Russian Electricity Reform Moving Forward

In February 2006 the Russian government made its first official commitment to take tangible steps toward privatization of thermal generation assets in the power sector. The power crisis of January 2006 provided a clear signal that major investments will be needed to serve growing peak demand and replace aging infrastructure. Although power reform has opened opportunities for foreign investment, the rules of the game will not be entirely clear until at least the elections of 2008.

* The unbundling of assets from Unified Energy System and regional electricity monopolies (energos) is essentially complete, and the formation of new players is well under way and should be largely completed by the end of 2006.
* The Russian government will place a priority on attracting capital flows in the power sector through additional share issues of thermal generation companies as a precursor to their privatization.
* However, the Russian government will maintain important policy levers that could steer the course of privatization and liberalization, particularly as Russia prepares for elections in 2008.

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