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Russia: Uncertainty Prevails On Energy Policy
By Michael Lelyveld

In the past week, Russia has postponed measures to restructure both its gas and electricity sectors. The government may be wary of taking political risks in the upcoming election year.

Boston, 3 January 2003 (RFE/RL) -- The new year is beginning in Russia with little sense of direction on essential energy reforms and perhaps even less agreement on how to proceed than in 2002.

In recent days, steps to restructure both the power and gas sectors have been put off, leaving the outcome uncertain after a year of preparation and debate.

In both cases, the postponements have left few clues as to what will come next. While Russia's privately owned oil industry is thriving and investing at home and abroad, state-controlled energy monopolies are seeking either investments or loans to keep themselves afloat.

Although there once seemed to be a consensus for restructuring, particularly for the electricity network, there are now renewed questions about the entire premise of the programs that were supposedly settled months ago.

On 23 December, the State Duma refused to take up the plan for the Unified Energy Systems (EES) electricity monopoly in its second reading, casting confusion over the process. Duma Speaker Gennadii Seleznev said a date would be set in January to discuss the legislation, "The Moscow Times" reported. But even the outlook for discussion remained unclear after four government-allied factions called for the delay.

The Duma passed the EES overhaul package in first reading on 9 October, but many deputies have since balked at further action in the coming election year. The same reluctance now seems to have spread to the government. Yabloko party member Sergei Ivanenko was quoted as saying, "The fight over this packet of bills is not between Duma factions, it is within the executive branch."

Part of the concern is over the basic approach to restructuring by splitting distribution from generating and selling production assets to bring in investors. Critics like presidential adviser Andrei Illarionov say it will open the door to insider sales at low prices and higher tariffs for consumers who can afford them the least. Despite 1,800 amendments, the legislation still faces doubts about whether it should go ahead at all.

Illarionov's misgivings cannot be separated from his distrust for Anatolii Chubais, the EES chief and former deputy prime minister whose 1995 loans-for-shares scheme led to the biggest asset shift in Russia's history.

After EES shares fell last week with the freeze on the legislation, Chubais charged that the delay was driven by unidentified oligarchs trying to buy shares on the cheap. Illarionov countered by hinting that Chubais might be one of the buyers, saying that he "certainly gives the impression of being very well-informed" about the sales, the London-based "Financial Times" reported. The insinuation may make the Duma even more suspicious of the plan.

During a call-in television show three days before the Duma decision, President Vladimir Putin showed himself to be well-versed about the plan's goals. Putin argued that only a small part of the electricity system would be transferred to private interests and that lower tariffs for consumers would result. But he also stayed above the fray and did nothing to prevent the Duma's delay of the vote. While Illarionov has railed for months against the EES plan, Putin has made no move to rein him in.

Disputes within the government have also kept it from promoting change in the gas industry, where Gazprom continues to set a slow pace of reform. Despite months of preparation, the government announced on 25 December that the cabinet had postponed consideration of a "draft concept" for the gas market at its last meeting of the year. The official RIA-Novosti news agency said that "the submitted materials have not been agreed upon with the involved ministries and agencies."

The failure marks at least the third time that the government has pushed back its own gas program in less than three years.

In September, a draft leaked to the website gazeta.ru outlined a model similar to that of the EES restructuring with the division of production, transportation, distribution, and market-operation units, as well as the creation of a natural-gas exchange. The difference is that the program did not appear to address the question of whether any of Gazprom's resources should be sold.

Much of the outline was concerned with establishing a gas exchange to introduce market pricing in stages, gradually reducing regulation while giving oil companies an outlet for gas that is now largely wasted.

But Gazprom has repeatedly argued against any breakup or loss of control, while the problem of tariff increases has created a debate of its own. As with EES, Putin has declined to make his wishes for the gas industry known.

According to RIA-Novosti, Prime Minister Mikhail Kasyanov intends to consider the issues again at a meeting in January. But similar postponements in the past have led to long delays. Both the gas and power sectors are now waiting for the government to decide on its goals and whether it will take the political risks to proceed with them this year.

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