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. Last Updated: 07/27/2016

Energy Reform Bills About to Hit Duma

The government is to submit to the State Duma within days a long-awaited package of bills that will provide the legislative base for energy sector reform, Deputy Economic Development and Trade Minister Andrei Sharonov said Wednesday.

The lack of legislation has delayed restructuring of national power monopoly Unified Energy Systems. The restructuring is expected to attract badly needed investment to the sector.

The government is to submit a new electricity law, as well as changes to the Civil Code, the Tax Code, the anti-monopoly law, the law on regulation of electricity tariffs, the law on competition and the law on energy conservation.

The bills aim to set a framework for the restructuring and to introduce a new pricing mechanism for the electricity market.

The electricity law -- the most important of the bills -- envisages changes in the transmission and distribution of energy, the transfer of the regulatory function for the sector from the regional to the federal level, and liberalizing the industry's competitive sectors, generation and supply.

According to the reform plan, approved by Prime Minister Mikhail Kasyanov last summer, the new electricity law was to have been passed by the Duma in December 2001.

"We admit that the government has dragged out passing the bills," Sharonov told the Federation Council, Interfax reported.

The council was discussing energy reform because of the delay in the bills' submission to the Duma.

The presidential administration had expressed concerns about some of the bills' key provisions, Sharonov said, and the government spent a long time studying those concerns.

Analysts were pleased the legislation was finally on its way to the Duma, but they expressed doubts about changes to the bills and the future of the bills in parliament.

"It is good news, although it is necessary to see the final version of the bills," said Vasily Nikolayev, an analyst at Troika Dialog. "The bills will find rather active resistance in the Duma; all will depend on the balance of political forces.

"It is very important not to further delay the reform," he added.

"Due to political risk, I'm afraid those bills will not have an easy time in the Duma," said Ilya Marshak, an analyst at NIKoil.

Furthermore, the Economic Development and Trade Ministry plans to submit to the government by May a bill for creating 10 large generation companies, or gencos, Sharonov as said, Prime-Tass reported.

Six heating gencos and four hydroelectric gencos are to be created. The list of energy facilities to be merged into the gencos will be spelt out in the draft bill.

A final plan for the gencos had been expected to be approved by the government earlier this year.

Gencos were to be set up by merging 32 power plants and several regional energy companies in the first quarter.

"The plan was unrealistic from the very beginning," Marshak said.

Creating gencos will become "the foundation of the future electricity sector," UES CEO Anatoly Chubais told the Federation Council, Prime-Tass reported.

Chubais said that UES has proposed creating a fund to help poorer customers pay for electricity as prices increase. He said that within three years electricity tariffs will have increased 100 percent on average.

The federal budget should contribute some 8 billion to 9 billion rubles ($300 million) to the fund, Interfax reported Chubais as saying.

Sharonov said a tariff increase of between 100 percent and 150 percent would not depress economic growth.

A well-grounded energy tariff through which the sector can attract investment and become profitable is $0.026 per kilowatt-hour when gas costs $50 per square meter, according to the Troika Dialog.

The average electricity tariff is currently $0.017 per kWh.