#2 - RW 270
Izvestia
August 20, 2003
CANDLELIGHT DINNER
A major blackout could happen in Russia as well
Author: Ekaterina Kravchenko
[from WPS Monitoring Agency, www.wps.ru/e_index.html]

THERE HAVE BEEN NO ELECTRICAL SYSTEM DISASTERS ON THE TERRITORY OF THE FORMER SOVIET UNION COMPARABLE WITH THE BLACKOUT THAT HIT NORTH AMERICA. HOWEVER, THAT IS NO GUARANTEE THAT WE WILL NOT EXPERIENCE MAJOR BLACKOUTS IN FUTURE. VARIOUS EXPERTS OFFER THEIR OWN WARNINGS ABOUT ELECTRICITY REFORMS IN RUSSIA.

There have been no electrical system disasters on the territory of the former Soviet Union comparable with the blackout that hit North America. However, that is no guarantee that we will not experience major blackouts in future. Electrical energy experts who are familiar with how the Soviet-era electrical system operates say that unless emergency measures are taken, our system could break down on a scale no less severe than recent power failures in the United States and Georgia.

Experts believe that reducing state control over the Russian electricity sector and eliminating its vertically-integrated structure will make electricity supplies less reliable: the laws being passed contain too few points about guaranteeing reliable supplies to consumers.

At present, Russia has enough of the reserve capacities that are brought into play if non-routine or disaster situations arise. But as a result of reforms the reserve capacities will be minimized, since no one will want to pay for them.

Boris Varnavsky, president of the Energy Regulators' Association: "Electricity sector reforms address economic problems, of course, but investment in the power grid will be reduced. So reserve capacity will fall: once the electrical energy system shifts to a free market basis, there will be no mechanisms to stimulate investment in reliability." Varnavsky says state agencies ought to presecribe state standards on this issue and increase state oversight. Varnavsky: "It was completely wrong to cancel the licensing system for electricity production. Moreover, the existing unified system is mostly held together by state leverage and vertically integrated connections; but there is no guarantee that such leverage will be preserved in future." So when the free market starts functioning in the electricity industry, the integrity of the power supply system will be placed in doubt.

According to electrical energy experts, in the Soviet era each undelivered kilowatt-hour led to losses ten times as high. Varnavsky: "But nobody is considering the economics of this now; there are no tough requirements from consumers, so the economic damage is present in a covert form. Neither should we forget that in the Soviet era the priority was reliability and non-interruption of power supplies." Varnavsky believes it is essential to toughen current legislation on reliability of electrical energy supplies. Unless this is done, Russia's electrical system will no longer be protected against disasters.

Rosenergonadzor (Russian Energy Regulation) considers that the grid system is satisfactory for the current architecture of the electrical system, but it will prove obviously underdeveloped for the free market. A Rosenergonadzor representative says: "Ideally, of course, it would be possible to calculate how grids will develop; but since it's not clear how the electricity market's structure will change under free market conditions, we cannot predict what will happen to the grids a few years from now."

Marat Avleev, an analyst with BrokerKreditServis, says: "Since power generation is where the profits are, there is some concern that investment in the grid will sharply decline in the wake of reforms. However, the situation isn't entirely clear for power generation either: 50-60% of the infrastructure is worn out." According to Avleev, some estimates say $40 billion is required to renovate the Russian electricity industry's infrastructure. "But Russian Joint Energy Systems already has more than enough capacity. So infrastructure will only be upgraded after a natural selection process takes place in the industry: once inefficient power stations have ceased to function."

Presidential economic advisor Andrei Illarionov says the blackout that hit the US and Canada provided further convincing evidence that reforming Russia's electrical energy industry according to the currently-approved scenario would be a dubious and dangerous move. According to Illarionov, the preliminary investigation done by the US and Canadian authorities shows that one of the main reasons for the scale of the crisis was an underdeveloped power grid, with insufficient delivery capacity and a lack of reserves. Illarionov says: "Not even the vast power generation capacity of the United States could prevent a crisis when an emergency arose." The grid could not compensate for the problems, so outages spread across a large territory.

Russia's power grids have much less reserve capacity than those of the United States. Thus, Illarionov believes that not even great power generation capacity would enable Russia to avoid an energy disaster if the generators are not connected by effective networks.

(Translated by Gregory Malyutin)

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