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    Chubais wants govt. to oversee UES reforms after breakup -1

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    (Adds background, measures against investors who fail in obligations)

    MOSCOW, May 21 (RIA Novosti) - The head of Russia's electricity monopoly said Monday the government should set up a ministry to take over the company's responsibilities in overseeing the reorganization of generating assets after UES ceases to exist in mid-2008.

    "We think that in view of the reorganization of RAO [Unified Energy System], a government ministry should be set up," to take over UES' role of overseeing deals to build new power plants using funds raised at IPOs, Anatoly Chubais said at a meeting with President Vladimir Putin.

    "This would help ensure that there is a follow-through on these deals," he said.

    Under contracts signed with investors, they are obliged to increase generating capacity in the assets which they buy. The spending of funds raised at the IPOs on new power plants is to be overseen by UES. After the monopoly is broken up, another entity will have to assume this role.

    Chubais said the issue of investors' failure to spend the money properly is a serious one.

    He told the president that under deals in which investors buy a generating company but fail to build new plants, these investors should be subjected to "real sanctions, including financial ones."

    Russia's power sector has undergone radical changes in recent years to increase efficiency and attract investment. Vertically integrated companies were split into specialized assets.

    Once reforms are complete, the potentially competitive sectors, such as power generation, sales and utilities, will become mainly private, while trunk power transmission lines will remain under state control.

    The UES overhaul started July 28, 2006. During the first stage, UES will separate WGC-5 and TGC-5 and form WGC-5 Holding and TGC-5 Holding.

    In the second stage, in 2007-2008, the monopoly will be divided and its shareholders will receive proportionate shares of core assets (wholesale generating, territorial generating and federal power transmission) many of which can be floated.

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