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. Last Updated: 07/27/2016

UES Makes Plans for Controlling Spinoffs

State utility Unified Energy System, which is being broken up and privatized by next July, has cemented plans to maintain control over the power sector from the grave.

The Economic Development and Trade Ministry will be put in charge of policing the new owners of the companies spun off from UES after it ceases to exist. The ministry's goal will be to make sure the planned expansion of those spin-off companies gets carried out in full, whether the new owners like it or not, UES chief executive Anatoly Chubais said during a conference call late Friday.

Critics said the move went against the free-market spirit of the sector's reforms, which embody the largest-scale liberalization seen under President Vladimir Putin.

"To make the obligations of the shareholders more binding ... it has been decided, with the insistent backing of the president and the government ... that the shareholders' agreement will also be signed by the Economic Development and Trade Ministry," Chubais said. He did not elaborate on how the ministry would be able to enforce the agreements, but analysts speculated that it could hand out fines or revoke licenses.

The step to bring the ministry in as an arbiter comes amid an escalating war of words between UES and one of its largest stakeholders, Norilsk Nickel.

After buying control of major power producer OGK-3 in March, Norilsk said it could amend the generating company's expansion plans if they proved too large and too costly. Chubais rejected this, saying that the plans had to be carried out in full to help meet the nation's growing energy needs.

Until Friday, Chubais looked to be on the losing side of this debate. Russian law tends not to interfere in the rights of a controlling shareholder to spend a company's money at will.

"But if [the ministry] wants to, it can really crack the whip," said Dmitry Tsaregorodtsev, electricity analyst at CIT Finance. For instance, if Norilsk decides to spend its money on a nickel mine when it is supposed to be building new power stations, the ministry could step in and revoke the license for that mine until Norilsk keeps its promise to the electricity sector, Tsaregorodtsev said.

UES board member Alexander Branis said such meddling would be a flagrant violation of free-market principles.

"If Norilsk is ready to invest all this money, that's great," said Branis. "But those who are not ready, they must have the freedom to make that choice, without [the ministry's] interference."

Branis also said that UES had indeed overestimated demand when drawing up the expansion plans, which will need to be adjusted as the sector matures.

"We don't need this much new supply, but the state is twisting investors' arms to carry out these projects," he said. "More than likely they will be carried out in the end."

n UES has set a ceiling on the size of an additional share issue by TGK-10 at $1.23 billion, it said in a statement Friday.