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. Last Updated: 07/27/2016

Chubais Says UES Requires $118Bln

Itar-TassChubais speaking at Tuesday's briefing, where he said the Kremlin's tight grip on the private sector was a "dead end."
Head of state utility Unified Energy Systems Anatoly Chubais presented a $118 billion investment program Tuesday designed to boost supplies over the next five years as the country faces a surge in demand.

UES is seeking to attract $15 billion of investment this year to help build new power stations and revamp aging equipment.

All of this must come from private investors, Chubais said, because in energy production, "the less the government involvement there is, the better."

The state will still hold major sway, however. State-owned Gazprom announced last week that it would pool its electricity assets with SUEK, the nation's biggest coal producer. The resulting holding company will control at least 25 percent of the country's power production, an Aton Capital research note said.

Responding to the Gazprom-SUEK venture, Chubais said, "State capitalism is a dead end," referring to the Kremlin's policy of keeping a tight grip on the private sector.

Last year, demand grew 4.2 percent, more than twice what UES was equipped to handle, resulting in power shortages to hundreds of industrial clients in Moscow during winter.

Recent forecasts say demand will continue to grow by an annual 5 percent until 2010, meaning that about 41,000 megawatts of new capacity will have to be built over the next five years, almost twice what Russia has achieved since the collapse of the Soviet Union.

These facts have forced UES to abandon its earlier $81 billion investment program.

"That was clearly not enough to meet demand," Chubais said. "We desperately need more capacity."

Twenty power generating companies will by spun off from UES over the next two years. These will account for about 15 percent of the money needed to bring on line new capacity, more than 60,000 megawatts of it over the next 10 years.

Chubais also hit back at criticism that lowering Russia's energy use would be a far more effective response.

"Sure, why not just turn off the lights, sit in the dark for a while? No. That's not our answer," Chubais said. "Economizing cannot reverse the pace of growth we're facing. We need to expand."

Some experts insisted that this was wasteful. Fifty dollars can buy enough low-energy light bulbs to free up 1 kilowatt of capacity, said Igor Bashmakov, head of the Center for Energy Efficiency. By UES estimates, installing a 1 new kilowatt of capacity costs more than $700.

"There is nothing new or untested in this," Bashmakov said. "But no one wants to get involved."

One of the main reasons is that lowering demand will discourage investment on the supply side, he said.

Indeed, Chubais said that the main driver for raising the required investment would be the nation's thirst for electricity. "I am convinced that market structures react to demand. All you have to give them is demand."

Tigran Hovhannisyan, utilities analyst at MDM Bank, said that the price growth resulting from liberalization should naturally curb demand, which he said would average at around 3 percent per year, not the annual 5 percent UES is predicting.