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. Last Updated: 07/27/2016

UES Suit May Give Deripaska Power

A governor of Russia's industrial region is trying to review the privatization of the country's largest hydroelectric stations in a move that observers say benefits the interests of one of the country's most powerful oligarchs whose aluminum business dominates the region.

Alexei Lebed, the governor of Khakassia, a region in Siberia, has filed a legal suit calling into question the privatization of the Sayano-Shushinskaya hydroelectric plant. This supplies electricity to a giant aluminum smelter owned by Oleg Deripaska, who controls Russian Aluminum, the world's second largest primary producer.

Deripaska, whose wealth is estimated at $1.5 billion according to Forbes magazine, is understood to be close to Lebed. Last year he had reportedly paid personal taxes in Khakassia, contributing an extra 294 million rubles ($9.7 million) to the regional coffers.

The dispute comes at a time of heightened sensitivity about the political influence of Russia's oligarchs and their role in the country's reform process.The move is also seen by foreign and Russian investors as an attempt by oligarchs to secure control of energy resources ahead of the planned break-up of Unified Energy Systems, the partially state-owned electricity monopoly.

David Herne, chairman of the committee for strategy and reform of the UES, said, "This is a disaster for the international view of Russia, and this is exactly what foreign markets are afraid of when they see oligarchs interacting with the reform process."

The Sayano-Shushinskaya plant was privatized in 1993, and is 79 percent owned by UES. Parallel with the law suit, Lebed has also sent UES a draft of a "peace settlement" with the electricity monopoly, under which UES would have to guarantee to supply electricity to Khakassia region at a special limited tariff until 2020. Deripaska's smelter consumes 70 percent of all electricity in the region.

Seppo Remes, member of the UES board of directors, said, "This comes very close to blackmail of UES and we should be able to fight it."

UES said the true objective of the legal suit was not to return the hydroelectric plant into state hands, but to use it as a leverage for securing low tariffs for the region. Andrei Trapeznikov, a UES spokesman, said: "This legal suit has no foundation. Behind it stand commercial and political interests which have little to do with the interests of the state."

Mattias Westman of Prosperity Capital Management, an investment fund, added, "This could set a dangerous precedent for other regions."

The call for the effective "renationalization" of a hydroelectric plant comes amid extreme nervousness among the Russian business elite about the safety of their property rights. Deripaska could not be contacted Tuesday night.

This follows a crackdown on Yukos, the country's largest oil company, and the detention in Greece of Vladimir Gusinsky, a former media baron. "While some oligarchs are sitting in prison, others continue to demonstrate their political influence," one observer said.