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Chubais Hails Start of Power Trading

Electricity chief Anatoly Chubais on Friday hailed the lifting of restrictions on some wholesale prices as a "new era" for the power industry, but warned that severe shortages were likely to cause restrictions on electricity usage this winter and for some years to come.

Chubais, CEO of Unified Energy Systems, said a severe emergency like the May 2005 blackout in Moscow could scupper the government's reform program for the industry altogether.

Small volumes of electricity began trading Friday on the free market under new regulations approved by Prime Minister Mikhail Fradkov on Thursday.

"This is the kind of decision that moves the country forward," Chubais told a packed news conference.

The new rules allow wholesale contracts for commercial users to be set at prices other than those set by the government, but currently only affect the small proportion of electricity output not covered by existing long-term contracts.

Up to now, the state has set all electricity tariffs. The government will continue to set electricity prices for domestic users. Market-based electricity means energy can be traded through long-term contracts, bought short-term on the spot, or on the one-day-ahead or real-time markets.

Electricity could also be sold through futures contracts, Chubais said.

Under the government's electricity reform plan unveiled in June, $90 billion will be invested over the next decade to modernize the country's aging electricity generation plants and power grid.

Chubais admitted that the reforms had been seriously delayed, however.

"To be frank, we dragged on with reforms and lost two years. We should have had all these trillions two years ago," he said, referring to the government investment announced in June.

He also sternly warned that the power industry was in such a dire state that it might not survive the reform. This winter "we will enter conditions of heavy energy deficit," he said.

Dozens of regions will also face brief shortages in the summer, Chubais said.

Over the next two to three years, the chances of power failures will be high, and an "unprecedented" emergency cannot be ruled out, Chubais said. Most commercial users seeking new connections will likely be refused, he said.

In June, Industry and Energy Minister Viktor Khristenko said that 90 percent of businesses seeking a new power connection in 2007 would not get one, since 46 percent of the country's generators have exceeded their life span and the grid is overloaded.

But some industry analysts said the reform plan was still very cautious. The state's withdrawal from electricity price regulation is already installed as a slow retreat, rather than a clean break, said Lauri Sillantaka, an analyst with Troika Dialog. "At first, it will be very, maybe too, cautious," he said.

Under the new market system, power plants commissioned after Jan. 1, 2007, will be allowed to regulate their own tariffs. The plants currently in operation will have their prices liberalized only gradually.

From next year, the market rather than the government will set some electricity prices. In 2007, 5 percent of power consumption will be liberalized, and from 2008 5 percent to 15 percent will be put on the market each year.

State-regulated prices are to rise by 10 percent next year, climbing a further 9 percent in 2008 and 8 percent in 2009.


(The Moscow Times 04.ix.06)

 
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