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08/04/2008
Electricity Firms Cry Foul Over Price Cap
Power producers voiced alarm Friday after a government regulator clamped down on pricing by Mosenergo, the Moscow power generator controlled by Gazprom, in the country's first-ever competitive tender for electricity capacity.
Major players in the electricity industry, grouped in the Council of Power Producers and Strategic Investors in the Power Industry, joined forces to protest after the Market Council, a government watchdog, forced Mosenergo to cut its asking price by more than 10 percent, for 875 megawatts of capacity, Market Council head Dmitry Ponomaryov said.
"The signal that we are receiving is that things might not develop as they should and that is the main danger," Mikhail Slobodin, head of billionaire Viktor Vekselberg's electricity holding Integrated Energy Systems, told a news briefing.
Slobodin also heads the lobby group, which was formed late last year.
In the tender, Mosenergo asked for up to 380,000 rubles ($16,000) per megawatt of capacity, but was eventually forced to reduce it to 340,000 rubles, Ponomaryov said.
Initially, the Market Council demanded a 30 percent cut, largely because of the government's fear that prices for basic goods are soaring out of control.
The negotiations lasted several days, instilling tension into the tender. The next tender is scheduled for December.
"It's a very negative signal to the market," Slobodin said. "If even Gazprom came under such pressure, what will happen to private producers?"
Slobodin said the lobby group would be talking with the Federal Anti-Monopoly Service and the Federal Tariffs Service to work out a pricing system in the next two to three months.
"We want transparent and clear rules of the game," Slobodin said. "If a viable system for capacity supplies contracts is not created, there will be no logic for us to [create] new generation capacity."
Ponomaryov tried to reassure producers, saying the state "was not trying to limit prices on the free market and was in the process of discussing a just pricing system."
At the tender, generators set aside a portion of their capacity for a given period. The Market Council has the right to adjust the price if it deems it unjustified. Industrial consumers buy the capacity to ensure steady electricity supplies at predictable prices.
Mosenergo recently spent about $1 billion installing state-of-the-art turbines at its Moscow plants. Its asking price was twice the state-regulated price it had been charging. The regulator refused to allow such a drastic jump in prices for Mosenergo's industrial clients.
Gazprom declined to comment Sunday.
David Herne, director of Halcyon Advisors, an investor in the country's electricity market, said if the capacity market "worked properly, Mosenergo would have the right to put the price as high as it wants."
"The problem is that the other players would have it lower, so no one would buy electricity from Mosenergo," he said.
Reuters, MT
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