May 20, 2001 Russia to Begin Overhaul of Electricity Industry By SABRINA TAVERNISE OSCOW, May 19 - Russia said today that it would begin a sweeping overhaul of its electricity industry, one of President Vladimir V. Putin's first major reform efforts, despite critics who warn that the changes would hurt foreign investors. The program, which would gradually create a market for electric power, was given tentative approval in a government meeting today, and would be official within a month. The electricity sector, comprising dozens of companies, would be divided into generation, distribution and sales units. The government would sell stakes in them, but would retain full control over the grid itself, and thousands of miles of power lines. Its critics, including Mr. Putin's own economic adviser, Andrei Illarionov, strongly oppose the plan, saying it does not provide adequate safeguards for the current owners of Russia's electricity companies. The reform has been the object of debate since Anatoly Chubais - the former government reformer best known for his state-asset sales program in the mid-1990's - proposed a radical version last year. Mr. Chubais, who runs Russia's biggest electric company, Unified Energy System, incurred the wrath of foreign investors with his plan; they feared that it would ruin their holdings. Mr. Putin ordered a compromise. Unified is the world's largest electric grid, but its value is not one-tenth the value of utilities in Western countries. The industry needs outside investment to modernize. Unified, which is 52 percent owned by the government, has many minority owners, including foreign investors who hold about a third of it. The debate centers on how property should be redistributed within the new system. Investors who own parts of the regional companies oppose the proposal to remove chunks of property from those companies through share swaps or buyouts. Unified itself would be liquidated, and investors say they are not confident that they will get a fair payment.
