Putin Urges Power Investment; UES Climbs to Record

Russia needs investment in power companies to avoid blackouts and maintain economic growth, President Vladimir Putin said. Shares of national power utility RAO Unified Energy System rose to a record.

``There are already real signs of an electricity deficit, which could become a natural inhibitor to economic growth,'' Putin told ministers and utility executives today in remarks broadcasts on state television. The industry needs ``clear proposals for attracting private investment, both domestic and foreign.''

Russia, which has been working to break up Unified Energy into smaller units since 2000, aims to attract as much as $50 billion to upgrade the company's mainly Soviet-built equipment. The breakup of the world's largest power producer by capacity and its move to market-based prices slowed after the appointment of Mikhail Fradkov as prime minister two years ago.

Putin's call for investment comes after record demand driven by a cold snap forced Unified Energy cut power to some Moscow users twice this week. The company also cut exports to Finland in January to meet demand in Putin's hometown of St. Petersburg.

`Dangerous Territory'

``The system is in dangerous territory - the peak in power demand this week showed the vulnerability of the system and the need for investment,'' said Dmitry Bulgakov, an analyst at Moscow-based United Financial Group, owned by Deutsche Bank AG. ``Putin's statement indicates that reform will go ahead as planned.''

Shares of state-owned Unified Energy rose 6.7 percent to 55.8 cents, a record high, on the dollar-denominated RTS, valuing the company at $2.3 billion. The shares had their biggest gain in 21 months on the ruble-denominated Micex exchange, as 1.4 billion shares changed hands, about three times the daily average of the past three months.

Russia's economy is expanding for the eighth consecutive year and is expected to grow at least 6 percent in 2006. Russian power consumption rose 50 percent faster than originally anticipated in Unified Energy's 2000-2005 strategy, which was approved in 2003, Chief Executive Officer Anatoly Chubais said in November.

Some Russian regions will already consume as much as local generators can produce this year, increasing the strain on the national grid, Chubais said in November. The power system of the world's largest country is heading for a ``catastrophe,'' he said.

Moscow suffered a blackout in May 2005 caused by equipment more than 40 years old, leaving more than 2 million people without power.

The industry is struggling to attract investment because the government caps price increases on electricity. The company's price increases have trailed a rise in inflation over the past three years. Those caps slashed power companies' earnings last year by $500 million, Chubais said.

To contact the reporter on this story: Todd Prince in Moscow at tprince2@bloomberg.net.

To contact the editor responsible for this story: Edward Buckle at ebuckle@bloomberg.net.

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