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INTERVIEW-Head of Russia's UES soothes investor nerves
By Melissa Akin

MOSCOW, Nov 8 (Reuters) - The head of Russian electricity giant Unified Energy System sought on Thursday to reassure investors their interests would be protected as the power behemoth is split up.

UES CEO Anatoly Chubais told Reuters Television the firm had taken to heart some of the fierce criticism heaped on its original restructuring plan by minority shareholders, who saw a scheme to spin off power plants as a recipe for asset stripping.

"We ourselves accept a lot of criticism that was suggested by minority shareholders. I believe we really transformed the (restructure) programme before it was accepted by the government and by the president," Chubais said.

Chubais, an economist and former deputy prime minister who moved to the electricity giant after masterminding Russia's controversial mass privatisation programme, launched a plan to create a competitive power market by breaking up UES.

The plan is to spin off UES controlled utilities and power plants then consolidate most of them into around seven big power companies that will be forced to compete.

"The power sector is practically the last socialist one in the Russian economy. Socialism has to be destroyed at its foundations," Chubais said.

"The creation of a market environemnt competition is a deep factor that will bring health to the economy, especially in a core sector like the power sector," Chubais said.

"I can't say that selling assets is the goal of the transformation. The goal is to design a competitive market and make all transactions on the future electricity market as transparent as possible," he said. Chubais said controls were in place to guard against haphazard asset sales.

"We suggested to create a reform committe under the board. This committee is headed by one of the minority shareholders, an independent director of our company," Chubais said.

"There is no sales plan that could be accepted by the board before (it is) accepted by the reform committee," he added.

Chubais said minority shareholder influence over the restructuring had passed its first test when they managed to delay asset sales proposed as part of a restructuring experiment at a tiny regional utility, Belgorodenergo.


A revised plan that involves asset rental rather than sales is due for board consideration on Friday.

He said the board's reform committee would also have to approve 10 urgent investment projects Chubais has outlined to strategic investors as a foretaste of investment in the sector.

The minority shareholder heading the committee, UES board member David Herne, a fund manager at Brunswick Capital Management, said he had been "surprised on the upside" by his experience on the board.

The committee was set up to juggle the interests of the government, which owns 52 percent of UES, the management and minority shareholders. Herne said all sides found it useful to have minority shareholders support.

"So minority shareholders are winding up playing a much more important role than in the past and that is going to help us protect our interests," Herne said.

"These interests are really very simple," he added. "We want to make sure that none of the assets get stolen and we want to make sure that the restructuring happens in such a way that the resulting companies are of interest to portfolio investors as well as strategic investors."

United Financial Group chief strategist Christopher Granville said that the company's efforts to soothe investors were bearing fruit after the stock price halved during the heat of the conflict between management and investors last year.

Granville said President Vladimir Putin's tacit approval of the restructure plan gave investors built in guarantees.

"Investors are really betting on the Putin administration and the increasing confidence in Mr. Putin and his administration to deliver reform is reflected in improving asset prices in Russia as a whole and specifically in UES," Granville said.

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