The Russian national energy company, the Unified Energy System (UES), whose latest financial results show a sharp fall in earnings, is a victim of the government’s reluctance to raise tariffs, analysts believe.

The poor 1998 results saw UES pretax earnings of the holding company and all its subsidiaries fall to $877 million, around 66 per cent of the figure for 1997 of $1272 million.

Analysts claim high inflation and rouble devaluation, coupled with almost unchanged tariffs accounted for the fall. Russian consumer prices rose by 84 per cent last year but UES sales only rose to $9.0 billion from $8.8 billion.

Political observers have suggested that the government is holding back tariff increases until after elections in December. However, the government seems to believe that it can spur economic growth by keeping industrial tariffs stable, an analyst for Fleming UCB reported.

The analyst, Alexei Yazykov, suggested that the electricity sector subsidised other sectors of industry. While Russian industrial output fell by more than 50 per cent between 1991 and 1998, he claimed, consumption of electricity fell by only 20 per cent. This, he suggested, meant that the UES was accumulating a backlog of unpaid bills.

The situation does not look much better for 1999. Fuel prices are rising but with tariffs not keeping pace, financial results can only be worse.

Meanwhile the chairman of the board of the UES was expected to sign a deal in the Lithuanian capital Vilnius before the end of last month involving the UES and the systems of Lithuania, Latvia, Estonia and Belarus. The deal is intended to help maintain the energy independence of the region.

The UES delegation to the meeting will also bring the invitation to Lithuania to take part in the construction of a power plant in Kaliningrad. This would provide the country with a new source of power that would replace the Ignalina nuclear power plant which is due to close early next century.