Reforms at RAO UES: Chubais rejects good, Illarionov suggests bad

The fight about reforming Russia’s power system seems to be entering its conclusive phase. Deputy Raikov and People’s Party of Russia switched discussions with Anatoly Chubais to a political happening category. Russia President Putin strongly recommended chairman of RAO UES of Russia, the Russian energy monopolist, to wait a little with reforms. And Chubais seems to have ignored the recommendation. On the contrary, Prime Minister Mikhail Kasyanov called upon  the ministers not to hamper reforms initiated by Chubais. President’s Aide for Economy, Andrey Illarionov says the situation in RAO is Russia’s national shame and suggests that RAO’s top management should resign.  This was announced at a Baikal Economic Forum session on September 19. According to Illarionov,  poor professionalism and incompetence of RAO’s management have driven the Russian energy monopolist is a critical state. The presidential aide confirmed his words with impressive statistics: RAO’s shares dropped 60% within the past 1,5-2 years and capitalization of the company reduced almost three times, by $6 billion. Electricity production in Russia has been gradually declining within the last five years, although majority of Russia’s largest companies declare increase in output.

And what is more, RAO UES of Russia often exports energy at prices which are lower than on the domestic market. “Not a single Russian company takes the liberty to act so. Management of any company in any other country  would immediately retire in this situation,” Illarionov says.  To tell the truth, this is possible in any other county, not Russia. Anatoly Chubais says he will leave RAO not earlier than 2004 (by the next presidential elections), which means that it will be impossible even for the president to dismiss him. Indeed, RAO is a joint-stock company where the chairman is elected by the stockholders. So, Russia will have to be patient for some more time.
As for  the situation in RAO, things are not so awfully bad as Andrey Illarionov thinks. According to the reforms suggested by Anatoly Chubais, all competitive energy objects should be concentrated in RAO’s hands and unprofitable enterprises to be still maintained by the state. Then objects owned by RAO are  to be privatized, where foreign investors are more desirable. That is why understated capitalization and cheap shares are really favorable for foreign investors in this situation. And they, in their turn, will be really very grateful to Chibais. And it is not ruled out that foreign investors will be extremely thankful and even get him a job in the IMF.
The continuous decline in the energy production seems to be not a really great problem at all.  Russian oligarchs got really very tired of Chubais’s tricks and prefer to buy electricity from energy producers which are independent of RAO UES of Russia. And some of them, for example the aluminum king of Russia, Oleg Deripaska, even try to set up an energy system in Eastern Siberia which will be parallel with RAO. The oligarchs have got really very tired of tariff quarrels with Chubais. If Russian oligarchs, governors and such producers as Rosenergoatom Concern didn’t have to spent their resources on fighting Chubais’s reforms, they altogether would be able to expel RAO UES of Russia from Russia’s economy system. Let Chubais sell energy at dumping prices to China and don’t disturb others.  Certainly, it would be less expensive to dismiss Chubais at all. But as it turned out, neither the president nor oligarchs can do it.  
Dmitry Slobodanuk

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Author`s name Michael Simpson