The disaster that hit the Sayano-Shushenskaya hydroelectric plant in southern Siberia last week has proved a sobering reminder of Russia's need to ramp up investment to replace its decrepit infrastructure.
The accident occurred after an explosion flooded the plant's main turbine room on August 17, leaving 69 workers dead and a further six missing, at the latest count. Officials have said a rise in pipe pressure and a faulty turbine were possible causes, but no firm conclusions have been drawn yet.
The turbine's producer, Power Machines, said that after 30 years of use the machinery was too old to function properly, and it hadn't been overhauled since 1993.
The explosion highlights a chronic lack of investment in the country's electricity infrastructure, senior officials and industry experts said.
"For 15 years starting from the late ‘ 80s, the Russian power sector was starved of financial resources and it is possible that this in some way contributed to the accident," said Derek Weaving, a utilities analyst at Renaissance Capital.
Prime Minister Vladimir Putin, who visited the wrecked power plant on Friday and commiserated with staff there, lamented Russia's aging fixed capital, which is on average approximately 20 years old, twice that of western Europe.
"In our country ... discipline in dealing with technology is very low," Putin said.
RusHydro, the majority-state owned hydroelectric power monopoly which owns the dam, insisted its maintenance programme was fully up to date.
Officials have ruled out the possibility of terrorism, despite a Chechen rebel group on Friday claiming responsibility for the explosion.
Energy Minister Sergei Shmatko said Wednesday that it would cost 40 billion roubles ($1.25 billion) to restore the plant' s engine room, the equivalent of half the company's annual investment budget. Even before the disaster, RusHydro was asking for a 30 per cent increase in wholesale electricity prices to cover new capital expenditures.
"It would make sense to hike the tariff for 2010 to allow for extra profits for investment and repairs," said Alexander Kotikov, a utilities analyst at Troika Dialog.
RusHydro will not raise its prices to recover repair costs, the company's sales director, Yevgeny Desyatov, insisted on Thursday.
However, the same day Desyatov was speaking, local businesses were already having to cough up an extra 24 per cent for more expensive electricity from coal-fired power stations in nearby regions, while a price cap agreed by the Electricity Market Council last week is generous to electricity producers, at about 50 per cent higher than the average tariff over the first half of the year.
President Dmitry Medvedev ordered the government on Thursday to ensure power supply to the region and protect businesses against price hikes, but it remains tobe seen how effective price caps will be.
RusAl, the aluminium producer owned by indebted tycoon Oleg Deripaska, has announced that the company's plants in the region will have to cut production by half a million tonnes until the hydroelectric plant is back online.
It remains unclear how long the plant will remain idle but repairs could take two to four years, while officials have said that even areas unaffected by the blast will not be working for least a few weeks.
"The main concern is coming winter peak demand, when demand goes up, while the Sayano-Shushenskaya capacity is still not restored," said Dmitry Bulgakov, a utilities analyst at Deutsche Bank.
Siberia, which relied on Sayano-Shushinskaya for 10 per cent of its electricity, isn't the only region that could face a capacity crisis after the entire country almost touched full supply before the recession hit and industrial production collapsed.
"As a consequence of the global financial crisis, demand has fallen by 5 per cent to 10 per cent, so a crisis has been put off for the time being," said Weaving. "Nevertheless, even before the accident at Sayano-Shushenskaya, we reckoned that there would be capacity shortages within a couple of years of the return of economic growth."
The government planned to create an extra 40 gigawatts of output within the next five years to fulfill demand, but some of these new facilities have been put on hold as budget cuts were made.
The government "is willing to maintain the overall size of capacity additions, but delay the implementation of most of the projects by two to three years due to the ongoing economic slowdown," said Pavel Popikov, an analyst at financial company Otkritie.
Unless these projects go ahead, Russia will be facing an energy deficit when the economy bounces back, causing a severe constraint on economic growth as companies face blackouts and power shortages, said Weaving.
"These tragic events underscore the reality that a modern economy needs electric power and that the financial cost of providing safe and reliable supplies is significantly higher than Russian consumers are accustomed to paying," said Weaving.
Generation companies have been pushing for tariff rises in the semi-regulated market, as well as further liberalisation of the sector, in a bid to generate investment.
"The long-term capacity market model hasn't been approved and this is a large part of revenue," said Kotikov. "We don't know how fair capacity prices will be."
Analysts said they hoped Sayano-Shushenskaya disaster would speed up reform and investment in energy production, and that this would help to prevent further accidents.
"The disaster may focus minds and prove a positive catalyst to encourage investment in the sector," Renaissance Capital said in a note to investors.
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