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. Last Updated: 07/27/2016

Investors Concerned Over Power Reforms

Investors expressed concern Monday after the country's electricity monopoly proposed changes that would put an unlisted, little-known and state-regulated federal grid network in the driving seat of a complex industry restructuring.

Analysts said Unified Energy Systems told them in a late Friday conference call that its 52 percent stake in generation subsidiaries would be consolidated into the Federal Grid Company in a move some found at odds with reforms to break up state electricity assets to introduce competition.

"You are mixing free-market assets with a state-regulated company -- that changes the focus of the reform overnight," said Derek Weaving, a utilities analyst. "This has come completely out of the blue and adds a major new layer of uncertainty."

Weaving worried that the move mirrored the country's wider trend of consolidating strategic assets in state hands. "They are centralizing instead of breaking up," he said.

The restructuring of UES is the only reform game left in town. Elsewhere, the state is busy strengthening its grip in industries from oil to aviation and cars.

Alfa Bank power trader Shani Kogan said the proposals were a step back.

"The initial idea was to separate all the assets, now they're folding everything back into state holding," he said. "These proposals put the Federal Grid Company, about which we know very little, in the driving seat."

UES, which has some 700,000 employees, is spinning off its assets into generation, transmission and sales units and offering investors equity stakes in a host of generation firms. It says it needs $87 billion of investment.

Asked what the overriding argument was for the proposal, a UES spokesman said: "What's the other way? This is the best way to reorganize the company."

The consolidation of UES assets would allow the state to boost its stake in the Federal Grid Company, a 100 percent UES subsidiary, to 75 percent plus one share from 50 percent now. Market estimates on the grid network's value swing wildly from $5 billion to $15 billion.