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. Last Updated: 07/27/2016

Deputies Want 100% of UES Spinoffs

Lawmakers threw up new roadblocks to a sweeping reform of the electricity industry Friday, demanding 100 percent state control over grids and other units of national power monopoly Unified Energy Systems in a new law.

The lawmakers, drawn from various parties, including the Communists and pro-government centrists, did not say how they would compensate private shareholders who currently own 47 percent of the semi-state electricity giant.

The government, which owns the other 53 percent, has promised shareholders they will receive a stake in the companies' split from the utility in proportion to their UES ownership.

Moscow wants to split UES into power generation firms, a grid monopoly and a system operator, which will direct power flows as part of its plan to reform the decrepit system and attract badly needed foreign investment.

However, lawmakers rejected the government's plans on dividing the assets.

"We are voting against [pro rata distribution of shares] because we are not ready for this kind of asset distribution," the deputy chairman of the lower house's budget committee, Georgy Boos, told reporters at the State Duma.

Boos and other lawmakers from the Duma, which refused to debate the reform in the spring, had been meeting government officials to discuss amendments to draft laws that must pass through both houses of parliament.

Minority shareholders were already nervous about their interests in the government's planned carve-up of the industry, and after Boos' comments UES shares fell and ended down more than 1 percent.

The government says it needs to liberalize the power market, where UES is currently selling power below production costs, to attract investment needed to upgrade crumbling infrastructure.

Regional leaders oppose reform because they fear electricity prices will rise if the government lifts heavy power rate regulation, a move that could infuriate voters. Elections to the Duma are scheduled for next year.

The government decided last year that the market would be liberalized in 2004 if the UES split goes ahead.

Lawmakers had already promised to challenge tariff reform and on Friday Duma members said that they will attempt to expunge a 2004 deadline for liberalizing electricity prices that has been written into the draft law on power sector reform.

The government official in charge of the reform, Economic Development and Trade Minister German Gref, said he would quit the process if the deputies amended the laws to ban pro rata distribution of shares in the grid company and system operator.

"UES can't be divided up disproportionally," Gref said. "I will get out of this process. I don't want my name associated with the mess that will result if it is."