In the face of public and legislative opposition to reform Russian President Vladimir Putin has urged lawmakers working on formulating the country’s electricity industry reconstitution to ‘be cautious’. He stressed the need to progress but also to keep in mind the effects on consumers. Public opposition to reform has been mounting since the Duma, before the summer recess, refused to debate a package of draft laws underpinning restructuring and demanded amendments. The draft laws would provide legal grounds for market liberalisation, currently scheduled for mid-2004 just after the next presidential election. Giant utility UES, which controls the national grid and 70 per cent of Russia’s generating capacity, will also be reformed.

Analysts believe that politicians, particularly regional burgers used to maintaining a measure of local control over power rates, are worried about reform because the threat of higher rates could antagonise voters in the election season. Meanwhile, a key Russian legislative group has said it will not agree to sector reform unless household power prices are kept down. Fatherland-All Russia, a centrist legislative faction, fears that prices could rise three to eight fold. The faction is also demanding that laws require the government to set tariffs once a year before writing the budget. Fatherland-All Russia has also demanded the government take a 100 per cent stake in the national grid and the UES dispatch unit, which controls power flows across the country, once UES has been fragmented, even though 48 per cent of the company is owned by private shareholders.The Fatherland-All Russia party was founded by Moscow Mayor Yury Luzhkov, known as an advocate of state capitalism. He is also a fierce opponent of free marketer and UES chief executive Anatoly Chubais.

UES continues its process of internal restructuring in preparation for the sell-off but its falling share price has led the Russian market to fall by 8 per cent. In the face of such uncertainty, Western investors have been selling their UES shares.