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. Last Updated: 07/27/2016

Adamov Criticizes UES Role in Energy Sector

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At the beginning of last week, Nuclear Power Minister Yevgeny Adamov was called in for questioning in connection with illegal technology exports.
But Adamov is calm about the event and said he is no stranger to the work of investigators.
"We are working in an extremely sensitive area, so there is permanent cause for discussions with the prosecutors office, the FSB [Federal Security Service] and other bodies," Adamov said last week.
Adamov adopts a much harsher tone for discussing Unified Energy Systems and its head, Anatoly Chubais.
Adamov has come up with his own suggestions for reforming UES and has written a letter to Prime Minister Mikhail Kasyanov proposing that a single generating company be created for the power stations, while the distribution management body and networks be divided into another.

Q:
How advanced is the process of reforming the energy sector?
A:
No one noticed how this problem has turned around. It was proposed by UES and looked as though it concerned the problem of restructuring UES. This is how it was discussed last spring at [Kremlin Chief of Staff Alexander] Voloshins meeting in the Kremlin with the governors and so on. When the matter got as far as the government, then, the first thing that was agreed was not to discuss restructuring UES at all.
No one noticed this a result on which UES had expended a great deal of effort. They continued to discuss the question as if the matter had stayed the same. In actual fact, all specific technical proposals expressed by UES were withdrawn, and the two sets of preliminary discussions were connected with the problem of electrical energy, which does not come down to UES.
As a result, the government discussed only the peripheral conditions for reforming the energy sector. Though the ears in this case are not an asss but UESs, they stick out nonetheless. No matter what you do, UES is more energetic and shows more initiative than the Energy Ministry.
As regards the essence of UESs proposal under UESs initiative and Chubais in the first instance, the emphasis in the restructuring ideology has shifted. The absolutely correct argument that the utility needed investment was substituted for a theoretically inaccurate assumption that investment would come with the next stage of privatization. Having privatized half of UES, the investments didnt come in. It seems that in order to attract them, you have to privatize a bit more. This is an incorrect logical progression, and investments will not follow. It can easily be proved.
I have on several occasions suggested to Chubais: Announce today that you are prepared to let private investors build hydroelectric power stations on the Volga and the Yenisei rivers, or that they can build a gas or a coal-powered station in Arkhangelsk since the situation with gas isnt so good there. And you will rapidly see that not a single 100 percent privately owned company is prepared to build a power station.
The price of electricity doesnt guarantee the necessary profits. And if the situation is such, then the issue is not to quickly privatize everything that has yet to be privatized in the sector. The government is holding to a path that steers clear of increasing electricity prices to a level that will make them profitable for investors. And other methods for guaranteeing investments within the country must be developed. Or you take a risk on yet another shock move. I am deeply convinced that in this case the price would be higher than 4 cents per kilowatt. And no one other than the oil, gas and aluminum majors will be able to withstand this. And it wouldnt make them very happy either.

Q:
So everything will go through a second loop?
A:
I will say it again the desires of UES managers are well known from the press and from formal proposals. There is no document titled "What must be done with the countrys energy sector." It cant be prepared by UES. So now, the future document has at least the initial peripheral conditions. And on this basis, preparation is going ahead. I think the Energy Ministry will be most active in this regard. Not the Economic Development and Trade Ministry, there the number of specialists is simply inadequate. The ministry should consider one area alone macroeconomics. What must be done to ensure the program for developing the electro-energy sector in order to support generation capacity and the development of the networks?
Chubais is fighting to keep hold of the networks. You might ask: Have these networks, long held in the hands of UES, been developed in any way? In Samara, for example, for a long time there was a situation whereby the Balakovsk power station produced electricity for 11 kopeks per kilowatt and cost consumers 28 kopeks. The world over, the network tariff never exceeds the cost of generation. In other words, it should be 22 kopeks. If it were 28, then, one might think Saratov was home to grandiose network construction programs. Go and have a look. I dont see any.
Or take the situation at the Kola nuclear power station last year. Despite the fact that we overfulfilled our planned volume of electricity generation for nuclear power stations as a whole, the Kola station underproduced by 4.3 billion kilowatts per hour. There was no one there who needed it while the region, as those who work in the sector say, is "barred" the networks dont allow energy to be transferred to other regions. Nearby, the Arkhangelsk region is desperate for energy, and today, they are even trying to get gas up there. Which, as it happens, there isnt enough of in the country, and there isnt enough for export. Have we been witnesses to furious network development to ensure that electricity can be transferred from the Kola Peninsula? The Soviet-era drive to develop united energy networks has virtually been terminated, there is scarcely any significant network construction left.
Therefore, returning to UESs desire to keep hold of the network I believe that this should be the job of an independent company, preferably one with different management. The current managers have already demonstrated their aims. This doesnt have to be a state-owned company. When I talked about a state-owned company or wrote about a state-owned company in letters, I only meant that such an option existed. I believe some form of joint stock company would be most civilized. It is more transparent, more controllable, more manageable, stops the management from playing its magic tricks and easier for owners to keep tabs on. But today, the owner of the networks must be the state. Energy is an all-state achievement.
Let us compare. We have the half-privatized UES, which still has a long way to go before it gets to Soviet output levels. And on the other hand, we have the nuclear power stations that are purely state-owned and last year demonstrated their ability to produce power at the highest Soviet levels.

Q:
But while you increase output in typical Soviet fashion, its output UES simply cannot pay for.
A:
This is an incorrect assumption. We increase output, and at the same time the share of "live" money in payments increases significantly. We began the year at the level of 20 or so percent live money, and we end the year at 70 percent, i.e. a little over 40 percent on average for the year. And we have followed the agreement quite confidently until this summer [the four-party agreement signed by UES, Rosenergoatom, the Energy Ministry and the Nuclear Power Ministry, which set procedure for nuclear power stations and UES]. And this summer, Chubais simply tricked Rosenergoatom. He complained that he wouldnt be able to get hold of 65 percent live money by the end of the year while it had been agreed that by the end of the year the stations would be paid 65 percent in live money. And three days after this agreement, he announced that he would only take 100 percent real money in other words, abolish setoffs altogether. And thus, he took away our second non-live element of payments.

Q:
But have you reached some sort of compromise with UES by the end of the year?
A:
No, we have no compromise at the moment. As of Jan. 1, weve been living under the same conditions as the last few months of last year: Rosenergoatom only accepts live money.

Q:
You say about 50 percent of your turnover was simply taken from you. What do you plan to do about this? Just demand 100 percent payment in live cash? UES is unlikely to pay.
A:
The problem will be resolved if a state network company is created. We would pay this network company only for traffic. After all, when you send a refrigerator somewhere by train you dont sell it to the Railways Ministry. The railways only take a freighting fee from you. Why should electrons that come from nuclear power stations be bought? UES can decide whether to sell them to Finland for a different price than the domestic price or to Georgia. Or sell them to some insolvent private energy company.

Q:
What will your work with UES be founded upon over the coming months? Will a new agreement be signed?
A:
I believe there is no need to sign a new agreement now. There is the phrase "to cry wolf," after all. So if a partner lies once, then they have no more to do with the partner.

Q:
But you cant not do business with UES.
A:
I can have nothing to do with UES. I dont have anything to do with UES. I only deal with state management bodies. Rosenergoatom was negotiating with Chubais. There is UES, and there is Rosenergoatom they made the agreements. We and the Energy Ministry did no more than approve these agreements. I have said it is impossible to agree with a partner who is not in a position to keep his word to the government. The government must now regulate this process.

Q:
What will be created in place of Rosenergoatom?
A:
It is not instead of Rosenergoatom. It is within Rosenergoatom that all nine nuclear power stations will be united. [Currently, the Leningrad nuclear power station is not part of Rosenergoatom.]

Q:
But Rosenergoatom is only responsible for the safety of these stations while the new company will be granted much broader authority.
A:
Of course, safety comes first. But in reality, the organization is responsible for the entire set of economic functions. It is simply that they are so allocated that Rosenergoatom cannot answer for all its responsibilities.