RUSSIA - The Electric Power Sector.

Russia's power sector includes over 440 thermal and hydropower plants, about 77 of which are coal-fired, plus 30 nuclear reactors. The system has a total generation capacity of 205.6m kilowatts, and in 2002 generated about 850.6 bn kilowatt hours (kwh). Since the collapse of the Soviet Union, power generation has shown both a dramatic decline, (down 18% between 1992 and 1999), and a gradual recovery (up 8% between 1999 and 2002).

As with similar patterns in oil, natural gas and coal, power generation was stunted by the economic slowdown which followed the collapse of the Soviet Union. Economic recovery has resulted in an increase in total power consumption from 715 bn kwh in 1998, to about 780 bn kwh in 2002, resulting in corresponding increases in generation.

Thermal power (oil, gas & coal) accounts for about 63% of Russia's electricity generation, followed by hydro-power (21%) and nuclear (16%). The Russian government has stated that it intends to expand the role of nuclear and hydro-power in the future in order to allow for greater export of fossil fuels.

Russia has an installed nuclear capacity of 21.2m kilowatts, distributed across 30 operational reactors at 10 locations, all west of the Ural Mountains. However, Russia's nuclear power facilities are old, and the nuclear power industry has been hard hit by Russia's transition to a market economy.

Russia already has shut down several reactors that were over 30 years old, and many more are over 20 years old. By 2010, Russia plans to construct five new units at existing facilities throughout the country. By 2020, the Russian Ministry of Atomic Energy predicts that nuclear generation could reach 300 bn kwh per annum, more than double the 2002 level.

The government has also made hydro-electric generation a priority, particularly in the country's Far East, where power supply can be problematic.

In June 2003 an official of the power monopoly, Unified Energy System (UES), told reporters the company planned to invest $14 bn in the development of Russia's hydro-electric sector, particularly in Siberia and the Far East. On July 9, 2003, Russia's newest hydro-electric power station, the Bureya dam, located on the Amur River in the Far Eastern Amur Region was officially inaugurated. The dam is expected to reach full capacity in 2007.

Russia's power sector is in a transitional period. Since independence, the sector has been dominated by UES, which is 52%-owned by the Moscow government. UES, headed by former privatisation minister Anatoly Chubais, controls about 70% of the country's distribution system and oversees Russia's 72 regional electricity companies, called energos.

In March 2003, President Putin signed six bills into law to substantially reform the industry. Accordingly, tariff rates on the domestic market could be liberalised by July 1, 2005, and UES should be liquidated beginning in 2006. UES's generation and distribution facilities are expected to be privatised, while the country's transmission grid will remain under state control.

Reform of Russia's power sector has been long overdue. Much of the sector is obsolete by Western standards, and Russia lacks the money to pay for necessary maintenance. In April 2003, Chubais estimated that $55 bn in investment will be needed over 10 years for maintenance and modernisation efforts. The March 2003 reform package is expected to boost investment, but only after the reforms are implemented.

UES has warned that Russia will face a serious power shortage in 2004-05. From 1999 to end-2001 Russia's power consumption rose by 40 bn kwh. Despite eight consecutive years of steep economic decline between 1990-98, when power production fell by 24%, the country in 2001 produced 890.6 bn kwh. According to the most optimistic estimates, Russia could return to the 1990 level of 1,086 bn kwh by 2008-2010 if the required $55 bn investment has been made.