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#9 - JRL 7032
DAVOS: UES Shareholder Blasts Russian Electricity Reform
January 24, 2003
By Jennifer Clark

DAVOS, Switzerland -- The Russian government's proposal to liberalize its
electricity market is confusing and gives too much power to management of
RAO Unified Energy Systems of Russia (R.UEN), or UES, a key shareholder of
the utility said Thursday.

"We are not in favor of this reform in the way it is being proposed," said
Alexander Lebedev, president of the National Reserve Bank, an investment
bank which holds a 10% stake in UES with other investors.

Lebedev said he has threatened shareholder action to block the reform at
UES, and is in discussions with UES Chief Executive Anatoly Chubais about
making them more market-friendly.

UES shares have fallen sharply this week on fears the new amendments
undermine the transition to a free market for electric power, a keystone of
President Vladimir Putin's economic reforms aimed at boosting Russia's
standard of living.

The deadline for the start of the wholesale market, originally set for June
1, 2005, is to be removed entirely and retail prices will continue to be
regulated for another three years after the wholesale market is eventually

The Russian government, in softening the reforms, demonstrated it's
concerned about potential social unrest if electricity prices fluctuate too
sharply because of a botched changeover.

Analysts have criticized the amendments as creating the kind of price risk
that characterized California's electricity crisis, in which power
suppliers were bankrupted by not being able to pass on higher wholesale
prices to their customers. The government says price risk will be offset by
the sale of UES' generating companies.

Lebedev blasted the reform package for being confusing in the way that it
sets out procedures for the sale of generating capacity, saying it leaves
too much discretion in the hands of management and not enough with

"Shareholders must decide whether the generating companies will be sold,
not management," he said.

Under these additional amendments, the government will compile a list of
generation companies that will be forced to make at least 50% of their
capacity available to retail suppliers, under contracts for up to three
years, for the duration of the transition period.

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