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Battling vested interests to get utilities to perform

Russia’s vast utilities are gravely afflicted. In desperate need of investment to rebuild worn-out plant and distribution networks, they are also drained of income because of uneconomic pricing and persistent corruption. Ben Aris reports on the progress of restructuring

Rem Vyakhirev

To a large extent the natural monopolies are the Russian economy. At the start of this year no-one believed that president Vladimir Putin had either the political will or the power to tackle Russia's most deeply entrenched vested interests. But investors were shocked when at the end of May the president booted out what one fund manager calls "Russia's most encrusted interest", Rem Vyakhirev, the chief executive of gas monopoly Gazprom, and replaced him with a loyal lackey.

Putin followed through with plans for power grid company United Energy Systems and the ministry of railways. Telecoms reform has already begun.

Fixing the problems with the natural monopolies will have wide-ranging implications. Much of Russia's deadwood industry has been able to survive over the past decade because it receives an implicit subsidy from the state in the form of below-market prices for energy.

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