RAO UES of Russia suggests to the government some changes in the power industry reform. Anatoly Chubais, head of the energy holding, told about it in his exclusive interview to the Izvestia newspaper. Reluctant to talk about politics, Chubais said that he would be willing to adjust the shape of the electric power market. RAO UES proposes to introduce a system of long-term contracts between consumers and sellers of electric power. It will allow fixing the tariffs for a few years ahead.
The government plans to analyze the progress of power reform in early December. What do you expect from this session?
CHUBAIS: First of all, I expect from the government session a deep analysis of the results. Almost two years of RAO UES reforming are past. We already have 36 power systems where corporate decisions on reorganization and split-off were made. In five other power systems, the split-off process is completed: new companies, based on them, are registered. Besides, we approved the decision to establish WGC (Wholesale Generation Company) and TGC (Territorial Generation Company). Note that this enormous work was performed without any conflicts. This may be regarded as the major proof that the chosen course is correct and the approach to its implementation is adequate. You see, one of the main arguments presented by opponents of reforming is that restructuring will destroy the power industry, disorganize regions, cause mass accidents and reduce the reliability of power supply. However, as we can see, it has not happened.
Putting aside all political considerations, I can say that, during this time, we revealed some new aspects that we failed to see earlier. Therefore, today we suggest making some adjustments in the reforming plan.
"TO CHANGE THE BASIC APPROACH"
What should be the essence of the adjustment of the reforming plans and why?
CHUBAIS: I shall give you an example related to the electric power market configuration. Earlier, we assumed the following logic of actions. We planned to prepare the ground for free trade in electric power at the first stage. This sector was supposed to cover 5–15% of sales of all domestic electric power. Now, "sector 5–15%" has been created and operates quite efficiently. The annual sales will amount to 850 million dollars. It is a developed, expanded and steady market, free from machinations and dishonest arrangements. Within one year this market gained its place among the major world traders of electric power. It remains to act on state-regulated FOREM (Federal Wholesale Market of Electric Power and Capacity). Now, it covers 90% of the electric power sales. Earlier, we thought that, after creation of the free sector, we would be able to expand it to the whole market and sell 100% of electric power at market prices, but not 5–15% as sold now.
We now realize that this would be too explosive a solution, with too severe a price reaction. There are groups of consumers who need to be protected; a medium-term strategy is to be elaborated for their adaptation to the market. Therefore, we propose a change in the basic approach. Instead of simultaneous liberalization, we suggest introducing three-year bilateral contracts between sellers and buyers of electric power on FOREM. The prices under these contracts are to be fixed by the Federal Tariff Service.
Thus, the price trend can be determined for three years ahead. As to consumers, they are to get free access to the non-regulated sector of the market, if so desired. So, the free market will gradually expand in a natural way, and consumers who must be protected will be protected by the three-year contracts.
And how did the officials react to this idea?
CHUBAIS: The idea is still quite new. We made it ready to be presented to the public just a few weeks ago. Anyway, it has already been discussed with the management of the Ministry of Economic Development and the Ministry of Industry and Energy. A series of discussions with consumers and shareholders is to be held now in the relevant ministries and the Federal Tariff Service. We have to find out whether the idea of three-year contracts is acceptable. In this case only, we shall begin to prepare documents. A variety of government decisions should be amended to introduce the system of bilateral contracts.
"UNIQUE POLITICAL AND BUSINESS PROJECT"
The construction and operation of the Kaliningrad power station depend on its gas supply. Do you have any problems with "Gazprom"?
CHUBAIS: We officially declare that on November 1, 2005, all the three generators of the first block will be synchronized with the domestic electric power system and put into operation. The country will receive 450 ÌW of power. But gas is needed to make the station operate. The quotas fixed for 2006 [the total regional quota is 1.05 billion cubic meters of gas] do not suit us. The Kaliningrad Region is one of the few regions where electric power consumption exceeds by far the soviet maximum level. In addition to regional gas requirements (800 million cubic meters of gas per year), gas is needed for faultless operation of Kaliningrad Thermal Power Station - 2. The volume of consumption at full-capacity operation will be 600 million cubic meters. A simple arithmetic operation demonstrates that 1.05 billion cubic meters is not sufficient. We insist on the revision of the quota, and I shall submit appropriate proposals to Gazprom and to the government.
It is not a secret that it worries Gazprom that you get in the way of its export contracts. It is more profitable for foreign partners to buy from you electric power produced in Russia on cheap gas than to buy expensive raw material from Gazprom. Can it be a reason for difficulties with gas?
CHUBAIS: No one from “Gazprom put forward that argument in connection with the Kaliningrad Thermal Power Station. I think that nobody serious will put it forward for a simple reason that, as it is well known, we do not carry out any synchronous operations with Poland or Eastern Europe in general; so, we do not export to these countries. Limited quantities are delivered to the bordering regions of Poland. Their volumes are insignificant, and no technologies for their increase are available.
Now the European Union and Germany consider the possibility to integrate Kaliningrad Oblast into the Pan-European power supply network. How feasible is it?
CHUBAIS: The point is that Kaliningrad Oblast and Russia in general are actually technologically isolated from the European power supply network. Our strategy is to individually include Kaliningrad Oblast in the European power supply network. The core of the matter is to implement the project of synchronization of power supply systems in Russia, Ukraine, Moldova, Baltic countries and Kaliningrad with the European power supply network. We are seriously working on it now.
When such synchronization can be achieved?
CHUBAIS: Synchronization is a unique political and business project. Until now, no synchronized power supply systems of a comparable scale have existed in the world. We arranged with our CIS and EU neighbors for the preparation of an agreement to make a feasibility study for this project. This work will be financed by the parties 50/50. It is envisaged that the feasibility study will be completed by 2006-2007.
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