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Moscow Times
January 22, 2003
UES Dives 7% as Reform Stalls
By Alla Startseva
Staff Writer

UES shares nosedived Tuesday after details emerged of the changes the government is making to a controversial package of bills needed to break-up the monopoly and overhaul the power industry.

The agenda-setting State Duma Council voted to delay once again the crucial second reading of the legislation in order to consider amendments that would give the government more control over and relax the timetable for the long-awaited overhaul of the industry.

UES's share price plunged nearly 7 percent on the news, its steepest decline in seven months.

Key changes include scrapping 2005 as the date for wholesale market liberalization.

Instead, the government would get to decide when and where liberalization would take place, pending agreement with local authorities over a given region's level of preparation for change. In addition, the industry-wide revamp will not commence until each of UES's dozens of subsidiaries across the nation restructure themselves.

So, too, would the government be able to regulate the volumes and prices of power sold under long-term contracts and dictate the volume sold on free markets for an unspecified transitional period.

"The new amendments cross out all the market principles of the reform," said Fyodor Tregubenko, utilities analyst at Brunswick UBS Warburg.

"The postponement of the liberalization of the market is very negative news," he said. "Liberalization will now take place only after corporate restructuring is complete."

The council agreed to wait until next month before deciding whether to put the bills to a vote this spring or put the whole reform package on hold until after the election season.

Overhauling UES is essentially tinkering with the nation's heat and electricity supply and will likely result in higher utility bills for the average Russian. Few lawmakers or regional governors are willing to back uncertain changes ahead of Duma elections in December, followed by the presidential election in March.

Underscoring the explosive political nature of the project, President Vladimir Putin made Prime Minister Mikhail Kasyanov personally responsible for pushing the bills through the Duma after lawmakers refused to vote on them in December.

Kasyanov met with the four centrist factions on Saturday to hammer out last-minute changes to the bills.

"Our amendments were backed by the government and in large part by the president's economic adviser," Vladimir Pekhtin, leader of the Duma's pro-Kremlin Unity faction, one of the four centrist co-authors, said Monday, Reuters reported.

Presidential economic adviser Andrei Illarionov, who has been a vociferous critic of UES CEO Anatoly Chubais and his plans for UES, said Tuesday that he believed the quality of reform was improving due to the active negotiations between lawmakers and the government, Interfax reported.

Despite the delay, Kasyanov and other senior officials said they are confident the bills will pass but when is still a matter of debate.

Kremlin chief of staff and UES board chairman Alexander Voloshin downplayed the delays, telling Ekho Moskvy that the situation "is not worth dramatizing."

Pekhtin said his fellow centrist deputies would insist on a second reading in the first half of February.

The Duma Council will likely take a fourth stab at setting a date for the second reading at its Feb. 4 meeting, State Duma Speaker Gennady Seleznyov said Tuesday.

Oleg Morozov, head of the centrist faction Russia's Regions, said the second reading might take place as early as Feb. 15, but only if deputies are confident the bills have enough support.

Morozov was more cautious, warning that it is impossible to predict how the Duma will vote because "elections have a significant degree of influence on deputies."

If the vote doesn't take place Feb. 15, Morozov predicted the second reading would be delayed until next year.

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