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. Last Updated: 07/27/2016

Official: UES Tariffs to Be Set by Regions

When the dust settles over a set of draft laws needed to complete sweeping power reforms, local governments are likely to retain control over rates, despite plans to free the market, a senior lawmaker said.

"Practically everyone agrees with free prices, but many still want to keep prices low for some sacred cows. They probably will," Valentin Zavadnikov, a member of the Federation Council and board member at Unified Energy Systems said in an interview late Wednesday.

Zavadnikov, who heads the committee on industry in the upper house of parliament, said regional leaders were not budging on their demands to keep rate regulation local.

"We are moving toward compromises. The only systematic question that is still unsolved is division of regulatory powers between the center and the regions," he said.

The State Duma refused earlier this summer to consider the bills, which when passed would underpin the transfer from heavy government power tariff regulation to a liberalized power market, and called for a commission of lawmakers and government officials to work out amendments.

UES, which initiated the breakup of its own near monopoly more than two years ago, says the reforms are needed to attract investment to rickety infrastructure.

As former deputy chief executive of UES, Zavadnikov was an initiator of the breakup plan, in which UES and its subsidiaries will spin off power generators and force them to compete on a liberalized market. He was appointed to the Duma to represent the central Saratov region, then elected to the UES board in June.

The plan could deprive regional leaders of influence over prices, which could spike when the market is liberalized. The laws would create a legal basis to cut off those who cannot pay.

Power cuts are a sensitive issue in Russia after several winters when cities and towns sporadically lacked heat and power, and political leaders up to and including President Vladimir Putin are under pressure to ensure the lights stay on.

Putin faces re-election in 2004, and the Duma will be re-elected next year.

The Cabinet's energy chief, Deputy Prime Minister Viktor Khristenko, attempted to appease regional leaders this week by promising a special government commission would vet plans to divide up each of UES's 74 local subsidiaries to see they satisfy the economic interests of consumers and regional governments.

The latter risk losing tax revenues as local power generators consolidate into pan-Russian companies. Zavadnikov said the government could strip the articles on price formation from the draft laws and put them in a new bill to prevent debate over the bills dragging out.

The commission is due to present its compromise amendments on Aug. 26.

"The government has managed to preserve a liberal law but it has a lot of points that will restrain the development of markets in the future," Zavadnikov said. "There is no doubt the reform will happen -- the question is when and how."