The Unified Energy System (UES), Russia’s monopoly electricity company has finally submitted a plan that will lead to its own restructuring. The scheme will see the creation of ten generating companies to take charge of 48 power plants across the country. A pilot scheme at the small regional utility Belgorodenergo has already been approved by the UES board.

The division of the 48 plants among the companies has created one of the biggest problems for UES. The division has to meet three main sets of government approved criteria. The first of these is intended to prevent the establishment of new monopolies and to limit the ability of any of the new companies to manipulate energy prices on the wholesale market. A second set is designed to ensure the resultant companies are broadly comparable in capacity and profitability to encourage competition. Finally there are criteria to ensure the reliable operation of the electricity sector.

The UES has gathered together its hydropower plants into four generating companies and its thermal plants into six, with generating capacities between 850 MW and 10 000 MW. Fuel consumption of the thermal companies, a key factor in determining profitability, is around 340-350gm of fuel equivalent/kWh.

A great deal of bargaining still remains before the plan is presented to the government for approval some time early in 2002. The way in which the new companies are composed, geographically, will tend to make them immune to influence from regional governments and large industrial groups. However this is expected to lead to some strong lobbying before the deal is finalised.

There are also problems of compensation to be handled. Only 15 of the 48 plants are fully owned by the UES. Another 15 are separate companies or belong to one of nine regional Energos. According to one estimate, Mosenergo, Permenergo and Vologdaenergo could lose between 30 per cent and 95 per cent of their assets. “Minority shareholders will receive a block share in only one generating company,” Vitaly Zarkhin of Alfa Bank said.

Mosenergo, for example, will lose four plants, one to become the sole component of the tenth generating company. Calculating compensation under such conditions will be difficult.

Meanwhile the UES has said it will set up a state grid in January 2002 with assets of around $1.41 billion. The creation of the Federal Grid Co will constitute a major strand, enabling the introduction of a competitive market. Initially it will remain wholly owned by UES and will be created in stages, with completion due by 2004, when the company will become independent of UES, but still under state control.

The UES is also trying to launch a construction programme involving 10 plants, at a cost of around $1 billion, and an undersea cable linking Russia and Japan to cost of $9.6 billion.