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Russian energy group plans expansion drive

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  • Russian energy group plans expansion drive

    Russian energy group plans expansion drive
    By Stefan Wagstyl and Arkady Ostrovsky in Moscow

    FT
    September 29 2004

    Unified Energy System, the Russian electricity monopoly, is considering
    politically sensitive moves to supply power to Iran, Turkey and China
    as part of an international expansion drive.

    The group is planning investments in power generation and/or
    distribution in the countries of the former Soviet Union on Russia's
    southern borders, including Kazakhstan, Kyrgyzstan and Tajikistan,
    which would complement existing UES investments in Georgia and
    Armenia. Once these are in place, UES will be in a position to build
    connecting links to Iran, Turkey and China and use an existing link
    between Armenia and Iran.

    Anatoly Chubais, UES chairman, said the moves would make sense
    commercially in spite of the political challenges involved in dealing
    with several different countries lying in a politically sensitive
    region. "There's a business logic. There's a good price for electricity
    in Iran, China and Turkey," he said.

    The planned investments by the state-controlled UES might be seen
    in some of the former Soviet republics as a new form of Russian
    imperialism.

    But Mr Chubais, a leader of Russia's liberal Union of Right Forces
    party, said UES's plans were in tune with his programme of "liberal
    imperialism" in which businesses, not governments, took the initiative,
    acting out of commercial, not political, motives. Mr Chubais said the
    proposed Kazakh investment was a stake in a large power station but
    he declined to give details of the plans in Tajikistan and Kyrgyzstan,
    as talks were at a sensitive stage.

    The group's existing investments in the region include about 20
    per cent of Georgia's generating capacity and 35 per cent of its
    distribution network. In Armenia, it controls 85 per cent of generation
    through its management contract for the Metsamor nuclear plant. Mr
    Chubais said these investments could open doors to larger markets.

    Earlier Mr Chubais told an investment conference that the company was
    preparing for reform of the domestic electricity market, in spite of
    the fact the government postponed key decisions this year.

    Under the plan, UES would be broken into distribution, transmission
    and generating companies which would mostly be privatised. But
    Mikhail Fradkov, the prime minister, delayed implementation, saying
    he needed more time to study the mechanism of deregulation and its
    impact on households.

    The government is now due to reconsider the reforms on December 2.

    Mr Chubais said yesterday that UES had proposed new plans under
    which prices would be liberalised only slowly - over 3 to 5 years -
    to protect vulnerable consumers.
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