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. Last Updated: 07/27/2016

Cabinet Sets Key Investments

The Cabinet approved next year's investment programs totaling nearly $18.3 billion into the power, gas and railway sectors on Thursday.

The state monopolies -- gas giant Gazprom, the national power grid Unified Energy Systems, the nuclear power concern Rosenergoatom and Russian Railways Co. -- account for more than 20 percent of the nation's total capital investments.

Prime Minister Mikhail Kasyanov said it is time for the government to change its approach to preparing investment programs.

"The time has come to finance [these monopolies'] investments by a large scale through the market, as it should be in [private] corporations," Interfax quoted Kasyanov as telling the Cabinet.

But economists say that as long as the government controls them, these vital industries cannot behave according to market forces.

"There is no way for the monopolies to become more effective and be interested in cost-cutting as long as their markets are not liberalized," said Alexei Moisseyev, chief economist at Renaissance Capital.

He said that the companies cannot make medium-term business plans if rates are set yearly by the government.

Gazprom's investment program met the most criticism from the government.

The Cabinet approved Gazprom's plan to invest 232 billion rubles ($7.7 billion) in 2004, or $1.4 billion more than this year.

Next year Gazprom will step up capital investment by expanding its network of backbone pipelines to fufill export contracts, overhaul facilities and service the company's massive $13 billion debt.

Gazprom is expecting to reach an all-time high net profit of 180 billion rubles this year and has proposed to pay record dividends of 31 billion rubles ($1.04 billion).

The Cabinet declined to approve Gazprom's dividend plans. Energy Ministry Igor Yusufov said the government would recommend Gazprom cut its dividends to 15 to 17 billion rubles.

He said the Cabinet found it unreasonable to pay dividends more than 10 percent of net profit.

"Dividend policy may be revised downward," news agencies quoted Gazprom CEO Alexei Miller as saying after the Cabinet meeting.

Miller said that Gazprom would increase exports by 4.5 percent in 2004, to 140 billion cubic meters, further boosting its revenues.

"Gazprom is having its golden years due to high world gas prices. However, it is important for the company not to waste this benefit," said Vladislav Metnev, an analyst at Trust bank.

He said that in 2005 gas prices are expected to fall and that Gazprom should not delay getting rid of non-core businesses and cutting back costs.

The newly created RZD received approval to invest 134 billion rubles ($4.5 billion) next year for upgrades and the purchase of new rolling stock.

The Cabinet also approved investment plans for the power industry -- 27 billion rubles for Rosenergoatom, 45 billion rubles for UES's regional energy companies, 21.5 billion rubles of the UES and 23 billion rubles for the Federal Grid Company, or FSK.

When asked about the State Duma's renewed discussion of replacing UES CEO Anatoly Chubais, Yusufov said that the government considered the power giant "an efficient company."

According to the reform of the energy sector, UES will cease to exist by 2006 and be replaced by spinoffs. By then the issue of new power facilities should be resolved, Yusufov said.

But Sergei Suverov, an analyst at Zenit Bank, said: "The funds allocated for the UES and FSK 2004 investment programs are not sufficient for the new power and grid facilities needed."