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Perspective

Social and political attitudes toward cheap power were a major obstacle to electricity liberalization in Poland; they also may be one in Russia.
Fortnightly Magazine - June 15 2003
  • has to do. Any plan to manage or acquire generating assets will need to include mechanisms to mitigate this risk;
  • Worker resistance. In Poland, unions were strong and exerted an almost veto-like power over government actions. In Russia, the Communist Party is still a political factor and will likely exercise some of the same influences on government actions. The Communist Party may try to impose similar conditions on the privatization process as the "social packages" in Poland sought to impose;
  • General political support for restructuring. The process is certain to require further enabling legislation from the Duma and support from the federal administration. That support cannot be taken for granted, and there will be setbacks. But because the process is too important to fail, it will not fail, and the necessary actions will occur, although the process may not be pretty at times;
  • Regulatory inexperience. Private capital issues will be a problem in Russia as they were in Poland. The only fix to this problem is working with the regulatory agencies to make sure that they are made aware of the valid concerns and requirements for private equity participation, whether that equity is Russian or foreign.

Finally, advance preparation is essential. All too often in Poland, potential investors lost out because they misjudged the timelines. Politically difficult actions tend to get postponed before they take place. When the difficulties get resolved, it happens quickly. Investors should not be misled by the postponements to think that there is plenty of time to prepare. Once decisions are made to proceed, the actions will take place quickly to avoid anyone changing their mind and blocking the actions. It is easy to get left behind.

The restructuring of UES is likely to create one of the largest opportunities the world has seen for participation in restructuring of an electricity system. It would be a shame to miss the boat.


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