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Russia power bills clear Duma, UES strategy debated
By Olga Popova

MOSCOW, Feb 21 (Reuters) - Bills to break up Russia's giant power monopoly UES cleared the lower house of parliament on Friday as a board member pleaded to make the restructuring more transparent for investors.

All six bills passed a third and final reading by the State Duma with a comfortable majority and should easily clear their remaining legislative hurdles to become law.

The bills suffered an eight-month delay and were heavily amended to soothe political concerns that breaking up UES would destabilise power supply and send electricity prices soaring.

Andrei Sharonov, a goverment official who has shepherded the reform from its early drafts through parliament, said the Federation Council upper house was due to pass them on February 26, and they should be signed by the president without hitch.

"The Federation Council will look at them literally on February 26. I wouldn't swear to it, but they should pass easily," Sharonov, deputy minister for economic development and trade, told reporters in the Duma.

"We have agreed all the texts with the Kremlin legal department at every stage," he added. The department recommends bills to the president for signing.


The laws, once signed by President Vladimir Putin, will clear the way for the government to break up UES into competing generating companies and a single state-owned grid monopoly.

The restructuring, one of Russia's most radical economic reforms yet, is expected to pick up speed and the political fracas should die away now the bills have cleared the Duma.

Also on Friday, UES board member David Herne, a fund manager, said he had written to Alexander Voloshin, the Kremlin administration chief who chairs the UES board, to ask for a more serious approach to the so-called 3+3 three-year strategy paper describing what will emerge from UES when it is broken up.

"The 3+3 commission was created by the board in September 2002 to improve the company's market capitalisation," Herne wrote. "The shares are still undervalued, and there is no plan."

Herne said he wanted the board to declare the commission's work unsatisfactory and form a new group to focus on a stage-by-stage plan describing:

-- what investors could expect at each stage

-- how to improve UES operations and corporate governance

-- a float of UES shares on the New York Stock Exchange.

Many foreign investors sold their UES shares in the first half of 2002, uncertain that they would come out of the reform with their holdings intact. Foreign holdings are reported to be under 17 percent of shares, down from nearly 27.

The sell-off helped a consortium of Russian industrial groups with a vested interest in the electricity business, including the coal, metals, banking and financial consortium MDM Group, to buy up a joint stake that analysts and traders say could be over 15 percent of UES.


MDM and another suspected 'strategic buyer', metals baron Oleg Deripaska, are expected to put up candidates for a new board of directors to be elected at a spring AGM.

"The strategy is definitely important for the capital markets. It should have time frames and a list of assets that current shareholders will receive, as well as their guide prices," Brunswick UBS Warburg analyst Fyodor Tregubenko said. "The first thing that should happen is that the new strategic investors should present their strategy."

"It's obvious that we can't develop a strategy under the current board," another fund manager on the UES board, Alexander Branis said.

"We'd have to change it substantially at the next stage," added Branis, who sits on the 3+3 committee.

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