#6 - JRL 7026
Russia govt to follow Duma's lead on power reform
By Ivan Rodin

MOSCOW, Jan 20 (Reuters) - Russian legislators said on Monday they had finally reached a truce with the government over electricity reform, agreeing to expand the government's powers in the name of protecting consumers and at the expense of speed.

A senior pro-Kremlin legislator said the centrist bloc in Russia's lower house of parliament had met with Prime Minister Mikhail Kasyanov on Saturday and agreed to give the government more power to decide when power prices will be freed and limit the volumes of power sold at market price.

"Our amendments were backed by the government and in large part by the president's economic adviser," Vladimir Pekhtin, leader of the pro-Kremlin Unity faction and the head of a bloc of four centrist factions, told reporters.

Andrei Sharonov, a deputy economy minister who has spearheaded the government's structural reforms, said the amendments made the reform more sustainable and predictable, and the government would follow the centrists' lead.

"We will discuss their amendments reactively," he said.

DOUBTS

After nearly three years of tweaking the electricity reform programme, analysts say Russia's senior politicians still have deep doubts about their plan to break up the state electricity monopoly and free prices.

"The price of mistakes could be very high," Kremlin chief of staff Alexander Voloshin, who is also board chairman of semi-state power monopoly Unified Energy System, said on Ekho Moskvy radio.

The power industry has complained in the past that the reform programme has grown less radical as it has evolved, but criticism has petered out as the Kremlin has shown it wants to impose a more conservative line behind the scenes.

The most oft-voiced fear is of unpredictable dips and rises in power prices which could play havoc with the finances of Russian industry and the poor.

The reform was concocted to bring investment into Unified Energy's antiquated infrastructure with the lure of market based prices and force the industry to operate more efficiently under pressure of competition.

The Audit Chamber, the parliament's accounting office, said on Monday that in 2000-2001 UES, the world's largest utility by installed capacity, had managed to increase capital investment only by state-approved increases in rates.

It also said that on average, equipment was 51.6 percent through its service life.

Voloshin told Ekho Moskvy, however, that UES had excess capacity which made the need for investment less urgent.

"We can grow capacity without replacing equipment, he said."

DELAYS

The amendments propose no fixed date for market liberalisation, instead linking it to structural reforms.

Oleg Morozov of the Russian Regions parliamentary faction, another member of the centrist bloc, said the amendments would slow the reform considerably.

"The introduction of these amendments will allow reform of the electricity industry to begin no sooner than in five years," Morozov said.

The laws were to have a crucial second reading in December, but that reading was cancelled indefinitely amid acrimonious allegations of influence peddling and President Vladimir Putin's calls to proceed with caution.

Many lawmakers were only too happy to heed Voloshin, fearing their constituents would punish them at the ballot box in December for approving any moves seen as costly to the populace.

"I don't see any particular delays to approving the laws on reforming UES," Voloshin said on Ekho Moskvy. "It is not worth dramatising the situation."