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. Last Updated: 07/27/2016

Chubais Calls for Electricity Bill Revolution

Unified Energy Systems CEO Anatoly Chubais on Tuesday called on the government to tear up the Soviet-era system of calculating consumers' electricity bills and get with the times.

"The current system regulating tariffs is pointless and harmful," the power monopoly chief told an investment conference. "We are suggesting that the government completely reject determining tariffs based on operating costs."

The government sets electricity, gas and rail cargo tariffs once a year based on the operating costs of the so-called natural monopolies. As a result, when a monopoly's operating costs begin to grow it has to lobby the government to raise tariffs, but if it successfully reduces costs, tariffs are reduced accordingly, taking away a key incentive to streamline operations.

Chubais said he would demand that the government set power tariffs for the next three years based on economic parameters like the price of natural gas and the rate of inflation. He said the calculations should be applied separately to all of Russia's 89 regions, since their parameters differ.

"[This system] will give us an opportunity for radical cost-cutting, [because] our managers and consumers will understand what they have to work with over the next three years.'

Last week, the Cabinet limited tariff hikes on electricity next year to 16 percent, or just a few percentage points above the expected rate of inflation.

"We accept this figure for next year and for the first time are abandoning the practice of opposition or dialogue or horse-trading on tariffs," Chubais told a Renaissance Capital conference.

Russia will gradually move to a liberalized power market over the next five years, and industry should get used to price pressure and a new logic in formulating prices, he added.

"A general manager will no longer have anyone to cajole or convince, no regional energy commission to complain to that fuel oil costs more this year than it did last year."

Chubais said he explained his position at a Cabinet meeting Thursday and that members agreed to consider it.

Deputy Economic Development and Trade Minister Andrei Sharonov told the same conference that the government is ready to consider medium-term tariff planning.

"On the whole, we agree. We are trying to do this," Sharonov said, adding that the idea would encourage investment by making the industry more predictable.

Sharonov also said that in two weeks the government would issue a long-awaited decree creating the 10 wholesale generating companies that are to be sold off in a key phase in the breakup of UES.

Although excluded from the blueprint for the breakup that was approved by UES shareholders at their annual meeting Friday, Chubais said he would not give up on the idea of attracting foreigners to run the wholesale generating companies.

That idea did not sit well with Base Element, aluminum tycoon Oleg Deripaska's holding company, which amassed a sizeable stake in UES ahead of the annual meeting, allowing it to win a board seat.

Base Element's representative on the board, David Geovanis, said several minority shareholders "are categorically opposed to hiring foreign managing companies."

But Chubais said foreign expertise was needed: "I have nothing against Russian management, but we must introduce a foreign culture."