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John Daly

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Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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RusHydro - the Monopoly that wants to Take Over Russia's Water Services

RusHydro - the Monopoly that wants to Take Over Russia's Water Services

A major change could be in the works for Russia’s citizenry for their water and sewerage bills.

RussHydro, the Russian Federation’s largest hydropower company, wants to take over management of the country's water and waste water services and has drafted a plan to that effect to present to the government by 10 February. The plan proposes to form a holding company with the working name OJSC National Corporation Voda Rossii, in which RusHydro would hold a controlling interest and the remaining shares would be held by a federal government agency such as the Federal Property Agency. Voda Rossii would set up a regional operator at the level of every region or municipality that would be co-owned by the local authorities.

A few facts about RusHydro,

With a 36.5 gigawatt installed electricity generation capacity, RusHydro is one of Russia's largest power generating companies, including the Saiano-Shushenskaia Hydro Power Plant (HPP), the largest in the Russian Federation.

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More about Saiano-Shushenskaya HPP later.

According to the company’s website, RusHydro “has a controlling stake in the RAO Energy System of the East, featuring 8,772 MW of installed electric capacity, 16.2 Gcal/h of heat capacity and more than 96 thousand kilometers of grid lines in the Russia's Far East.”

The Russian Federation owns more than 60 percent RusHydro's share capital, giving it de facto management of the company and the company is a cash cow for Moscow, generating more than $15 billion in revenue annually. To put this in perspective, this is equivalent to Russia’s $15 billion in armaments sale for 2012, Russia’s second most lucrative export, exceeded only by oil and gas.

According to the Russian Association of Water Supply and Sanitation (Rabbah), now 84 percent of the water supply organizations and public utilities are municipal unitary enterprises (CBM) and only 16 percent privatized. So, if RusHydro’s plan goes through, most Russian consumers will merely be swapping one monopoly for another, albeit one with deeper pockets, and in the weird world of Russia’s post-Communist semi-capitalist economy, that may actually be a good thing, as local water and sewer bills will be taken out of the hands of local cash-strapped municipalities, possibly producing lower bills. Such is the case with Russian state natural gas monopoly giant Gazprom, which sells natural gas in the domestic market at heavily subsidized prices, making up its profits on international sales.

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So, how good a steward of the nation’s water supply would RusHydro be?

On 17 August 2009, an accident occurred at RusHydro's Saiano-Shushenskaia HPP in eastern Siberia. The turbine hall and engine room were flooded, the ceiling of the turbine hall collapsed, 9 of 10 turbines were damaged or destroyed, and 75 people were killed. The HPP’s 6,400 megawatt output was lost, leading to widespread local power failures, forcing all major users such as aluminum smelters to switch to diesel generators until the HPP was restarted at reduced output power on 24 February 2010. According to Russian Energy Minister Sergei Shmatko, the cost of rebuilding of the turbine room alone was estimated at $1.3 billion.

According to Aleksandr Toloshinov former general director the Saiano-Shushenskaia HPP, the accident was most likely due to a "manufacturing defect" in a turbine, adding that the construction of the turbine blades of this size is not very reliable and cracks are known to develop in them under some working conditions.

So, like it or not, Russian customers next month will likely find their water and sewer bills coming from yet another government monopoly. Whether it will benefit them or result just more price increases and reduced service, only Lenin knows – who would undoubtedly be pleased by the imposition of yet another government de facto monopoly.

By. John C.K. Daly of Oilprice.com

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