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. Last Updated: 07/27/2016

Energy Reform Takes a Step Back

The State Duma's decision to postpone the first reading of a raft of energy bills throws a kink in the government's plan to have the legislation ready by next year, Deputy Prime Minister Viktor Khristenko said Thursday.

"It will be possible but a lot more difficult" to have the legislation in place by 2003, Khristenko was quoted by Prime-Tass as saying.

The Duma will consider the bills after the summer break when it also is to consider the 2003 federal budget.

The bills would provide the legislative base for reforming national power monopoly Unified Energy Systems, which should lead to much needed investment in the sector.

UES chief Anatoly Chubais was exasperated by the delay. "Russian businesses, governors, the heads of 56 regional legislatures and the Federation Council support the approval of the bills. But the Duma has not decided yet," Interfax quoted him as saying.

The postponement will lead to a delay in investment, Chubais said. "The legislation does not yet exist, but the number of investment proposals from foreign and Russian investors has significantly increased," he said.

Forming the legal base for energy reform has gone on too long already, said Arkady Volsky, president of the Russian Union of Industrialists and Entrepreneurs, or RSPP. Without legal support "it is impossible to resolve the problem of investing into the energy sector, the problem of cross-subsidizing and the unpredictability of tariff decisions," he said.

The four centrist factions that voted to postpone the reading -- Unity, Fatherland-All Russia, Russia's Regions and People's Deputy -- said they had not properly studied the bills, which were drawn up by the government and Chubais. The four factions control the majority of votes in the Duma.

At its plenary session Thursday, the Duma proposed forming a working group with representatives from the government, Duma and Federation Council to iron out disagreements in the legislation.

The decision to postpone the reading is due both to the complexity of the reform and to the fact that there are alternative drafts of bills that have not been carefully studied, Deputy Economic Development and Trade Minister Andrei Sharonov said.

Alternative bills propose preserving state control over the sector, while the Economic Development and Trade Ministry insists on eliminating the government's role in competitive parts of the sector, such as power generation.

The government has proposed maintaining energy tariffs on the federal level, while other bills envision keeping the present two-level control, with the regions also setting tariffs.

"To reach a compromise at any price is not a way out," Sharonov said.

Sharonov said he is afraid the working group may change the concept of the reform. "All this is not about text changes, but the concept," he said.

Chubais' political influence did not help him push the bills through the Duma -- an indicator of the powerful political opposition to the proposed legislation.

The main barrier to the bills is the presidential administration, and all four Duma factions that voted to postpone the legislation are pro-Kremlin.

Presidential economic adviser Andrei Illarionov -- a long-time Chubais foe and an opponent of his energy reforms -- said this week that the UES chief's version of restructuring would have bad consequences for the company.

"Not only are investments not increasing in the sector, but what has already been invested into UES is decreasing every day," Interfax reported Illarionov as saying.

"The Kremlin is seemingly not willing to rush the issue," NIKoil wrote Thursday.

The delay signals only the political establishment's caution in tackling an extremely complex and sensitive issue, NIKoil said. "Therefore, our positive view on sector reform and the government's and industry leadership's commitment towards sector restructuring is reinforced."

"The government and the company's management are confident that they will be able to push the bills through parliament this year, and we believe this is a realistic goal," said Kaha Kiknavelidze, analyst at Troika Dialog.