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Russia's electricity monopoly will cease to exist on Tuesday when wide-ranging
Russia's electricity monopoly will cease to exist on Tuesday when wide-ranging reforms to the electricity market come into effect.

The changes are aimed at attracting investment in the country's power sector and establishing a competitive electricity market.

Unified Energy System (UES) of Russia shareholders voted in late October to reorganize the electricity holding to end its monopoly status. Russia's competitive power market should be liberalized completely by 2011.

Six offshore wholesale generating companies and 14 regional power generators have already been spun off from the monopoly. In addition, all hydro power generators have been integrated into HydroOGK, which was renamed RusHydro earlier this month.

Independent power distributors have also been set up, with grid assets consolidated into a number of holdings. The largest holding, Federal Grid Company, will run Russia's national power network, which includes over 154,000 km (95,000 miles) of power transmission lines.

Although the government will no longer control shares in the authorized capitals of wholesale and regional power generators, the Energy Ministry, created in May when the Industry and Energy Ministry was split in two, will assume a number of key functions in the national power sector.

Prime Minister Vladimir Putin has also instructed the ministry to supervise the implementation of investment programs by companies that emerged due to the reforms.

In an interview with the Vedomosti newspaper published Monday, UES CEO Anatoly Chubais said the new power control system combining government and self-government elements, as well as market and private ownership mechanisms, would ensure stable electricity supplies and boost the efficiency of the power sector.

Chubais refused to comment on potential risks related to the reform, saying its major results and consequences could only be assessed within the next three to five years.

"One thing is clear - the risks facing the electric power reform cannot be compared to the large-scale crisis that the sector and the country would face without the reform," Chubais said.

He added that such a crisis would hamper the country's economic growth and pose serious social and political risks.

Meanwhile, Russian and foreign direct investment in the country's generating companies' assets reached 945 billion rubles ($40 billion) over the past 18 months, Chubais said.

"A detailed investment program has been drafted as a suitable response to the growing electricity demand for 2008-2012. Under the document, 4.3 trillion rubles ($183 billion) will be invested in the sector's development, including 1.8 trillion rubles ($76.6 billion) in the construction of power plants with a total capacity of 43,000 MW," Chubais said.

In the longer term, an additional 20 trillion rubles ($852.5 billion) will be required by 2020 for the construction of power facilities, Prime Minister Putin has said, adding that the bulk of the funds would come from extra-budgetary sources.

The premier also said that construction of new power plants should increase Russia's electricity generation by at least 40% by 2020.

Chubais said domestic electricity demand grew 4.5% in the first five months of 2008 and will continue to rise for at least the next five to seven years, according to expert forecasts.

Chubais also predicted a hike in consumer prices for electricity in the near future. He cited three reasons, including the launch of a large-scale investment program, a hike in energy prices around the world and a global financial crisis.

The businessman also said tougher environmental laws and the introduction of expensive standards concerning the control of greenhouse gas emissions were in store for the Russian power sector.

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