The Unified Energy Systems of Russia (RAO-UES) in Central Asia and the Caucasus: Nets of Interdependence

Abstract

Abstract: Most Central Asian and Caucasus countries have, to some extent, transformed and privatized their electricity sectors using the World Bank's advice. In recent years, the Russian parastatal Unified Energy Systems of Russia (RAO-UES) has purchased much of the generation and transmission assets that were made available. This article examines the transformation of the post-Soviet electricity sector. The author explores how RAO-UES became the most important foreign investor, even in states that have problematic relations with Moscow, the advantages and disadvantages of RAO-UES participation for the successor states, and the energy security implications of the grid as it now exists for these southern states. Keywords: Caucasus energy, Central Asia energy, electricity sector restructuring, politics of electricity, RAO-UES, Russian electricity grid Introduction Although oil and gas have received the most attention from the international community, something remarkable has been happening in Russian electricity generation. In the fall of 2003, the former Soviet republics began operating on a parallel, integrated grid for the first time. (1) This long-dreamed-of goal of Soviet planners was finally accomplished under the corporate leadership of the Russian Joint-Stock Company--Unified Energy Systems of Russia (henceforth RAO-UES). Synchronization of the grid means that the electrical generators across the post-Soviet space are operating in coordination with each other and that shortfalls in one area can be made up with surpluses from another. The coordination has been maintained by the eleven states of the CIS Electric Energy Council but led by RAO-UES. Since coming under RAO-UES's leadership, the member states have seen an increase in the quality and reliability of their electricity. But in several states the energy security implications continue to raise concerns. The Russian idiom for an electricity network is rather than the English grid. Are the successor states of the Soviet Union becoming caught up in a net of electricity dependency? This article examines the reasons for the ascendancy of RAO-UES in Central Asia and the Caucasus--regions where acquisitions have been recent and extensive. It will also examine the ways in which each of the concerned states has attempted to constrain RAO-UES or to allow the corporation to pursue acquisitions while safeguarding the state's own interests. RAO-UES RAO-UES has not merely synchronized the grid covering the former Soviet space. The corporation has reorganized and, in large measure, purchased it. With ownership of an installed capacity of 157.7 million kilowatts and 2,479,000 kilometers of transmission lines, (2) the RAO-UES Holding Company has an enormous footprint. By comparison, Electricite de France--the largest electricity company in Europe--has only 130.7 million kilowatts of installed capacity. (3) RAO-UES is a parastatal corporation in which the Russian state holds controlling shares. According to its annual report, the Russian state owns 52.68 percent of the company's shares, a figure that has remained constant for years. (4) RAO-UES owns 72 percent of the electricity generation capacity in the Russian Federation, and 96 percent of its transmission capacity. (5) RAO-UES is considered relatively transparent and commercially successful. Standard and Poor's rating services gave RAO-UES a credit rating of ruA+ (highest ranking in Russia) in 2004 and an overall rating of B+, indicating that it is one of the most promising investments in Russia. RAO-UES has been led by CEO Anatoly Chubais, a well-known and controversial oligarch in Moscow, since 1999. Often credited as the architect of the first wave of post-Soviet privatization, his portfolio includes having served as first deputy prime minister in the first Yeltsin administration, Yeltsin's campaign manager in the 1996 campaign, and presidential chief of staff in the second Yeltsin administration. …