Russian Energy's Bright Spark

If Boris Brevnov shapes up UES, other industries could follow

Among the six telephones on the desk of Boris A. Brevnov, chairman of Russia's Unified Energy System, one stands out: the white one with a gold crest in place of a dial. It's a direct line to First Deputy Prime Minister Boris Nemtsov's office. The two call each other several times a week, working together to overhaul UES, the government-controlled electric utility. With sales of $23 billion, it rivals gas monopoly Gazprom for first place among Russian companies--and is key to the country's economic renewal.

Brevnov, a lanky 29-year-old, is on the front lines of the Kremlin's latest reform push. Just as President Boris N. Yeltsin is grooming the progressive, 37-year-old Nemtsov as his political heir, Nemtsov has tapped his own protege, Brevnov, to prove that a new generation of managers can shake Russian industry out of its torpor. The government is making UES a showcase in its drive to break up inefficient monopolies and loosen the knot of unpaid debts strangling the economy.

If Brevnov succeeds, the effects will ripple far. A more efficient UES would jump-start domestic industries by providing more affordable power. It could use Russia's ample natural gas and hydropower capacity to become a major power exporter. And Brevnov could set an example for young CEOs who are gradually taking the reins from their Soviet-era predecessors.

BARTER BAN. Brevnov has moved fast since taking charge on May 30. UES's monthly cash flow swelled 30% after he forbade barter, cracked down on delinquent accounts, and offered discounts to customers who paid on time. He brought in a new finance team and is improving corporate disclosure. And he is taking aim at the politically expedient but wasteful system that keeps antiquated regional plants running full-throttle while more efficient ones sit idle, frittering away $4 billion a year. That's one reason commercial electricity rates are 20% higher than in the U.S.

In his office a few blocks from Red Square, Brevnov leans forward in his chair with a confident smile. "I was lucky to come to this company at this time, when the interests of the government and shareholders coincide," he says. Nearly 48% of UES is now held by private shareholders, over half of them foreigners. It has become one of the hottest stocks in Russia's supercharged market, with share prices quintupling since January, to 40 cents.

But the hard part is still to come. Brevnov wants to create a competitive power market, allowing industrial customers to shop for cheaper power through UES's nationwide grid rather than rely on inefficient regional monopolies. Even though UES holds controlling stakes in nearly all the regional utilities, they and their patrons in government are resisting the move. Brevnov also wants the regional utilities to revamp tariffs that overcharge commercial customers to subsidize extremely low residential rates for heat and electricity. Yeltsin's government has paved the way by appointing reformers to the Federal Energy Commission, which is expected to pressure utilities to lower industrial rates. But regional governments still control retail tariffs and may not want to risk a political firestorm by raising household rates.

UES, a sprawling bureaucracy sitting atop an industry that employs 1.6 million workers, has resisted reform in the past. But Brevnov has little patience for foot-dragging. One of his first moves as chairman was to rehire Price Waterhouse to do a company audit after the accountants had backed out because UES management wouldn't cooperate. He also sacked top managers who balked at carrying out his initiatives. And he shut down dozens of unregistered accounts that UES managers had opened in small banks to hide company revenues from tax authorities.

Nemtsov, whose Kremlin portfolio includes the Fuel & Energy Ministry, clearly expects Brevnov to clean house at UES. Previous managers let it become a financial sinkhole, with regional utilities running up $2.4 billion in debts to UES power plants, while the company in turn owed $1.7 billion to its suppliers. Brevnov is getting tough, curtailing power to regions that fall behind in their bills. And he has hammered out an accord to settle UES's debts to its biggest creditor, Gazprom.

Brevnov could wind up a scapegoat if opponents short-circuit his reform effort. But he and Nemtsov, close friends since 1992, are on the same wavelength. "Nemtsov sees in him a capable guy whom he doesn't have to baby-sit," says a Moscow-based investment banker. For now, that white telephone on his desk will keep on ringing.

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