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Russia suspends power grid pricing reform

26 November 2008 – The financial crisis has forced Russia to delay a pricing reform of the power grid business, a move certain to disappoint investors who staked billions of dollars on the changes.

Andrei Lukin, the head of strategy and development at state-controlled grid giant MRSK Holding, said that transition to so-called regulated asset base (RAB) pricing for electricity grid firms will not go ahead as planned.

“Certain regulators said: ‘Let’s wait on this. Why risk it now?'” Lukin said. “Those pilot projects that we were working with are now, if not frozen, then certainly suspended.”

Responding to Lukin’s surprise statements, an adviser to the management of MRSK Holding, Pavel Shpilevoy, said it was the grid firms themselves who had requested a few technical delays. “All of our ideas are getting support from the government.”

As part of Russia’s sweeping reform of the electricity sector, all of Russia’s regional grid companies were to transfer by the end of 2010 to the new pricing system.

Modelled on the British reform of the its electricity sector in the 1990s, the scheme sets a stable power distribution tariff every 3-5 years at a rate that guarantees fair returns on the grid firms’ investments and encourages spending on new technology.

But as financial turmoil batters Russian industries, First Deputy Prime Minister Igor Shuvalov told MRSK Holding to work with the Federal Tariff Service to come up with a new plan for switching to the RAB scheme at a later time, Lukin said.

“He told us and (tariff service head Sergei) Novikov to work out a new plan for RAB by July 1 (2009),” he told Reuters.

“The old one has been scrapped.”

Shpilevoy, however, said the original plan was still more or less on track. “It is still our goal to transfer all of the regions to RAB by end-2010, at least the largest regions.”