- Summary: Energy analysts warn of a looming Russian electricity crisis. Five years of economic expansion have lead to a big increase in demand for electricity, while state ownership and regulated rates have stifled investment in new projects. Russia is now going ahead with the privitization of its electric-power industry, aimed at drawing $87 billion in investment to the sector. On slate is the introduction of market-driven power pricing. (Natural gas, which fuels most of Russia's power plants, continues to be strictly regulated at below-market prices.) Anatoly Chubais, who spearheaded the move, leaves this week on a tour of the U.S. and Europe to raise capital. Several big foreign utilities already have expressed interest, including Italy's Enel SpA, Fortum Oyj of Finland and Germany's E.On AG. Russian industrial groups are also eager to invest; state run OAO Gazprom hopes that by investing in gas-saving technology in power plants, it will free up more of its fuel for lucrative export sales. Investors will be offered the chance to buy stakes in the 20 existing power companies, or to build plants. Demand growth is expected to outpace capacity additions for several years, leading to price increases. Wholesale electricity prices have nearly tripled since 2000, and are likely to rise an additional 69% through 2011. The government has also promised investors a guarantee that will reimburse investment costs if rates come in lower than expected. Some analysts criticized the plan for being too timid; completely free-market prices will take between five and 15 years. Others warn that the changes could still be sidetracked.
- Comment on related stocks/ETFs: No ETFs offer direct exposure to the emerging Russian free-market. Closed-end funds Central Europe & Russia Fund (CEE) and the Templeton Russia & Eastern Europe Fund (TRF) give access to the east Europe, but have been criticized for being "less than ideal."
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