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Duma Reading Postponement Could Stall YeES Reform Five Years

CEP20021121000246 Moscow Kommersant in Russian 21 Nov 02

[Report by Alena Kornysheva: "YeES Russian Joint-Stock Company Reform Will Happen Either Now or in Five Years" -- taken from HTML version of source provided by ISP]

[FBIS Translated Text]
The Duma Council will today [21 November] determine the date for giving its second reading to the package of laws on power generation -- the leaders of four Duma factions advocated postponing it the other day from 29 November to 18 December.  The YeES Rossii Russian Joint-Stock Company is cautious about the deputies' initiative -- it is worried that the second reading may be postponed until spring.

   The fact that the deputies are postponing the second reading of laws pertaining to reform of power generation was mentioned Friday by Vyacheslav Volodin, head of the Fatherland-All Russia faction.  Previously Yabloko leader Grigoriy Yavlinskiy had complained about the laws to President Vladimir Putin and even proposed drawing up a new law entitled "On Electric Power Generation" instead.  As a result it was decided not to rush matters and to examine all amendments calmly (opinions on this differed -- according to deputies' figures, 1,800 amendments have been submitted, while according to the figures supplied by the Russian Joint-Stock Company, there were just 800, and 600 of them related to the baseline law "On Electric Power Generation").

   Of course, compared with the experience of the package's first reading (which, as is well-known, was moved no less than five months -- from June to October) a mere three weeks' wait should seem like an utter trifle to the government and the Russian Joint-Stock Company.  But if the postponement is more significant (January or longer), this will mean just one thing -- that the reforms will be halted for at least five years.  The logic is simple -- deputies will clearly not be making any dramatic progress in a preelection year, so examining the laws in the spring would be quite simply dreamland.  And then there will be the 2004 presidential election, after which a change of government is possible, and everything will be back where it started.  But even if it is not necessary to resubmit the laws, preparing a new system for a free electricity market will take at least two years, so realistically the laws will not be able to come into operation any earlier than 2007, and that will once again be a preelection year.  So a few days could mean years of major technological backwardness for the sector -- after all, the main aim of the reforms is to raise investment.  We would note that the level of technological backwardness in power generation is already at the level of 20-30 years according to various parameters.  Because of this, Russian power generation workers burn off 40 billion cubic meters of gas for no reason every year -- that is, they waste $4 billion.

   Since the reform is marking time, unresolved problems that have built up are beginning to surface.  For instance, the YeES Russian Joint-Stock Company has long been sounding the alarm about the prospects for a mass exodus of major customers to the wholesale electricity market -- the FOREM [Federal Wholesale Market for Electricity and Generating Capacity].  Given the current levels of cross subsidy (amounting to around 40 billion rubles a year that major industrial enterprises overpay for electricity used by the population) this threatens to result in a real disaster -- if enterprises leave for the FOREM and, correspondingly, stop subsidizing the population, local authorities will be forced to raise their energy tariffs several times over all at once, which, naturally, would trigger a social explosion.  "All the consequences would nonetheless be put down to reform, even though it has nothing to do with it," the Russian Joint-Stock Company is stating.  Apart from cross subsidies, the YeES Russian Joint-Stock Company is constantly at war with the government over deliberately reduced tariffs that do not allow for capital investment to be recouped.  Consequently, no sober-minded investor would invest in power generation under these circumstances.  The YeES Russian Joint-Stock Company sees its task in the transitional phase as being to prevent any collapse in investment in the first two or three years when the Russian Joint-Stock Company in its current form will cease to exist (the Russian Joint-Stock Company currently invests around $1 billion a year on average).  The energy holding company sees the creation of an investment guarantee fund as a way out of this situation.

   As far as the intracorporate scandals that periodically arise at the Russian Joint-Stock Company are concerned, the recent approach made by minority shareholders to Aleksandr Voloshin, chairman of the board and head of the Presidential Staff, ended without result -- an EGM was not convened, Anatoliy Chubays was not dismissed, nor did they get the company charter to include a ban on the sale of assets.  Despite this, the Russian Joint-Stock Company's shares are up by 54 percent (whereas the rest of the Russian stock market is up relatively insignificantly, by just 2-3 percent) in the slightly less than two months since the announcement of the moratorium on asset sales (adopted under pressure from the minority shareholders).  Regrettably, Western investors continue to have no interest in the Russian Joint-Stock Company's shares, but Russian investors clearly believe that the reform will nonetheless be moving ahead.

[Description of Source: Moscow Kommersant in Russian -- Informative daily newspaper purchased by Boris Berezovskiy in 1999 and often reflecting his viewpoint.]



Kommersant Eyes Illarionov-Dubinin Spat Over Energy Reform at Boston Symposium

CEP20021119000109 Moscow Kommersant in Russian 18 Nov 02 P 14

[Report by Sergey Minayev under the "Reformers" rubric: "'YeES Rossii Russian Joint Stock Company Wants Monopoly on Power.' Continuation of Furor at Boston Symposium"]

[FBIS Translated Excerpt]
Saturday [16 November] Kommersant reported the furor that took place at the Boston investment symposium between Russian delegation members.  Kommersant observer Sergey Minayev sums up the results from the scene.  [Passage omitted on Yukos boss Mikhail Khodorkovskiy's speech at Boston symposium]

   Andrey Illarionov, the president's economic adviser, pointed out in his speech that at a time when Russian companies are demonstrating their ability to earn money and increase their assets, the managers of the YeES Rossii Russian Joint Stock Company have demonstrated their ability to reduce assets, bringing about a fall in the share price.  It looks as though the management of some companies creates wealth, whereas in others it destroys it.  The situation is starting to resemble 1998 when the government and the Central Bank devalued the ruble and caused investors huge losses.  The YeES Rossii Russian Joint Stock Company's proposed reform, Mr. Illarionov stressed, merely heralds monopolization.  What is more, the YeES Rossii Russian Joint Stock Company "is aspiring not only to monopolize electrical capacities, it wants the monopoly on power."  The nonmarket sector in Russia needs to be scaled down (if only for the purpose of cutting tax), consequently, real reform of the YeES Russian Joint Stock Company is essential.

   In response Sergey Dubinin, YeES Russian Joint Stock Company deputy CEO and former head of the Central Bank, stressed that Mr. Illarionov's comparison of the YeES Russian Joint Stock Company with other companies in terms of the creation and destruction of wealth is incorrect.  In Mr. Dubinin's opinion, Mr. Illarionov's recommendations not to invest money in Russia and reduce the ruble exchange rate "make it unclear where the source of Russian GDP growth lies."  Mr. Illarionov in turn immediately doubted Mr. Dubinin's understanding of his position in the sphere of foreign investment and the ruble exchange rate (in the process he used expressions like "professional liar" in respect of his opponent).

   Participants in the symposium organized by Harvard University got an opportunity to dip into a lively atmosphere of scientific debate and the Russian economy.

[Description of Source: Moscow Kommersant in Russian -- Informative daily newspaper purchased by Boris Berezovskiy in 1999 and often reflecting his viewpoint.]

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