18-10-02 The power reform scenario proposed by Anatoly Chubais, the CEO of the Russian power grid monopoly UES (Unified Energy System), would be lethal to Russia if implemented, presidential economic adviser Andrey Illarionov said on 18 October at parliamentary hearings dedicated to the government's energy strategy until 2020.
"UES has proposed destroying vertically integrated power companies. This is fatal to Russia and it must be prevented," Illarionov, a bitter opponent of Chubais, said. He said eliminating these companies in Russia's Far East Maritime Region had led to the notorious energy crisis during the winter of 2000-2001, when the region was ravaged by continuous blackouts and heating shortages. "Now Chubais wants to spread this practice over the whole country," Illarionov said.

The government's package of power reform bills, which are based on Chubais's plan, were adopted in first reading by the State Duma, the lower house of the Russian parliament, earlier this month. If this reform is implemented, Illarionov said, the Russian economy will face a long period of stagnation. "Then you can safely forget about economic growth in the next 20 years," he said.
He said the UES economic policy had completely collapsed, "causing power rates in several Russian regions to soar above those in some European countries". According to Illarionov, UES is now "investing less than when Chubais’s incompetent team came in to run the grid monopoly".

Illarionov said the UES management "is trying to disguise the collapse of their policy and avoid opening the company's financial status to the public. Nobody knows how UES spends the money it earns," he said, noting that UES' budget is known to be larger than public spending on health care, education and law enforcement combined.
The package of electricity bills, approved by the Duma on 9 October by a vote of 261-152, is to provide the legislative framework for power sector reforms broadly aimed at separating generation from transmission and at creating a competitive power sale market.

UES, the government and the Duma have agreed that the current system of state tariff regulation will not be eliminated until after prices are liberalized in 2005. Under the bills, the government would increase its stake in the federal grid company, which controls transmission infrastructure, to 75 % plus one share from 51 % now and will remain the owner of hydroelectric power plants.
Also, ceilings would be introduced for power and heat rates, with the federal authorities fully in charge of setting such limits. Previously, tariffs were coordinated both by the local and federal governments. The Duma scarcely changed the fundamental power reform guidelines in its first reading.