Liberalisation of the Russian power sector

The paper discusses the Russian power sector reform plan, approved by the government in July 2001, which outlines the framework for competition and changes in ownership structure. The paper focuses on the following issues related to the plan: price reform; restructuring of regional energos and large generating companies; restructuring of transmission and system operation; the mechanism for introducing competition; competition for residential consumers; and reform sequencing. One key message of the paper is that price and regulatory reform is central to success of market liberalisation. A second key message is that the restructuring of energos should not create companies with market power. Ideally, local generation and distribution companies would be owned separately with multiple generators in each region. At a minimum, commonly owned companies should keep separate accounts, with regulation of generation a possibility where there is market power. Regarding transmission and dispatch, common ownership would not be a problem given that transmission and generation are separately owned. On competition, a fully fledged pool may not be appropriate in the case of Russia, with the alternative of a market based on bilateral contracts with a balancing pool functioning better in a context of non-payment and constrained institutional capacity, and providing security for investments. Regarding competition for residential consumers, this is not a priority in the short to medium term. Lastly, on sequencing, it is better that structural and institutional change takes place before competition begins.