Sun, Dec 26, 2004 - Page 11 News List

UES breakup to cut Russia power costs and spur investors

BLOOMBERG

The Russian government approved plans to break up RAO Unified Energy System, the world's largest power utility, deregulating the country's electricity market to attract foreign investment and reduce costs for manufacturers.

"The shareholders will get all the assets," UES Chief Executive Officer Anatoly Chubais said on Friday in Moscow in an interview. "This is what investors, consumers, shareholders and market participants have been waiting for."

Russian President Vladimir Putin, 52, who is extending state dominance of the oil industry by taking over Yukos Oil Co's main unit, is cutting the government's role in power production to end household subsidies.

Utilities will be split into generation, sales and grid companies, with Russia holding 52 percent of the generating businesses, Industry Minister Viktor Khristenko said.

Manufacturing contracted last month for the first time in six years as energy costs rose, a purchasing managers index showed. Russia's US$434 billion economy is expected to grow 6.8 percent this year after expanding 7.4 percent in the first half. Oil and natural gas account for more than one-sixth of the economy, which the government is seeking to diversify from raw materials.

State-owned Gazprom, the world's largest producer of natural gas, plans to take over Rosneft next month, becoming the country's second-biggest oil company behind Lukoil.

State-owned Rosneft itself is taking over Yuganskneftegaz, Yukos's biggest oil-producing unit.

Friday's decision may attract international investors to Russia's generation industry, said Vadim Kleiner, head of research at Hermitage Capital Management, which has UES shares among US$1.6 billion in Russian assets.

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