OREANDA-NEWS. On 15 May 2008 was announced, that IES-Holding President Mikhail Slobodin delivered a report at the annual conference on Electric Power Market: Reform and Investment.

Mikhail Slobodin started his speech noting the positive performance of the industry during the last five years, including strengthening of the industry's favorable investment climate, launching of the electric power market and completion of the privatization process for generation companies. "RAO UES of Russia reform is nearing its completion. A fundamental step forward has been made", stressed Mikhail Slobodin.

At the same time, IES President pointed out that private investors in the power industry are already encountering a number of vital problems, which in the final account will determine the pace of the industry's development in general.

The first problem is the critical condition of the operating assets, testified by a number of recent major accidents and failures. Unfortunately, despite the growing investments, this dangerous trend is on the rise, since the statistics of major accidents leaves no room for optimism.

The second problem concerns management attrition. IES-Holding President noted that managers of generation companies are not really interested now in retaining their jobs under new owners. This situation is aggravated by the current personnel shortage in the industry, as it takes years to "foster" professional managers.

Another problem that investors are facing today relates to the generation companies' approved investments programs being currently implemented. Mikhail Slobodin noted that no one had any significant experience in development of similar projects when those programs were drawn up. A lot of factors leading to considerable cost increases, in particular, major construction and equipment price hikes, were left out of consideration, resulting in a serious gap between the projects' estimated and actual cost recovery.

According to Mikhail Slobodin, this problem is also seriously aggravated by the unsolved issues of technical connection of new capacities to the grids, since the technical connection fee was not taken into account in development of the investment programs. As it turns out now, these expenses add some 10-15% or even up to 20% in some cases to the investor's costs. IES has already initiated active discussions of this problem at meetings of NP Council of Power Producers, said Slobodin.

Mikhail Slobodin concluded his report by noting that "only the first third part of the Russian electric power industry's reform has been completed. The second third part will include implementation of the investment programs, launching of the capacity market, fine-tuning of mechanisms and a lot of other things. This will be the time for generators and all market players to learn to work together".