United Russia party is reforming the fuel and energy sector

Russian Oil & Gas Report

United Russia is preparing to submit an Energy Security Plan to the government. This includes specific proposals for reforming the nuclear power and electricity sectors, and touches on the oil-and-gas sector as well. Implementing the plan, between 2008 and 2010, would cost around $25 billion.

The decision to develop the Energy Security Plan was made last December at the United Russia party's seventh congress, and approved by the party's general council presidium on March 28, 2007. The Energy Security Plan working group is chaired by Valery Yazev, chairman of the Duma's energy, transport, and communications committee; its second meeting is scheduled for April 20.

The plan's goals include: formulating a state energy security concept; introducing energy-saving technologies; raising the contribution of nuclear power to electricity generation from 16% to 23% and the contribution of coal to 18-20% by 2020. The reformers note that in order to achieve the target rate of nuclear power growth, Russia will have to activate at least four one-gigawatt nuclear reactors per year from 2012, instead of the current objective of one reactor per year. The plan also proposes to establish a vertically-integrated state-owned managing company for nuclear energy enterprises.

According to the experts working on United Russia's plan, natural gas output will fall by 2030. They note that Russia's domestic market is experiencing gas shortages already, which could amount to 150 billion cubic meters by 2010, given domestic demand and exports; and Gazprom's losses from sales to the domestic market in 2006 could reach 34 billion rubles, even though regulated gas prices were raised.

In order to solve this problem, United Russia proposes gradual step-by-step rises in domestic gas prices, with targeted compensation for consumers; Russia should also reduce the proportion of electricity generated from gas to 44-47% by 2030, and convert some electricity generation facilities to using coal.

The project summary notes that in order to implement it, United Russia plans to cooperate with the Industry and Energy Ministry, the Economic Development and Trade Ministry, the Finance Ministry, the Natural Resources Ministry, the Federal Nuclear Energy Agency (RosAtom), and RosTekhNadzor. Implementing the party's plan would cost over 642 billion rubles ($25 billion) between 2008 and 2010; this includes 361.9 billion rubles for RosAtom's needs and 280.1 billion rubles for the Industry and Energy Ministry.

But the current draft of the three-year budget for 2008-10 allocates only 128.5 billion rubles for these purposes to the Industry and Energy Ministry, and only 325.4 billion rubles to RosAtom.
The budget allocates step-by-step funding for reforms in nuclear power and electricity from 2008 to 2010. The nuclear energy development program for 2007-10 and to 2015 will get a total of 674.8 billion rubles between 2007 and 2010: this includes completing construction of four reactors at the Beloyarsk nuclear power plant, building five reactors at the Kursk nuclear power plant (27 billion rubles), developing uranium mining and production (1.8 billion rubles). The federal targeted program aiming to improve energy efficiency in Russia will get 19 billion rubles between 2008 and 2010.

Konstantin Simonov, head of the National Energy Security Foundation, maintains that it is simply unrealistic to expect most of these reforms to be carried out in the specified timeframe. In his view, converting electricity generation facilities to the use of coal is environmentally inefficient and economically unjustified - given that coal deposits are concentrated in Western Siberia and the Russian Far East, where there is no great shortage of electricity, and the need to build railroads to deliver coal to other regions. There were plans to make Gazprom responsible for part of the spending on nuclear power reforms, but the gas monopoly was not overjoyed at the prospect. Simonov also points out that another source of reform funding, aside from the budget, could be the Stabilization Fund.

Source: "RBC Daily", April 16, 2007