Liberalization of the Russian wholesale energy market

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On 9 October 2002 the Russian State Duma approved five energy reform bills calling for the liberalization of the wholesale energy market and break up of Russia's national power monopoly - the Russian Unified Energy System (RAO UES).

The most important document – the Electricity Bill – establishes a legal framework for economic and production relations in the electricity industry and determines the authority of government bodies to regulate those relations. The draft law not only introduces competition into the sector, laying out the rules for a competitive wholesale market as well as new procedures for tariff setting, but it also establishes the rights and obligations of those involved in the production, transmission and consumption of electricity.

CMS Cameron McKenna has been extensively involved over the last two years in assisting RAO UES on the development of the reform programme. It is intended that RAO UES, the world's largest power producer, will be divided into two open joint stock companies: one which will manage the electricity network and a second which will operate the system. The State intends to keep a stake of at least 52 percent in each company.

Before the Electricity Bill becomes law it must pass through two more readings in the State Duma, receive the approval of the Federation Council and then, finally, be signed by the Russian President. The crucial second reading is scheduled for next month when it is expected that the lawmakers will propose many amendments to the Bill.

One of the main issues remaining to be discussed is the frequency with which tariffs will be set. Lawmakers would prefer tariffs to be set once a year allowing businesses to plan ahead more effectively, whilst the Russian government and RAO UES have a more liberal approach and are advocating greater flexibility.

Both the Russian government and RAO UES are confident that the State Duma will approve the entire package of energy reforms by the end of 2002.

For further information please contact David Griston at [email protected] or on 00 7 095 2585000.