermining the competitiveness of the domestic manufacturing industry.

Sinyugin expects them to reach 2 U.S. cents per kilowatt-hour in the middle term from the current 1.4 cents.

Estimates for the year 2010 made by UES and Institute of Power Research show prices go up to a range of 3 cents to 3.5 cents per kilowatt.

In 1996 though 1997, power tariffs surged to a peak of 3.7 cents, stifling industrial growth.

After tariffs fell to a low of 1.02 cents in 1999, the power industry’s share of gross domestic product fell to 9 percent this year from 16 percent in 1998, industry grew at 8.1 percent.

Industrial output was up 9.8 percent in the January-October period this year, although growth rates have slowed down in recent months.

The markets are holding their breath waiting for the outcome of the government meeting.

"If we bungle with natural monopolies reform the way we did with privatization, the mistakes will be fatal," Ruben Vardanyan, chairman of Troika Dialog brokerage, said at the conference.

"It’s Russia’s last chance to rejoin the club of developed nations."

UES is also by far and way the most popular stock among Russia’s foreign investors.

It makes up half of trading volumes in both Russian Trading System and Moscow Interbank Currency Exchange.