Briefing note on breaching the laws on the electric power industry by «Russian Railways» OJSC (»RZhD» OJSC)

In February-March 2007, the Ivanovo Regional Office of FAS Russia checked whether «RZhD» OJSC observed the ban on combining natural monopolistic (transmission) and competitive (distribution and sales) activities in electric power industry in the Ivanovo Region. The ban came into force on 1st April 2006: Article 6 of № 36-FZ Federal Law of 26.03.2003 «On Specifics of the Electric Power Industry in the Period of Transition and on Introducing Amendments to Some Legislative Acts of the Russian Federation due to adoption of the Federal Law «On Electric Power Industry» as amended (further on referred to as № 36-FZ Law).



The audit reveled the following:



In the Ivanovo Region «RZhD» OJSC owns property required for transmission and distribution of electricity to third-party consumers;

As of 28.03.2007, «RZhD» OJSC offers electricity supply services (electricity transmission and sales) to its subscribers in the Ivanovo Region (34 legal and 633 physical persons), which is forbidden under Article 6 of № 36-FZ Law;

According to Sub-Clause 20 Clause 11of the Company Charter, it carries out, in particular, electricity supply (sales) and power supply services. Clause 12 of «RZhD» OJSC Charter provides for other activities, not forbidden by the law. «RZhD» OJSC Charter was approved by № 585 Decree of the Government of the Russian Federation of 18.09.2003 № 585 (as amended);

The Ivanovo Regional Tariff Service approved the rates on electricity transmission in the Ivanovo Region for «RZhD» OJSC from 22.03.2006 and from 01.01.2007 (Resolutions of the Ivanovo Regional Tariff Service № 4-e/1 of 22.03.2006 1 and № 55-e/8of 29.12.2006);

«RZhD» OJSC is not included in the group of economic entities that are not governed by Article 6 of № 36-FZ Law.



Therefore, «RZhD» OJSC failed to observe the ban, set under Article 6 of № 36-FZ Law in the Ivanovo Region.



In accordance with № 355 Decree of the Government of the Russian Federation of 6th June 2006, the Federal Antimonopoly Service is the federal executive body authorized to control whether economic entities observe Article 6 of № 36-FZ Law. Clause 1 of the Regulations set the procedures for the Federal Antimonopoly Service and its regional offices on controlling whether legal persons and individual entrepreneurs observe the ban for combining electricity transmission activities and operational dispatch management in the electric power industry with energy generation and buying and selling activities.



Under Clauses 1 and 10 of the Regulations on controlling whether legal persons and individual entrepreneurs observe the ban for combining electricity transmission activities and operational dispatch management in the electric power industry with energy generation and buying and selling activities, approved by № 628 Decree of the Government of the Russian Federation of 27.10.2006, the Ivanovo Regional Office of FAS Russia decided to:



1. Recognize the fact that «RZhD» OJSC combined electricity buying and selling activities with energy transmission activities in the Ivanovo Region.

2. Forward the materials of № 02-70/005 case to FAS Russia in order to make a decision on forced reorganization of a legal person - «RZhD» OJSC (in form of partition or spin-off), which would exclude combining electricity buying and selling activities with energy transmission.