Thursday, January 19, 2006

Crisis Coming?

The news that Russia intends to cut back on electricity exports to Finland by 30 % in order to avoid an acute crisis in St Petersburg really underscores the fragility of the energy situation in Russia.

We have already seen the reports of reduction in gas deliveries to Central Europe. Now it's the electricity system that is feeling the strain of the winter.

There is serious underinvestment throughout the entire Russian energy and power system.

Partly this is the result of energy prices being too low, not generating enough money for the necessary investments. Partly it's because of pure political neglect.

But the consequences could easily become serious. If major population centers start to lose heating and power in the middle of the winter it's very soon a humanitarian issue that rapidly turns into a political one.

And on the broader front it increases the question marks around the possibility of Russia to really deliver on its export promises.

If there are not very major increases in investment as well as structural reform.

Neither of which looks very likely at the moment.

But a crisis could change everything.

YLE uutiset