NCPA - National Center for Policy Analysis

Privatizing Russia's Electricity

July 31, 2003

In May 2003, the shareholders of the Russian Joint-Stock Company "Unified Energy Systems of Russia" (UES) agreed to a plan to break up the company and privatize most of its subsidiaries.

UES, the world's largest utility, has been burdened by a decaying infrastructure, bureaucratic waste and ruinous state subsidies ever since the Soviet Union dissolved more than a decade ago.

  • Some 30 to 40 percent of Russian energy is lost in production, transportation, transmission or inefficient consumption.
  • Price controls force Russian generating companies to sell electricity at a loss, to the tune of $500 million by the end of last year.
  • To sustain economic growth, electricity generation must increase by 14 percent by 2010 and 54 percent by 2020, which will require capital investment of $167 billion to $267 billion.

Reforming Russia's energy sector, like its other state-monopolized industries, will involve eliminating state subsidies and price controls, creating competition, rounding up investment money and working towards profitability.

According to the new plan signed into law by President Putin, the UES will be divided into four autonomous companies: a Federal Grid Company to control the high-voltage power grid, ten new generating companies, a System Operator to coordinate electricity transmission and a Trade System Administrator to make sure all buyers and sellers of energy are treated fairly.

Source: Leon Aron, "Privatizing Russia's Electricity," Russian Outlook, Summer 2003, American Enterprise Institute.

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