Outside View: RAO UES liquidation near end

MOSCOW, May 30 (UPI) -- Russian electricity holding RAO UES, which will be liquidated on July 1, 2008, held its last general shareholder meeting on May 28.

The only assets of the holding to be controlled by the state will be its dispatcher service, hydropower plants and nuclear power plants. The holding's thermal power plants will be privately owned.

This will complete Russia's drawn-out reform of the electricity sector, while Europe is only considering such plans.

The company's last shareholder meeting passed off in a businesslike atmosphere, all decisions relating to the reform and liquidation of RAO UES having been made long ago.

Anatoly Chubais proposed the liberalization of RAO UES, set up in 1992, when he became its chief executive officer in 1998. But reforms began only in 2003, after a package of relevant laws was adopted.

In the first stage, the holding's generating assets (power plants) were separated from its power transmission lines. After that, its thermal power plants were united into six extraterritorial wholesale generating companies (OGK) and 14 territorial generating companies (TGK), thus creating a competitive sector in the Russian power industry.

The bulk of these companies have been sold to private investors, including foreign ones. They are also taking over the holding's sales, service and repair companies.

The state will retain control only of power transfer through main grids (the Federal Grid Co.) and the dispatcher service (the System Operator). At the same time, the government has also decided to control hydropower plants consolidated in HydroOGK.

In March this year electricity export-import operator Inter RAO was turned over to the state corporation Rosenergoatom, the controller of Russia's nuclear power plants, which have never been part of RAO UES.

The authors of the reform expect private investment to flow into the competitive sector of the Russian power industry (OGK and TGK), helping to satisfy the growing demand for electricity.

In 2007 private investment in power plants totaled 500 billion rubles ($21 billion). From 2008 to 2012 these plants hope to attract 4.3 trillion rubles ($182.4 billion) in investment, enough to build 40 GW of new capacity.

Private investors, who will want to use the plants' revenues for investment in other assets, will raise tariffs. The high price of connection to power lines already has become a serious problem for consumers.

The Russian government plans to increase the country's generating capacities from 220 GW to 456 GW by 2020. The completion of RAO UES' reform therefore is creating new challenges to manufacturing, primarily power engineering, because the new masters will need modern equipment to commission new energy facilities.

Can Russian companies satisfy this demand, or will rivals from the West and the East take over this market? RAO UES officials believe this problem does not need regulation in market conditions.

Boris Vainzikher, the technical director of RAO UES, said at a news conference in April 2008 that Russian producers manufacture 60 percent of energy equipment marketed in Russia and the rest is imported. He said Russia mostly imported gas-fueled turbines that it does not produce.

Vainzikher does not expect the situation in the Russian power engineering market to change significantly.

However, Russian companies face major challenges if they are to retain their share of the market. Most pressingly, they need special equipment to produce modern turbines, which Russian manufacturers cannot supply. Thus considerable investment also should be poured into power engineering.

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(Oleg Mityayev is an economics commentator for RIA Novosti. The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.)

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(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)