Power Sector Reform in Russia:Results and Steps Forward
Y.A. Udalcov, Board Member,
Head of the Reform Management Centre
JSC “Unified Energy System of Russia”
London, November 12, 2004
“Utilities Day”
2
Reform
The Reform Key Elements
Creating Legal framework for reforms and electricity sector
Unbundling of regional energo
Creating the market infrastructure
Setting up independent market participants
Liberalization of electricity market
Restructuring the Holding (RAO UES of Russia)
3
Reform
The Main Stages
Stage 1. Design. 2001-2003
Legal foundation. Corporate transformation schemes. Definition of list of new entities…
Stage 2. Formation. 2004-2005
Regional energo’s unbundling. Interregional mergers. Wholesale market infrastructure development.
Stage 3. Liberalization. 2006-2007
Setting up new businesses. Wholesale market launch with vesting contracts scheme.
Stage 4. “Packing up”. 2007 –
RAO UES reorgainzation and distribution of shares of new companies among RAO shareholders.
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Reform
Legal and Conceptual Framework of Reform
In forceReform concept - "On Restructuring the Electric Power Industry of the
Russian Federation“ Decree of the GOR July 2001Legal foundation – Electricity reform Laws adopted in March 26, 2003Implementation plan – RAO UES strategy paper adopted by RAO
UES Board in May 2003Liberalization start-up – Wholesale market regulation Decree of the
GOR October 2003
To be adoptedRetail market legal framework - Decree of the GOR Investment guarantee mechanism – Decree of the GOR Wholesale market rules – Decree of the GOR
5
727371 68
5135 29
24 2313 8
Restructuring Regional Vertically Integrated Companies: Plan for Complete Unbundling
05.01.05
2004 2005
5
Vertically integrated companies – total quantity
22
Q1 2005
Q2 2005
Q32005
Q42005
38 4449 50
2006
60
Q1-Q22006
65
Isolated energy systems
Divided companies
– total quantity
11 2
3
17
166
51
105
Divided companies -
quantity during the
period
Q1 2004
Q2 2004
Q32004
10.11.04
1
6
Creating Electricity Market Infrastructure
Transmission Dispatching
7 Inter-Regional Transmission Companies (ITC) were established
Valuation of assets transfering to ITC’s close to completion
Distribution
Configuration of the 4 Inter-Regional Distribution Companies (IDC) was approved by the Board of Directors of RAO UES
All but isolated energy system passed dispatch functions to System operator.
The transfer of the operational and dispatch control functions to System operator began in 2002
Transmission grids will be passed to ITC’s in 2005
IDC’s will be established by the end of the year
IDC’s are expected to be completely formed in the middle of 2005
In 2005 System operator will buy out dispatch infrastructure
Pa
stP
rese
nt
Fu
ture
7
December 2004
December 2004
Restructuring Generation: Wholesale-Market Generation Companies (WGC)
2004 2005 2006
WGC 1
WGC 2
WGC 3
WGC 4
WGC 5
WGC 6
2007
WGC 7
WGC № WGC established/under establishment
26.11.04
03.09.04
01.10.04
December 2004
December-January Schedule is forming
WGC establishment approved by RAO UES Board of Directors
State registration of WGC
Transition to a single share completed
Subsidiaries joined to WGC
1Q 2Q 3Q 4Q4Q 1Q 2Q 3Q 4Q 1Q 2Q3Q
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Restructuring Generation: Territorial Generation Companies (TGC)
Operation since
April 1, 2005
2004 2005 2006 2007
holding
holding
holding
leasing
leasing
leasing
leasing
leasing
leasing
TGC 1
TGC 2
TGC 3
TGC 4
TGC 5
TGC 6
TGC 7
TGC 8
TGC 9
TGC 10
TGC 13
TGC 14
TGC 11, 12The set-up schedule will be determined after the approval of the
reorganization plan of Kuzbassenergo
will be formed as a result of the restructuring of Моsenergo
Merge
Merge
Merge
MergeMerge
Merge
Merge
Merge
Merge
Merge
Merge
TGC which creation had startedTGC №
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Development of electricity market:“5-15%” model
Free Trade Sector (FTS) has beginning work since November 1, 2003 in accordance with “Wholesale Electric Power (Capacity) Market Rules of the Transitional Period” (approved by the Decree of the
Federal Government №643, Dated October 24, 2003)
The year volume of electricity traded through FTS (since November 2003 till October 2004) was about 41 TWhFTS share equal to about 9% generation of European Russia and UralsIn October 2004 free market prices were 4,2% lower than regulated prices106 entities signed joining agreements to the Market System, 1/3 of them are independent of RAO UES of Russia
0
100
200
300
400
500
wei
gh
ted
ave
rag
e p
rice
ru
b/
MW
H
FTS weighted average buying price
Regulated sector tariff (including capacity since January 2004)
nov. dec. jan. feb. mar. apr. may june jule aug. sept. oct.
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Development of electricity market: Proposed Changes to the Wholesale Market Model
Actual model Proposed model - 2006
A regulated segment based on regulated tariffs
System of vesting contracts + bilateral financial contracts
A competitive segment with voluntary participation of the buyers
Day ahead LMP based market
A balancing sector based on regulated tariffs and on rise/reduce factors
Competitive balancing market
Ancillary services are not paid. Market incentives for participants to provide ancillary services – competitive “market of system services”
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Main Tasks for 2005 Implementing the Decisions Made
Completing regional companies reorganization – “corporate unbundling”
Creating market infrastructure (IDCs, ITCs)
Restructuring of generation - creating WGCs and TGCs
Set up businesses of new market participants – “management unbundling”
Development of wholesale market rules
Development of vesting contracts scheme (legal and commercial)
Groundwork for wholesale market launch on Jan 1,2006
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Thank you for your attention