Post-Soviet Developmentalism and the Political Economy of Russia’s Electricity Sector Liberalization

Abstract

Observers of Russian state market relations typically consider the state as an entity engaged in creating rent-seeking opportunities for bureaucrats or powerful economic interests. The trajectory and outcomes of electricity sector reforms demonstrate the limits of this perspective and serve to highlight a developmental strand in Russian economic policy, which I call post-Soviet developmentalism. I found that post-Soviet developmentalism is key to understanding the patterns of market institutions that have emerged in the newly liberalized electricity sector and that they cannot be adequately explained if the state is largely seen as a predator or as captured by oligarchic interests. A close analysis of the institutional underpinnings of new electricity markets suggests that they were shaped in political bargains, in which the government sought to enlist Russia’s oligarchic conglomerates for its modernization agenda and developmental priorities. The paper links this discussion to three sets of theoretical literatures: It speaks to the debates on the post-Soviet transition, more broadly to the political economy of market reform, and finally, it addresses the developmental state literature.

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Notes

  1. 1.

    Sometimes called the modified or “augmented Washington consensus” (Rodrik 2006; p. 978).

  2. 2.

    The experience of post-Soviet countries has done much to confirm the axiom that economic development is essentially an institutional transformation, first formulated by Douglass North (1981, 1990).

  3. 3.

    See Rodrik (2007, 2008) for example.

  4. 4.

    The latter might be a particularly Russian strategy; for a reference to it, see “O pынкe paccaкaжут бecплaтнo,” Vostochno Sibirskaia Pravda, September 2, 1992.

  5. 5.

    I am relying on a strategy document by the Ministry of Regional Development, “Кoнцeпция coвepшeнcтвoвaния peгиoнaльнoй пoлитики в Poccийcкoй Фeдepaции[Kontseptsia]. The Kontseptsia is a document that lays out the principles of regional development in general and for each of the seven Federal Okrugs, approved annually by Presidential Decree. These documents are available on the Ministry’s website, http:/www.minregion.ru. For a reference to the importance of infrastructure, see Kontseptsia 2008, p. 4.

  6. 6.

    Of course, the argument stops short of claiming developmental considerations were overarching concerns in all government–business interactions. The notorious proceedings against Mikhail Khodorkovsky during Putin era and the infamous loans-for-shares deals, for example, plainly had very different aims, well documented elsewhere.

  7. 7.

    Herrigel (2010, p. 4) points out that the “old” economy not remains important, but what used to be “old” sectors in fact routinely rely on new technologies and are tightly linked to “new” sectors.

  8. 8.

    This broad division into three different, geographically situated categories of reform trajectories and outcomes was first brought to my attention by a veteran electricity sector insider (interview #39 with electrical engineer/electricity sector expert, Vladivostok, 20071004). Within each of these sub-national, but supra-national zones, there are further differences that could be explored in a more fine-grain analysis. I conducted fieldwork in Moscow, Irkutsk oblast, and Primorsky Krai; these regions are representative of the larger geographical regions they are situated.

  9. 9.

    Interviews are semi-structured conversations, typically lasting between 45 and 90 min. See “Appendix 1” for a list of interviews.

  10. 10.

    I rely on a data set on electricity tariffs obtained from the UES Strategy Committee for Reforms in December 2006; it contains the tariffs set by all Regional Energy Commissions between the years 1995 and 2005, broken down by household, rural, and industrial prices. As far as I know, these data are not publicly available. I refer to it as “UES Tariff Data” in what follows.

  11. 11.

    See, for example, World Bank (1997).

  12. 12.

    Differences in institutional outcomes are often the explanatory variables, accounting for variation in growth rates and innovation across regions. John Zysman’s (2007) work is one among many examples.

  13. 13.

    Barnes and Markus note this, for example Barnes (2006) and Markus (2007).

  14. 14.

    See, for example, Woodruff (1999), Barnes (2006), and Markus (2007).

  15. 15.

    While economists tend to compare Russian market institutions with a best-practice models, political economy approaches in a sociological tradition have been interested in tracing their emergence. Barnes identified studies of institutions a priority (Barnes 2006). Hanson (2003) also points out that the post-Soviet context is a unique opportunity to study the origin of institutional arrangements.

  16. 16.

    A similar statement was made to describe Dal’energo, the regional electricity company in Primorsky Krai—“it looked more like a government agency than a company for most of the 1990s.” Interview #33 with journalist covering electricity sector, Vladivostok, 20070921.

  17. 17.

    Rutland and Woodruff have drawn attention to the electricity sector as an arena for the center-region conflicts in the 1990s (Woodruff 1999; Rutland 2005a).

  18. 18.

    An over-time comparison of two reform attempts supports this argument: the first attempt to reform the sector, in 1997, largely failed to effect change, while a second attempt, beginning in 2002/2003, marked the beginning of the current far-reaching transformation in the sector (Wengle 2007 and forthcoming).

  19. 19.

    This is entirely a result of the paper’s focus on the reforms that were implemented between 2004 and 2008. Regional authorities were key actors in shaping earlier attempts to reform the sector.

  20. 20.

    For a study on the energy inefficiency of Russian industries, see Carbajo and Fries (1997). For a survey on how household consumers are affected by rising electricity tariffs, see a survey by FOM (Фoнд Oбщecтвeннoe мнeниe) conducted in 2005. Almost two thirds (57%) of respondents in a 2005 survey reported that rising electricity tariffs “negatively affect their lives.” Of this group, 39% reported that they adjusted spending habits as a result of rising utility prices. Available on the FOM website, http://bd.english.fom.ru/report/cat/humdrum/zhilicshno-komunalnoe_hozyaistvo/ed053823.

  21. 21.

    Landmark studies on privatization are Solnick (1999), Verdery (2003), and Barnes (2006). An example from Irkutsk to illustrate the scale of privatization: in Irkutsk oblast 1608 enterprises had been privatized by January 1, 1994, “Иpкутcкaя oблacть: шaги пpивaтизaции.” Vostochno Sibirskaia Pravda, January 25, 1994.

  22. 22.

    This remained a relatively constant feature of property and privatization battles, even as other aspects of ownership struggles changed over time, documented by Barnes (2006). For an example of a post-Soviet case outside of Russia, see Spector (2008).

  23. 23.

    First quote: interview #1 with electricity sector expert, international financial institution, Moscow, 20060721. Second quote, Burgansky (2005).

  24. 24.

    Presidential Decree No. 922. A few important regions defied this Decree, and the central government was unable to retain a majority stake in a number of Energos: Irkutskenergo, Tatenergo, Bashenergo, and Novosibirskenergo became independently owned.

  25. 25.

    Contrary to its stated intent, however, voucher privatization actually facilitated the concentration of ownership. The voucher privatization of 1993–1994 and how it failed is extensively documented (Freeland 2000; Hoffman 2003; Barnes 2006). Privatization battles were also a recurring theme in my interviews: Interviews #54 with businessman, Irkutsk, 20071120 and interview # 47 with businessman in Vladivostok, 20071017.

  26. 26.

    This tendency to build vertically integrated conglomerates has been widely observed, for example, Rutland (2009) and Volkov (2008). According to Volkov “target selection for hostile takeovers was governed by the logic of vertical integration.” This applies to the electricity sector as well, according to interview #9 with electricity sector analyst at financial institution, Moscow, 20061008. For a reference to this strategy, see also “Kтo пpaвee, Ecaпoв или Чубaйc?” Komsomol’skaia Pravda, November 13, 2002.

  27. 27.

    Chubais, interview in Mellow (2003).

  28. 28.

    While I focus on Russian conglomerates, a number of other actors have at times successfully secured ownership, including regional governments and foreign investors.

  29. 29.

    The price at which energy is sold to consumers is at the core of the Kremlin’s energy politics—domestically and internationally. According to a study by the OECD in 2002, estimates range from 5% of GDP to 30% of GDP if energy prices are compared with OECD market prices (Litwack and Thompson 2002; Tarr and Thomson 2004). More references to subsidies in various energy sectors, see Solanko (2011) and Sidorenko (2011) and a reference on Gazprom website (http://gazpromquestions.ru/?id=35#c251). For household subsidies in the electricity sector in particular, see Yudashkina and Pobochy (2007).

  30. 30.

    Interview #1 with electricity sector expert, international financial institution, Moscow, 20060721.

  31. 31.

    I focus here on three broad types of subsidies—cross-subsidies, industrial subsidies, and budgetary transfers—that play a role in the political bargains in the electricity sector, although far more subsidy categories exist.

  32. 32.

    According to Khlebnikov (2005).

  33. 33.

    First quote in “Haдo нaучитьcя плaтить,” Utro Rossii, Februray 10, 1994. That people should be “taught how to pay,” was a remark by the Minister of Energy, Yuri Shafranik. Second quote in “Экoнoмить тeплo и cвeт, ” Utro Rossii, January 19, 1994.

  34. 34.

    Opponents in low cost regions also resisted the “equalization” of prices across Russia, as we will see below.

  35. 35.

    See, for example, Litwack and Thompson (2002), Rutland (2005a), and Woodruff (1999).

  36. 36.

    One observer calls cross-subsidies a “terrible disease,” interview #39 with electrical engineer and electricity sector expert, Vladivostok, 20071004.

  37. 37.

    Electricity bills are paid as part of a consolidated bill for a number of housing related charges—gas, heat, water, and repair services (the so-called kvarplata). It is not uncommon for low-income households to spend a high proportion, sometimes more than half of their income on the kvarplata; references to this are common in regional newspaper, for example, “Пoчeм литp вoды? O квapплaтax и тapифax нa кoммунaльныe уcлуги,” Vostochno Sibirskaia Pravda, September 14, 1995 and interview #40 with pensioner, Vladivostok, 20071004.

  38. 38.

    Yudashkina and Pobochy (2007) analyze regional tariffs during years of governor elections and find that between 1998 and 2001, regional governors decrease prices in the quarter ahead of elections. As reforms at the center tightened control over regional regulators, this practice became less common. Apparently the governor of Primorsky Krai made a noisy announcement in 2003 that he was lowering electricity prices, but this turned out to be only a temporary measure. Interview #33 with journalist covering electricity sector, Vladivostok, 20070921.

  39. 39.

    Interview #32 with electricity sector economist, Vladivostok, 20070918.

  40. 40.

    According to UES’ website, in 2006, the main consumer groups were the following: industrial 53%, residential 23%, transport 11%, service sector 11%, and agriculture 4%, http://www.raoees.ru/en/info/about/main_facts/show.cgi?str_potreb.htm.

  41. 41.

    These “lists” come up in conversations and in media coverage. Interviewees tended to mention one or two companies that are certainly on the list; for example, the companies BOR (chemicals) and SPASK (cement) in Primorsky Krai were mentioned as being on the list by several interviewees. Interview #32 with electricity sector economist, Vladivostok, 20070918; interview #33 with journalist covering electricity sector, Vladivostok, 20070921; interview #34 with academic and employee of an electricity company, Vladivostok, 20070923; and interview #41 with journalist covering electricity sector, Vladivostok, 20071005.

  42. 42.

    Interview #32 with electricity sector economist, Vladivostok, 20070918 and interview #46 with academic, Khabarovsk, 20071011.

  43. 43.

    Industrial tariffs are often difficult to ascertain, since they are based on informal negotiations, first in the regions and now increasingly at the level of the central government. The special deals for select industrial enterprises are concealed in the average industrial tariff data that are publicly available. As a proxy for likely occurrence of favorable prices, I compare industrial in different oblasts with the average prices in the larger supra-regions. If a region has much lower industrial tariff averages than neighboring regions, I take this as a sign that industrial subsidies may play a role (see Table 5 in “Appendix 2”). I confirm this with interview and newspaper data.

  44. 44.

    For ownership data, see Table 2 in “Appendix 2”. Note that European Russia has a more diverse set of new owners, more so than Siberia and the Far East, because it is more a diverse and larger space. Also informative is a statement by Alexey Miller, Chief Executive of Gazprom, who announced in 2006 “We have acquired assets in the electric power industry. (…) We are receiving already the dividends from these investments, and plan to increase our presence in this sector of the energy business.” Statement by Miller, at the 23rd World Gas Conference, Amsterdam, June 6, 2006. http://www.gazprom.ru/eng/articles/article19731.shtml.

  45. 45.

    KES holding by Viktor Vekselberg, see Nadia Popova and Jacob Groholt-Pederson (2011). This deal has been discussed since at least 2007, but has been opposed by the more liberal faction of the Putin government as well as by the Russian anti-monopoly commission.

  46. 46.

    Gazprom does not own a majority of power plants, but it owns key assets. The reforms created regional and supra-regional wholesale companies; the former are the so-called territorial generation companies (TGKs), and the latter are called OGKs (wholesale generation companies). Gazprom acquired majority stakes in OGK-2 and OGK-6, RFE/RL Newsline, September 12, 2007.

  47. 47.

    An 18% stake was for sale in 2007. Through a number of assets purchases, Gazprom today controls TGK-1 via a 46% stake (see TGK-1s website, http://tgc1.ru/).

  48. 48.

    Gazprom’s status as a “private” company has changed over the years; the government’s stake was around 30% for much of the 1990s but has increased to just over 50% during the re-nationalization of the oil and gas sectors beginning in 2004.

  49. 49.

    See Sidorenko (2011, p. 355) for the reform schedule. The annual report of the Electricity System Administrator (ATS/Aдминиcтpaтop тopгoвoй cиcтeмы) gives details on the transactions conducted on the wholesale market, both at free and at regulated prices: Administrator torgovoi sistemy: Godovoi otchet, ATS, Moscow, 2010; p. 48 on the increase in transactions at liberalized prices, p. 40 on the decrease in transactions at regulated prices.

  50. 50.

    UES Tariff Data. Household consumers still remain protected from price fluctuations on the wholesale market, as they are supplied by so-called guaranteeing suppliers that can purchase power at regulated prices (Sidorenko 2011).

  51. 51.

    Prices have remained lower in these two regions than in the regional average, and it is also likely that they retain industrial subsidies. These two regions have remained generally more independent than other regions in European Russia. Tatenergo and Bashenergo remained independent of UES and have avoided integration into the new OGKs and TGKs.

  52. 52.

    Federal Tariff Service (2004). Arkhangelsk is the region in European Russia that has received subsidies in the form of direct transfers, but these have decreased over the years: from 283 mln RRub in 2004 compared to 500 mln rub in 2003 and 2002. I have not been able to find data beyond 2004.

  53. 53.

    See, for example, Barnes (2006) and Kramer (2006).

  54. 54.

    Interview #60 with energy company executive, Irkutsk, 20071203.

  55. 55.

    It may seem paradoxical that wholesale prices are liberalized, while industrial subsidies continue. By this I mean that prices are not directly regulated but that the government and the new owners agree to supply electricity below prices it could fetch on newly created markets—a discount that amounts to a subsidy.

  56. 56.

    This position is detailed in Maтepиaлы к энepгeтичecкoй cтpaтeгии Cибиpи, Novosibirsk, PAH Cибиpcкoe oтдeлeниe, July 1997, chapter 10, p. 102. This is also a recurring theme in regional newspapers, for example, “Дeшeвoй энepгии нa вcex нe xвaтит,” Vostochno Sibirskaia Pravda, January 6, 1997.

  57. 57.

    In Russian: “Mы нaчaли пpaктикoвaть cнижeниe тapифoв для oпpeдeлeнныx пoтpeбитeлeй, в oпpeдeлeнныx paмкax и нa oпpeдeлнныx уcлoвияx.” Sergei Kuimov, Ekspert, No.14, April 13, 1998, p. 35. That these agreements were supported by regional administrations is implied and confirmed in interview #60 with energy company executive, Irkutsk, 20071203.

  58. 58.

    In Russian: “Tapифы для ниx [пpeдпpиятий aлюминиeвoй пpoмышлeннocти] были зaнижeны изнaчaльнo.” “Kpacнoяpcк пoшeл пo пpимopcкoму пути,Segodnia, September 12, 1997. The observer also notes that this increased prices for all the other industrial consumers. About two thirds of Krasnoyarskenergo’s electricity is produced in the Krasnoyarsk hydro-electric power plant; Krasnoyarsk Aluminum Plant uses all of Krasnoyarskenergo’s high-voltage output; Becтник peгиoнaльнoй энepгoкoммиccии Кpacнoяpcкoгo Кpaя, January, 2005, p.27.

  59. 59.

    Interview #49 with academic, 20071114; interview #50 with businessman, 2007115; and interview #55 with employee of electricity company, 20071120, all three in Irkutsk. The Russian government has been heavily subsidizing the Siberian railways with discounted electricity rates for years.

  60. 60.

    Compared to its global competitors, Rusal pays little for electricity; see, for example, in “Hopвeжcкaя кoмпaния пocтpoит зaвoд в Poccии; Ecли дoгoвopитcя o цeнe нa элeктpoэнepгию,” Kommersant’, January 12, 2006. A recent company statement by Rusal notes that electricity prices have gone up due to sector liberalization, but that Rusal’s energy costs are small compared to industry average (25% of Rusal’s cost, compared to 36% industry average (Deripaska 2011)). Other sources quote even lower tariffs for Rusal. Deripaska’s quest to secure low-cost electricity is also often reported in regional and national news; see, for example, “Pуccкий aлюминий ищeт дeшeвую энepгию,” Kommersant’, November 30, 2001.

  61. 61.

    Rusal is embroiled in lawsuits, as it challenges Hydro-OGK, the government owned hydroelectric power company’s decision to increase prices. These suits and their status are listed on the website of the commercial court, searchable with the case numbers A40-41138/2011 for a case concerning Bratsk Aluminum plant, and A40-41137/2011 for a case concerning Krasnoyarks Aluminum plant (http://kad.arbitr.ru/).

  62. 62.

    Interview #43 with electricity sector economist, Khabarovsk, 20071010.

  63. 63.

    Interview #50 with businessman, Irkutsk, 20071115.

  64. 64.

    About 95% according to interview #61 with employee of electricity company, Irkutsk, 20071205.

  65. 65.

    Interview #43 with electricity sector economist, Khabarovsk, 20071010.

  66. 66.

    Far Eastern Energos first merged into a holding company, DEUK in 2001, which later became DVUEK (Дaльнeвocтoчнaя энepгeтичecкaя упpaвляющaя кoмпaния) and is now called EES Vostoka. The government owns a majority stake in EES Vostoka and controls the company via its board of directors. Russia’s largest coal company, SUEK eventually bought a large share of DEUK as part of its strategy to acquire downstream assets. However, its share in DEK is hardly SUEK’s key to great wealth: Primorsky Krai’s coal reserves are important for the local economy, but are small compared to Siberian reserves.

  67. 67.

    UES tariff data. See also various references to the cost of electricity in the Far East in local media, for example, “Дaльэнepгo мeняeт пapтнepoв?” Utro Rossii, January 14, 1997. Also interview #32 with electricity sector economist, Vladivostok, 20070918 and interview #34 with academic and employee of an electricity company. Technology of Far Eastern power plants was discussed in interview #39 with electrical engineer/electricity sector expert, Vladivostok, 20071004.

  68. 68.

    Coal production was privatized early and many coal mines were closed when demand collapsed during the economic crisis and their remaining clients were unable to pay. For example “Ocтpый cигнaл: пpoшли выбopы—oтключили бaтapeи, ” Utro Rossii, January 15, 1994, and “Дeфицит cвeтa… ” Utro Rossii, March 12, 1996.

  69. 69.

    Conversations with Primorsk residence repeatedly confirmed this point. Anthropologists have traced the breakdown of electricity with a jolt to pre-modern times, see Platz (2000).

  70. 70.

    “Кoмиccия пo чpeзвычaйным cитуaцям пpeдпpинимaeт кoнкpeтныe шaги пo paзpeшeнию тoпливнoгo кpизиca,” Utro Rossii, January 14, 1997. Anti-crisis measures and subsidies/support from the central government include in-kind fuel deliveries—almost 20,000 tons of diesel fuel were allocated from the federal government’s resource committee. This is a recurring theme in local newspapers; for an earlier reference, see “Mиллиapды нa тoпливo, ” Utro Rossii, January 20, 1994. Also several interviews, for example, interview #39 with electrical engineer/electricity sector expert, Vladivostok, 20071004, and interview #43 with electricity sector economist, Khabarovsk, 20071010.

  71. 71.

    “УКAЗ Пpeзидeнтa Poccийcкoй Фeдepaции: O дoпoлнитeльныx пpaвax и oбязaннocтяx пoлнoмoчнoгo пpeдcтaвитeля пpeзидeнтa Poccийcкoй Фeдepaции в Пpимopcкoм кpae,” Utro Rossii, June 10, 1997.

  72. 72.

    “Energy Minister Yurii Shafranik (….) said that Moscow earmarked 4.6 trillion rubles for bailing out the region’s fuel and energy sector.” OMRI/DD, August 6, 1996. See also “Primoriye to receive federal funds” in OMRI/DD, September 23, 1996.

  73. 73.

    UES tariff data and Anna Lobunec (2004a), which contains an analysis of cross-subsidies in the Far East, p. 108; confirmed in interview #34 with academic and employee of an electricity company.

  74. 74.

    Federal Tariff Service (2004, p. 46). Interview #43 with electricity sector economist, Khabarovsk, 20071010.

  75. 75.

    “Another reason [for why the Far East is undergoing a different reform trajectory] are the high levels of cross-subsidies in the Far East.” In Russian: “Eщe oдин фaктop—знaчитeльный oбъeм пepeкpecтнoгo cубcидиpoвaния, кoтopoe пo-пpeжнeму coxpaняeтcя нa Дaльнeм Bocтoкe,” according to Klimenko, in Dal’nevostochnyi Kapital, August 2005, 8/60, p.10. See also UES tariff data and interview #41 with journalist covering electricity sector, Vladivostok, 20071005.

  76. 76.

    The wholesale market is divided into the European and Siberian “zone”; the European zone is called the first price zone, the Siberian is called the second price zone, and the Far East is the “un-priced” zone (netsenovaia zona). All price statistics by the system administrator of the Russian electricity grid (ATS) are divided into these three zones; see, for example, ATS website http://www.np-ats.ru/.

  77. 77.

    That prices differ was also mentioned several times in interviews, for example, interview #52 with electricity sector economist, Irkutsk, 20071117. Another high-profile expert predicts that the three markets are likely to remain separate for the foreseeable future is Dmitry Ponomarev, ATS director. In Russian: “Oбъeдинeниe цeнoвыx зoн и нeцeнoвыx нe плaниpуeтcя,” Vedomosti, August 22, 2007.

  78. 78.

    According to Chubais, price differentiation depends on many different factors, including the “development of regions, the development of sectors; (…) myriads of different interests are involved.” Remark by Chubais at a conference “Electricity: Locomotive or Brake on Economic Development?/Энepгeтикa: тopмoз или лoкoмoтив paзвития экoнoмики?” Moscow, February 13, 2007.

  79. 79.

    Snyder’s work on the different pathways of re-regulation of Mexico’s coffee sector examines the conditions under which civil society actors can play a role (Snyder 1999). Murillo stresses the role of electoral competition and partisan politics as the determinants of the liberalization pathways of Latin America’s electricity and telecom sectors (Murillo 2002, 2009). Etchemendy’s work emphasized the Argentine government’s coalitions with business and organized labor in Argentina (Etchemendy 2004).

  80. 80.

    For a case study on Western Europe, see Humphreys and Padget’s study that explores how France and Germany differed in the adaptation of EU directives in the telecom and electricity sector; they find that the existing structure of the electricity sector and domestic political institutions were key mediating factors in the adaptation of the liberal EU directives in the electricity sector (Humphreys and Padgett 2006, pp. 398). For Eastern Europe, see Jacoby (2006).

  81. 81.

    In fact, a later influential advisory committee to the board on reform matters was initially established as a condition for an EBRD loan, interview #1 with electricity sector expert at an international financial institution, Moscow, 20060721. That the EBRD reform committee ended up being an “important organ,” was mentioned in interview #11, electricity sector expert, Moscow, 20061018. Foreign consultancies also played a role; interview #16 with electricity sector consultant, Moscow/phone, 20061030; consultancies were also mentioned in interview #57, academic/electricity sector expert, Irkutsk, 20071122.

  82. 82.

    This was mentioned, for example, by an electricity sector economist, interview #43, Khabarovsk, 20071010.

  83. 83.

    For the predatory state argument, see, for example, Aslund (2002) and Frye and Shleifer (1997).

  84. 84.

    Also a very common chorus in the news media, see, for example, Bovt (2008).

  85. 85.

    Markus has argued that private firms adopt corporate government mechanisms as an insurance mechanism against the infringement on property rights by a predatory state. The causal mechanism of this argument relies on foreign investors acting as allies of private companies, defending them and lobbying on their behalf with the Russian government (Markus 2008). While these kinds of alliances were important in the electricity sector at times, the role of foreign investors was ultimately limited, and they were only successful in obtaining a controlling stake, if the government permitted this.

  86. 86.

    For arguments about a weak and captured state, see McFaul and Perlmutter (1995), Hellman (1998, 2003), Shleifer and Treisman (2000), and Ericson (2001).

  87. 87.

    Exceptions to this trend are Woodruff (1999) and Barnes (2006).

  88. 88.

    A group that includes enterprise managers, local officials, and Mafiosi, according to Hellman (1998, p. 204).

  89. 89.

    “Grabbing hand,” see Frye and Shleifer (1997).

  90. 90.

    This is partly due to the view of markets as either competitive or fraught by rent-seeking firms, partly a question of methodology that does not compare survey results with “real-world” institutional outcomes.

  91. 91.

    See critique by Hanson for a review of several assessments of reform attempts in the early 2000s (Hanson 2003).

  92. 92.

    Timothy Frye’s (2010, p. 171) more recent work has portrayed business state relations as the state buying off powerful incumbent actors with concessions that enable rent-seeking.

  93. 93.

    More precisely, Jones Luong and Weinthal (2010, p. 300) identify firstly the “level of distributional conflicts” governments face and secondly “the degree to which they can access alternative revenue sources” as the key variables that shape ownership structure in the oil sector.

  94. 94.

    Etchemendy (2004) observed a similar logic in Spain. He argues that the country’s integration into the EU did not actually prioritize liberal reforms. The government combined liberal and “illiberal” policies, to strengthen “national champions.”

  95. 95.

    John Lie (1997, p. 349) draws attention to these “pre-contractual elements” of market interactions in a discussion of the sociology of markets.

  96. 96.

    I focus primarily on the most recent period of reforms, between 2002 and 2008, although many elements of these bargains have remained constant over the years and were initially negotiated between the conglomerates and regional and federal administrations during the 1990s. I am also relying primarily on evidence from the three regions I conducted fieldwork (Irkutsk oblast, for example, serves as a lens for the Siberian region more generally). The development strategies for the three regions are part of various documents with different geographical scope. In Siberia, the “Economic and Social Development of the Russian Far East and the Trans-Baikal Area until 2013” is an important document at the federal level. I am draw specifically on evidence from the “Program for the socio-economic development of the Irkutsk Oblast for the period 2006–2010 Пpoгpaммa coциaльнo-экoнoмичecкoгo paзвития Иpкутcкoй oблacти нa 2006–2010 гoды,” obtained from the Irkutsk oblast administration and available at www.govirk.ru.

  97. 97.

    Conglomerates also relied on rhetorical strategies that emphasized the importance of keeping existing structures intact in political battles with liberal reformers. Stressing the “naturalness” of physical links helped conglomerates legitimize their political position and contributed to their victories over liberal reformers. Liberals were not usually in favor of preserving existing industrial structures and considered physical facts ultimately as malleable, given the right economic incentives.

  98. 98.

    A remarkable case study that explores differences and continuities is an ethnography of modernization projects in Chukotka (Thompson 2008).

  99. 99.

    This kind of legitimacy is common in post-Soviet countries, partly as a result of the traumatic crises of the 1990s, partly due to the lingering memories of Soviet-era political legitimacy. Huntington (1991) called this “performance legitimacy,” noted also in Aron (2009).

  100. 100.

    Chaudhry (1993) on the difficulty of for new states to regulate private actors.

  101. 101.

    This monopoly position seems very secure. Igor Sechin, one of the Kremlin’s most powerful insiders, confirmed in 2010 “we will not cancel Gazprom’s monopoly on exports,” in “Sechin says Gazprom must raise game” reported by Katya Golubkova and Polina Devitt for Reuters, June 21, 2010.

  102. 102.

    Gazprom is also Russia’s largest tax payer. For an analysis of the shifting relations between GP and the government, see Stern (2005).

  103. 103.

    According to Gazprom’s website, average regulated gas price for industrial consumers in 2010 was 2,495 ruble/thousand m3 and 1,860 rubles/thousand m3 for gas that was to be resold to household; see http://gazpromquestions.ru/?id=35#c251.

  104. 104.

    In Russian, “oднoй из вaжнeйшиx зaдaч гocудapcтвeннoй энepгeтичecкoй пoлитики являeтcя гapaнтиpoвaннoe oбecпeчeниe энepгeтичecкими pecуpcaми нaceлeния, coциaльнo знaчимыx и cтpaтeтичecиx oбьeктoв пo дocтупным цeнaм,” Energy Strategy of the Russian Federation, to the year 2020/Энepгeтичecкaяa Cтpaтeгия Poccии нa пepиoд дo 2020 гoдa, p. 45.

  105. 105.

    Although other aspects of their relationship between gas and electricity companies were also at stake, see, for example, Stern (2005) and Solanko (2011).

  106. 106.

    Instead of the 26 billion m3, Gazprom threatened to provide only 22 for the second quarter of 2000. Izvestiya, April 12, 2001. See also Kommersant’, April 11, 2000.

  107. 107.

    To ensure that Gazprom would play the role the Kremlin devised for it, one of the first moves of Putin as president was to make sure that Gazprom’s board and managers were replaced with loyalists. Miller replaced Vyakhirev and the board was staffed with Putin’s loyalist from St. Petersburg in 2001.

  108. 108.

    Most analysts agree that gas will be supplied to domestic consumers at relatively low prices (Litwack and Thompson 2002; Stern 2005). The Gazprom website documents that these price subsidies continue to exist: “regulated prices for gas are subsidized” (in Russian: диpeктивнo peгулиpуeмыe цeны нa гaз являютcя зaнижeнными). The extent of the subsidy is not specified, but the website notes that “low regulated prices did not allow the company to cover cost […], for many years, until 2009” (in Russian: Mнoгo лeт, вплoть дo 2009 гoдa, этoт фaктop нe пoзвoлял пoкpыть зaтpaты нa пpoизвoдcтвo, тpaнcпopтиpoвку и peaлизaцию гaзa; http://gazpromquestions.ru/?id=35#c251). For a Russian observer’s prediction that gas subsidies for residential consumer and other budget organizations are likely to continue because of their “social importance”; in Russian: “в cвязи c бoльшoй coциaльнoй нaгpузкoй.” Loginov, E.L., et.al. in Экoнoмикa peгиoнa, 8/23, 2005, Либepaлизaция нaциoнaльнoгo pынкa гaзa: пpoблeмы peфopмиpoвaния poccийcкoй экoнoмики: p.35.

  109. 109.

    RBK News Daily, Цeны нa гaз в Poccии вceгдa будут нижe, чeм в Eвpoпe [Gazprom: Gas Tariffs in Russia will always be lower than in Europe], June 30, 2011.

  110. 110.

    Gaddy and Hill (2003) elaborate this concept based on a discussion by Russian geographers. For a discussion of politics of the north, see Stammler-Grossman (2008).

  111. 111.

    In Russian, “Гocудapcтвo нe в cocтoянии ee дocтpoить, дeнeг нeт.” Remark was made by Victor Borovsky about the Boguchansk project, in an interview in Ekspert, no.14, April 13, 1998, p. 35.

  112. 112.

    Remark by a Hydro-OGK representative at a conference “Second annual conference on the functioning of electricity companies in a market context/Bтopaя eжeгoднaя кoнфepeнции—Paбoтa элeктpoэнepгeтичecкиx кoмпaний в pынoчныx уcлoвияx,” Moscow, December 13, 2006. These projects generally came up often in the interviews in Siberia, for example, in interview #55 with employee of electricity company, Irkutsk, 20071120, who described these projects as “lining Siberia’s rivers like pearls on a necklace.”

  113. 113.

    An early agreement between Chubais and Sibal (precursor of Rusal) concerns financing for technological upgrades at Sayano-Shushenskaya hydroelectric power plant. “Чубaйc дoгoвopилcя c мeтaллуpгaми,” Kommersant’, July 27, 1999. See also “PAO EЭC вoзвoдит плoтину,” Kommersant’, November 3, 2000.

  114. 114.

    The Soviet Union had already invested large sums in the construction of this dam, but the Russian state needed private finance for the projected US $1.7 billion to complete construction. Only the contours of the negotiations between Chubais and Deripaska and the political battles that accompanied them were public knowledge. As each side was trying to align support in the Kremlin on their side, some of the terms of their negotiations surfaced in the media over the years. See, for example, “PAO EЭC ищeт пapтнepa кoтopый мoг бы дocтpoить Бoгучaнcкую ГЭC,” Vedomosti, March 24, 2003.

  115. 115.

    “Кoнeц бoльшoй дpужбы,” Vedomosti, June 1, 2000. The aluminshchiki attempts to link the price of electricity with the world market prices for aluminum is also mentioned in interview #60 with energy company executive, Irkutsk, 20071203.

  116. 116.

    Negotiations about how much finance Rusal has to provide continued for years. See Humber, Y. Bloomberg, April 21, 2009.

  117. 117.

    Federal government development strategy was mentioned by several interviewees in the Far East, including, interview #32 with electricity sector economist, Vladivostok, 20070918.

  118. 118.

    Besides defense related industries and services, the Far East’s economy relied on light industry, fisheries, and forestry and raw material extraction.

  119. 119.

    In Primorsky Krai, for example, this meant that regional economic activity was reduced to fisheries and cross-border smuggling of used Japanese cars. A few exceptions were retooled defense companies, interview #41 with journalist covering electricity sector, Vladivostok, 20071005. For a rich account of the post-Soviet collapse in one Far Easter region, Chukotka, see Thompson (2008).

  120. 120.

    This is the premise of the texts on energy integration quoted below, including Minakir (2007) and was often mentioned in interviews, for example, interview #38 with academic, Vladivostok, 20071003.

  121. 121.

    Also interviews #43 and #44 with electricity sector economists, Khabarovsk, 20071010. See also Anna Lobunec (2004b, p. 19).

  122. 122.

    In Russian, “Элeктpoэнepгию cтoит экcпopтиpoвaть. Этo гopaздo выгoднee, чeм пpoдaвaть зa гpaницу угoль или нeфть. Энepгия XX этo кoнeчный пpoдукт, кoтopый дopoжe,чeм иcxoднoe cыpьe,” remark by Victor Minakov, director of Vostokenergo, as Dal'energo was called for a while, in an interview in Dal'nevostochnyi Kapital, October 2003, No. 10/38, p. 49. The dissertation of Anna Lobunec concludes practically with the same recommendation: “Mы cчитaeм paзвитиe экcпopтa элeктpoэнepгии и coздaниe мeжгocудapcтвeнныx элeктpoэнepгeтичecкиx cвязeй (…) бoлee пepcпeктивным и выгoдным вapиaнтoм кaк для Дaльнeгo Bocтoкa в цeлoм, тaк и для Пpимopcкoгo кpaя в чacтнocти.” p. 20. Anna Lobunec, “Пepcпeктивы paзвития энepгeтики Пpимopcкoгo кpaя.”

  123. 123.

    Development program for Primorsky Krai, “Cтpaтeгия coциaльнo-экoнoмичecкoгo paзвития Пpимopcкoгo Кpaя нa 2004–2010 гг.”

  124. 124.

    The first electrification plan, Plan-GOELRO, was also the first of the Soviet Union’s legendary Five-Year Plans, the pulse of planning for rest of the Soviet era. Soviet industrialization, and even more broadly the project of Soviet economic development, was intricately linked to electrification (Coopersmith 1992).

  125. 125.

    “Baжнeйшим инcтpумeнттoм вляния нa coциaльнo–экoнoмичecкoe paзвитиe cубъeктoв Poccийcкoй Фeдepaции (…) являeтcя paзмeщeниe и paзвитиe (…) инфpacтpуктуpы.” Quoted in Kontseptsia (2008, p. 3).

  126. 126.

    Soviet planners are famous for their preference of “company towns” and gradoobrazuiushchie predpriiatiia, literally translated, city-forming enterprises—where huge, integrated companies were the primary employer in a particular city. See, for example, Collier (2005, p. 373).

  127. 127.

    The “developmental state” argument dates back to the 1980s, drawing, for example, on Gerschenkron’s account of development in England, Germany and Russia (Gerschenkron 1962).

  128. 128.

    Evans’ notion of embedded autonomy emphasized ties of planning bureaucracies with local elites and local capital (Evans 1995).

  129. 129.

    Because the original formulations of the developmental state model were about initial industrialization programs, existing industrial geographies remained outside the purview of these studies.

  130. 130.

    See O’Riain (2000, p. 158) on “multiple embeddednesses of state agencies in professional-led networks of innovation and in international capital.”

  131. 131.

    See, for example, Dubna’s Tale, The Economist, July 31, 2008.

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Appendices

Appendix 1: List of Interviews; Location and Dates

Interviews conducted 2006/2007
Position Place Date No.
Electricity sector expert at international financial institution Moscow 20060721 1
Journalist covering electricity sector Moscow 20060806 2
Employee of electricity company Moscow/phone 20060904 3
Journalist Moscow/phone 20060912 4
Electricity sector expert at international financial institution London 20060920 5
Academic London 20060920 6
Electricity sector analyst at financial institution Moscow 20061005 7
Economist at financial institution Moscow 20061006 8
Electricity sector analyst at financial institution Moscow 20061008 9
Journalist covering electricity sector Moscow/phone 20061009 10
Electricity sector expert Moscow 20061018 11
Academic Petersburg 20061023 12
Academic Petersburg 20061023 13
Electricity sector expert Moscow 20061026 14
Electricity sector analyst at financial institution Moscow 20061027 15
Electricity sector expert/consultant Moscow 20061030 16
Electricity sector expert Moscow 20061101 17
Journalist covering electricity sector Moscow 20061109 18
Academic/policy analyst Moscow 20061122 19
Electricity sector analyst at financial institution Moscow 20061126 20
Electricity sector economist/consultant Moscow 20061214 21
Electricity sector expert at financial institution Moscow 20070210 22
Electricity sector expert at international financial institution Moscow 20070210 23
Regulator/Ministry for Economic Development Moscow 20070214 24
Journalist Moscow 20070217 25
Energy sector expert/policy analyst Berkeley 20070613 26
Energy sector expert/policy analyst Berkeley 20070613 27
Academic Vladivostok 20070912 28
Academic Vladivostok 20070913 29
Policy analyst Vladivostok 20070914 30
Journalist covering electricity sector Vladivostok 20070915 31
Electricity sector economist Vladivostok 20070918 and 0925 32
Journalist covering electricity sector Vladivostok 20070921 33
Academic/employee of electricity company Vladivostok 20070923 34
Regulator Vladivostok 20070924 35
Program officer at international organization Vladivostok 20070924 36
Electricity sector executive Vladivostok 20071002 37
Academic Vladivostok 20071003 38
Electrical engineer/electricity sector expert Vladivostok 20071004 39
Pensioner Vladivostok 20071004 40
Journalist covering electricity sector Vladivostok 20071005 41
Academic Vladivostok 20071005 42
Electricity sector economist Khabarovsk 20071010 43
Electricity sector economist Khabarovsk 20071010 44
Employee of electricity company Khabarovsk 20071011 45
Academic Khabarovsk 20071011 46
Businessman Vladivostok 20071017 47
Academic Irkutsk 20071113 48
Academic Irkutsk 20071114 49
Businessman Irkutsk 20071115 50
Academic Irkutsk 20071115 51
Electricity sector economist Irkutsk 20071117 52
Employee of electricity company Irkutsk 20071119 53
Businessman Irkutsk 20071120 54
Employee of electricity company Irkutsk 20071120 55
Journalist Irkutsk 20071120 56
Electricity sector economist Irkutsk 20071122 57
Academic Irkutsk 20071124 58
Politician/former executive at electricity company Irkutsk 20071130 59
Energy company executive Irkutsk 20071203 60
Employee of electricity company Irkutsk 20071205 61
Electricity sector expert Moscow 20071210 62
Executive of electricity company Moscow 20071212 63
Electricity sector expert at international financial institution Moscow 20071212 64
Electricity sector expert at financial institution Moscow 20071213 65
Journalist covering electricity sector Moscow 20071213 66
Electricity sector expert/economist Berkeley 20080414 67
Academic/employee of electricity company Berkeley 20080417 68
Electricity sector expert at international organization Paris/email 20070212 69
Regulator/electricity sector Washington, DC/email 20090317 70

Interviews were conducted in person, with the exception of three cases in which conversations happened over the phone (#3, 4, and 10). Two extensive and ongoing email conversations are listed separately at the end (#69 and 70). Repeat interviews are listed separately only if substantially new information was obtained and significant time had passed between interviews; this happened in three cases (interviews #1, 23, and 64; interviews #17 and 62; and interviews #18 and 66, respectively, are with the same person)

Appendix 2: Ownership and Subsidy Data

Table 3 New owners in European Russia’s power sector (2008)
Table 4 New owners of Siberia’s electricity companies
Table 5 Cross-subsidies between 2000 and 2005 (as percentage of industrial tariffs)
Table 6 Industrial subsidies
Table 7 Regions receiving direct budget transfers in 2004
Table 8 Three different price zones: regulated prices in 2005 and prices in the liberalized segment of the wholesale market, 2009

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Wengle, S.A. Post-Soviet Developmentalism and the Political Economy of Russia’s Electricity Sector Liberalization. St Comp Int Dev 47, 75–114 (2012). https://doi.org/10.1007/s12116-011-9096-x

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Keywords

  • Market reforms
  • Post-Soviet transitions
  • Market institutions
  • Developmental state
  • Electricity liberalization
  • Industrial geography