When Electricity Reform Isn’t Just a Simple Switch

And you thought electricity deregulation in California was a rough game.

The brash young reformer running Russia’s powerful electricity monopoly was the target of an attempt by Soviet-era holdovers to oust him on Wednesday. He survived--but it was a boardroom clash for control some regard as a sign of this country’s increasing economic stability and by others as evidence of its shakiness.

The attempt to unseat Boris Brevnov, the 29-year-old chief executive of Unified Energy Systems, sent share prices in Russia’s third-largest company plummeting until the country’s energy minister deemed the move illegal.

“It was a palace coup that failed,” said company spokesman Sergei K. Medvedev, noting that legal action may be taken against the eight board members whose vote against Brevnov “could be seen as having undermined the vital interests of the country, as energy is a strategic resource.”

More than a battle between the old and new forces managing the giant electrical utility, the move to dump Brevnov represents a challenge to the entire government campaign to transform debt-ridden and poorly managed public services into healthy, self-sustaining businesses.

Brevnov was named to head the utility last May by First Deputy Prime Minister Boris Y. Nemtsov, the man most often pegged as heir apparent to the ailing President Boris N. Yeltsin. Whether Nemtsov rises to the challenge of putting utilities on sound economic footing could make or break his reputation among the Russian people, most of whom are resentful about having to pay for services that were free during the Communist era.

Household electricity rates rose more than 30% last year under Brevnov’s plan for gradually weaning consumers from a system supported by staggering state subsidies to one in which consumers pay rates high enough to give industry an incentive to step up production.

But the mandate given Brevnov to restructure the utility also gave him the power to perform economic triage. Because the company is owed more than $2.5 billion by bankrupt state factories that remain on the government payroll, its management has the power to decide which industries’ prospects are hopeless and should be cut off from further electricity supplies and which show promise of eventually becoming profitable and able to repay their debts.

The utility’s board has long been made up of regional power directors, some of whom have been continuing to supply electricity to heavily indebted enterprises in exchange for bartered goods or personal benefit. That method of operation, still in practice throughout most of the energy sector, has been depriving the utilities of money to pay workers, suppliers and tax bills.

When Brevnov was appointed last year, the utility was collecting only 8% of its expected revenue. By the end of 1997, collections were more than 20% of expected revenue, and he oversaw some major belt-tightening for a company that had employed more than 1 million people.

On Tuesday, however, government auditors criticized the company, in which the state holds a 52.7% share, as having moved too slowly in relieving the government of subsidy burdens. They also questioned Brevnov’s $264,000 salary and other expenses.

The auditors’ call for a formal inquiry appeared to inspire the remaining Soviet-era directors to try to wrest away control of what had been their domain before Brevnov arrived. Eight of the company’s 15 board members voted to oust Brevnov in favor of his predecessor.

Early Wednesday, Energy Minister Sergei Kiriyenko declared the vote illegal, arresting the drop in share prices.Kiriyenko said that only the government, as majority shareholder, has the authority to hire or fire the head of the utility.

Kiriyenko’s intervention indicates that Yeltsin remains committed to carrying out the tough steps needed for an economic restructuring and that he will stick by his reformers--at least for the time being--despite widespread complaints among industry bosses and regional utility directors whose fiefdoms are under threat.

“This is not a scandal--it is a conflict between two energy policies,” a confident Brevnov told an interviewer on a news program after the government came to his rescue. “One is the policy of the old, obsolete system, and the other is a system that will set the future course for Russia.”

If Brevnov succeeds in turning around the utility, his formula could be copied by the other public utilities losing money on the provision of water, gas, garbage collection and other services.

Although reform advocates publicly hailed Brevnov’s survival as an indication that market forces now power the country, some quietly concede worries that similar internal putsches might be successful if consumer patience erodes any further and bureaucrats see new chances to grab control.