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First Russian power trades at market prices

4 November 2003 – Russia’s new electricity exchange announced that on Saturday it had held its first power trades at market prices. The development moves the Russian power market closer to its goal deregulation in 2006.

The market price was lower than the state regulated wholesale rate, a spokesman for the exchange said, in what he said showed the effectiveness of the system. The market is initially limited to trading five to 15 per cent of the country’s power output.

Until full price liberalisation in mid-2006, the regulated wholesale market, FOREM, will continue to operate in tandem with the so-called “5-15” market and major industrial buyers will be allowed to purchase power on long term contracts from suppliers.

The exchange said six buyers and seven sellers participated in the first session, 30 bids were placed and 13 million kilowatt-hours were traded at an average price of 26.4 kopecks ($0.008).

“That is 1.2 kopecks lower” than the fixed price on FOREM, a spokesman for the exchange said. “The first day of trade has already proved the benefits of competition over a regulated market.”

It was unclear how much of the day’s power deliveries passed through the exchange but the spokesman said as trade picked up, the exchange should be able to maintain daily volumes of five to fifteen percent of total deliveries.

He said the number of participants was expected to expand to 20 in the short term.

Five of the six buyers were regional units of Russian state power monopoly Unified Energy System (EESR.RTS) and one buyer for Nizhny Tagil Iron and Steel Works.

Nizhny Tagil is managed by Evrazholding, a metals and mining concern which owns up to three percent of Unified Energy System.

That makes it one of the state-controlled giant’s largest private shareholders, together with Oleg Deripaska’s Basic Element, which controls 75 per cent of Russian Aluminium, and MDM, a coal-to-banking group.

The energy intensive metals concerns are widely suspected of seeking to secure control of cheap power supplies through their UES holdings.

Some Russian metals companies are sceptical of the new power market, saying they would prefer stable supplies and prices laid out in long term contracts to fluctuating market prices.

UES is planning to allow its large shareholders to swap their stakes in the company for control of national generating companies to be created by consolidating UES power plants.

The sellers included four of those plants – large combined heat and power plants. One was a hydro plant and two were vertically integrated regional utilities, all owned by Unified Energy System. ($1=29.94 Roubles).