03 November 2003 15:00
Russia takes first step in opening electricity market
THE fallout from the dramatic arrest of Mikhail Khodorkovsky last week has not stopped Russia's Prime Minister,
Mikhail Kasyanov, from approving the creation of the first wholesale market for electricity since 1917. Deals at
unregulated prices started on 1 November.
The first stage will allow a few Russian power companies to sell a limited amount of electricity on an unregulated
market over the next three years, a trial period before the sector is fully deregulated in 2006.
"This is a welcome development," says Hartman Jacob, a utilities analyst with Renaissance Capital in
Moscow. "It is limited but remains an important first step." The rules set the criteria for selecting the
generating companies which can sell electricity and how much power can be sold. Analysts call it the 5-15 market:
selected stations will be allowed to sell between 5% and 15% of their output. Its advent marks the mid-point in
Russia's reforms to overhaul dilapidated Soviet-era power stations, one of the world's largest power
grids.
Electricity is an emotive issue for Russians. The launch of the market has been delayed several times because of rows
between producers and customers. Large power-hungry consumers, such as Russia's aluminium producers, are asking for
long bilateral contracts with the low-cost power stations. This will result in higher prices for everyone else.
Stalin built about a dozen enormous hydroelectric stations to produce cheap electricity. Another two-thirds of
Russia's power stations burn gas, which they buy at subsidised prices from the state gas monopoly. This cheap power
saved the economy from collapse during the economic chaos of the past 10 years and has underpinned Russia's recent
dramatic growth. A wholesale power market will increase prices by between 20% and 30% but they will still be cheaper
than in the West. The restructuring is also sensitive because Russian industry pays more for electricity than domestic
users. The legacy of communism means ordinary Russians expect gas, electricity, and phone calls to be free or at least
cheap. Regional governors are afraid of political fallout if the electorate is hit by big rises in electricity
prices.
In a piece of highly un-Russian symmetry, five buyers and 15 power traders have already lined up to take part in the
5-15 market. Russia's generating capacity is about 300bn kilowatt hours (kWh). Sales in the unregulated sector will
be between 15 and 45bn kWh.
With so much generating capacity on offer, foreign companies, including Germany's Eon, Italy's Enel and
Finland's Fortum are lining up to bid for management contracts ex-pected to be offered in Russia's north-west
territories soon.
[UKIR [UK & Ireland Intelligence Wire]] |
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