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. Last Updated: 07/27/2016

Putin Urges Investment in UES

Itar-TassPutin holding a meeting on energy issues at his presidential residence Friday.
President Vladimir Putin urged the government on Friday to spur upgrades of the power sector and encourage investment in electricity monopoly Unified Energy Systems, warning that the industry was stretched by growing economic demand.

The remarks came as Moscow and a number of other regions in European Russia were recovering from some three weeks of unusually cold temperatures that put the energy supply system under serious strain and forced UES to introduce limits to electricity use for a number of industrial consumers in the capital. The situation, however, only highlighted long-existing problems faced by the nation's aging power grid.

"Lately, we've been talking about the problems of the power sector quite often, and the reason is not only the cold weather," Putin said at a rare meeting with UES chief Anatoly Chubais and energy officials from the government held in the Novo-Ogaryovo presidential residence on Friday, the transcript on the presidential web site said.

"The deficit in power production could limit economic growth. … I'd like to hear an exact proposal on future steps regarding the modernization of the power sector that would be connected with the creation of appropriate conditions to attract private capital, both domestic and foreign," Putin said.

Prior to the meeting, Chubais urged Putin to allow stakes in generating companies to be floated on foreign stock exchanges.

"We are ready to start floating generating companies this year and could raise $3 billion in the next two years," he said in an interview in Friday's edition of the Financial Times.

UES has monopoly control of the electricity market via majority stakes in 73 regional power distribution firms now being broken up under reforms of the power sector that affect every home and business in Russia.

The breakup of UES is seen as a litmus test of the appetite for reform in Russia. Russia's coldest winter in 30 years has exposed an acute shortage of generating capacity, Chubais said.

"The system physically cannot cope with demand," he said. "Even if we invest today, we are not going to see the result for the next three years."

UES calculates that the aging power network needs investment of some 15 billion rubles ($531 million) per year just to keep the heating and lights on in homes and businesses.

Large cities such as Moscow have long surpassed any consumption forecasts made during Soviet times, when most of the energy production and supply facilities were created. However, the much-needed power sector reform has faltered in recent years as the Kremlin has extended its control over strategic assets, particularly in the energy sector.

No deadline has been set for the completion of the reform, although in 2001 the government planned that the UES reform would be over by March 31, 2004. Chubais at the time also promised that once the reform was complete he would step down from his job.

UES is lobbying for an increase in electricity prices in Russia, which are regulated by the state. But analysts say the Kremlin is not keen on drastic reforms that would affect people's pockets ahead of the 2008 presidential elections.

UES shares jumped more than 5 percents on Putin's comments to 55 cents on a market irked by delays in power sector reforms, the most complicated restructuring ever undertaken in Russia.

Support from Putin is crucial for reform of the sector, which has suffered years of underinvestment and has stretched to the breaking point to meet rising demand.

"We regard Putin's remarks as a vote of confidence. His support is very important," said Alfa Bank trader Shani Kogan.

(Reuters, MT)