Slow UES Break Up May Damage Russian Private Sector Prospects

Russia is slowing the break up of RAO Unified Energy System and may find it difficult to restore momentum to a plan designed to attract investment in the world's fourth largest electricity system, investors said.

Prime Minister Mikhail Kasyanov has put off for six months signing a decree to create wholesale generation companies. That is a key part of the plan he approved a year ago to slice up UES and more than seventy other regional units. Parliament last month delayed until September debating laws needed to complete the transformation.

Splitting up state controlled UES is a test of President Vladimir Putin's ability to turn Russia into a better place to make money by reducing the government's role in the economy, investors said. The utility's stock last year accounted for more than a third of all trades on Russian stock markets by value.

“Although I understand it is necessary to look over the plan, I am concerned that we maintain momentum in the restructuring process,” said David Herne, a UES board member who manages about $350 million of Russian assets at Brunswick Capital Management.

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