Energy ministry advises Russia how to use windfall oil revenue

Oct 18, 2004 02:00 AM

The Russian government should use some of its windfall oil revenue to build a $ 15.5 bn oil pipeline to the Pacific coast and help electricity monopoly UES fund acquisitions of power assets abroad, the Industry and Energy Ministry said. The ministry proposed the government use money now accumulating in a special fund earmarked for use if oil prices fall to finance the development of energy infrastructure, Industry and Energy Ministry Viktor Khristenko said.
"Part of the fund's money should be spend on investment in the largest projects inside Russia, such as the power grid and the Eastern pipeline," Khristenko said.

In addition, as much as $ 1.4 bn of the so-called stabilization fund may be used to fund foreign purchases by Unified Energy Systems, the ministry's investment policy chief, Andrei Dementiyev, was saying.
"UES and its subsidiary Inter UES are actively consolidating their positions in the key electricity markets of Central Asia, primarily Tajikistan and Kyrgyzstan," Dementiyevsaid. "The use of $ 1.3 bn to $ 1.4 bn in resources from the stabilization fund over five to seven years will enable the UES group to act as a strategic investor."

UES is in the middle of an international expansion drive that includes power generation or distribution investment projects in former Soviet republics as well as politically sensitive moves to supply power to Iran, Turkey and China.
Russia, flush with cash from high oil prices, had $ 11 bn in the Finance Ministry-run fund as of Oct. 1, a figure that is expected to rise to $ 19 bn by year's end. The government also had hard currency and foreign exchange reserves of $ 98 bn as of Oct. 8.

The International Monetary Fund has urged Russia to use the fund to guard against an eventual drop in oil prices and to repay the country's foreign debt, rather than spend it on social or industrial needs.
Russia, which overtook Saudi Arabia as the world's largest oil producer this year, is planning a pipeline to ship as much as 80 mm tpy of oil (1.6 mmbpd) to the Pacific coast. Japan offered $ 7 bn in loans and investment to help build the link.

The government started the stabilization fund in January. Earlier, the government said it would invest the fund's money to buy government debt issued by the United States, Britain and the 12 euro-sharing countries.
Russia will use 160 bn roubles from the fund next year to pay down Russia's debt and another 74 bn roubles to cover the deficit in the State Pension Fund, Deputy Finance Minister Sergei Shatalov said.

Source: PIN
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