The catastrophic accident that wrecked Russia’s largest hydroelectric plant last month blew a gaping hole in Siberia’s energy balance and highlighted fatal flaws in government economic strategies.

On the morning of August 17, water gushing down the 245-metre high dam suddenly ripped off the lid of one of the station’s 10 turbines, tore up the rotor and hurled it into the air. Floods swept down the engine room, crushing everything on their way. Out of dozens of workers trapped on several floors of the engine room, only a few could escape. When rescue workers pumped out water days later, they found 74 bodies. One worker is still unaccounted for.

The accident caused a complete shutdown of the world’s fifth largest hydropower plant. Out of the station’s 10 generators, three were destroyed and three others badly damaged. Emergency Situations Minister Sergei Shoigu said it was the most serious technological accident in Russia since the Chernobyl nuclear plant catastrophe. Built in 1979, the Sayano-Shushenskaya station is still Russia’s largest hydroelectric project with a capacity of 6700 MW, more than four times the capacity of India’s biggest Nathpa Jhakri station.

The shutdown of the plant knocked out a quarter of electricity generated by hydropower facilities in Russia, or 2.5 per cent of the country’s total electricity output. It will take at least four years and about 40 billion rubles ($1.25 billion) to repair the plant, said the owner, RusHydro company. The total loss to the Russian economy may exceed $3 billion.

The exact cause of the accident is yet to be established. Preliminary investigation found an unusual vibration in turbine No.2 a few hours before it went berserk. Experts also point to more general causes: lack of capital investment to renovate the Soviet-era creaking infrastructure and misconstrued economic reforms.

The Sayano-Shushenskaya plant is one of Russia’s newest hydropower projects, but it is already 30 years old. “Hydroelectric generators have a maximum service life of 30-35 years, thereafter they must be replaced, but this is not happening: there has been no substantial renovation and expansion of installed capacities during the years of reforms [1992-2009],” says Dr. Anatoly Kuzovkin of the Institute of Macroeconomics.

Prime Minister Vladimir Putin ordered a thorough check of all strategic infrastructure projects and asked the Energy Ministry to draw up a plan for their regular upgrade. But experts say the order came way too late. Massive investment in infrastructure should have been made during the oil boom. “The review will show that infrastructure needs hundreds of billions of rubles to renovate it, but there is no money in the crisis-hit state coffers,” said Professor Igor Nikolayev of the FBK financial consultancy.

The government’s failure to modernise the crumbling Soviet-built infrastructure is threatening the nation’s security, critics said. “Technogenic accidents are snowballing ? Equipment and infrastructure are horrendously worn out and neglected,” columnist Sergei Leskov wrote in the Izvestia paper.

The Sayano-Shushenskaya accident has triggered a wave of criticism targeting Mr. Putin, who served as President for eight years before becoming Prime Minister in May 2008. While his predecessor Boris Yeltsin is held responsible for plunging Russia’s economy into the worst crisis since World War II, Mr. Putin is blamed for failing to use record windfalls from energy sales to renovate the ageing infrastructure.

When Mr. Putin succeeded Mr. Yeltsin in 2000, the Emergency Situations Ministry warned that decaying infrastructure would be the cause of most technological accidents in the coming years. Yet in 2002, the government cancelled a corporate profit tax rebate that allowed businessmen to use for capital investment between 50 and 100 per cent of profits tax-free. In response to repeated appeals from the business community, the Economic Development Ministry last year agreed to consider restoring the tax allowance, but the Finance Ministry vetoed the proposal.

“Russia today has almost no infrastructure and industry apart from what it has inherited from the Soviet Union,” says Dr. Mikhail Delyagin, director of the Institute of Globalization Problems. A senior official at the Energy Ministry admitted earlier this year that investment in the energy sector in the past five years fell 40 per cent short of what was needed. While many governments see the global crisis as an opportunity to modernise their economies, Russia looks set to miss this chance.

“The Russian government has set aside for modernisation less than 2 per cent of the anti-crisis package, compared with 12 per cent in the United States and 80 per cent in Korea,” said Dr. Boris Porfiryev of the Russian Academy of Sciences Institute of the Economy.

According to Federation Council Chairman Sergei Mironov, the wear and tear in Russia’s hydropower industry is about 80 per cent. He blamed the privatisation and restructuring reform of the state-owned United Energy Systems (UES), Russia’s largest power company, for this state of the industry. Under the reform approved by Mr. Putin’s government, the monopoly was split into 10 wholesale power companies sold out to private investors and a federal grid. Mr. Mironov said the new owners were interested only in maximising profits.

“The state hoped the sell-off would draw massive investments to the power generation sector. But the hopes have failed to materialise even in the case of RusHydro, where the state holds a majority stake, let alone the fully private thermal power companies,” the Upper House Speaker said commenting on the Sayano-Shushenskaya accident. “Owners are cutting costs at the expense of maintenance, repairs and renovation of equipment.”

Lack of proper oversight at privatised facilities has aggravated the situation. “In the past 10 years, a three-tier system of specialised repairs that existed in the electricity sector has been destroyed,” said the former Deputy Energy Minister, Viktor Kudyavy.

Whatever efforts the state has made to improve safety procedures have been foiled by corruption that assumed endemic proportions during Mr. Putin’s presidency. “For a bribe one can get any certificate or permit,” complained Deputy Gennady Gudkov of the Lower House Security Committee.

The cosy relationship between the state and business tycoons under Yeltsin firmed up under Mr. Putin, creating a totally corrupt economic system, critics say. Dr. Dmitri Oreshkin of the Mercator think tank calls the system “burness,” an acronym for “bureaucratic business.” “This is when bureaucrats are engaged in business and business buys up the bureaucracy,” the analyst said.

The Sayano-Shushenskaya plant worked at over-peak capacity in recent months to meet the demand for electricity at Siberian aluminium smelters owned by the Kremlin-linked oligarch, Oleg Deripaska. His RusAl, the world’s biggest producer of aluminium, consumes 75 per cent of the power generated at the plant. RusAl buys electricity at cut-rate prices (electricity prices in Russia are set by the state). Mr. Deripaska once boasted that cheap Siberian electricity would enable the Russian aluminium industry to beat American rivals.

“Deripaska pays for electricity much less than other Russian consumers, including the households,” the Novaya Gazeta wrote. “The state could have taken away part of aluminium barons’ profits through more fair electricity prices, but it does not want to? Part of the money could be used to improve the safety at hydropower plants.”

A new study, published days before the accident, claims that despite Mr. Putin’s crackdown on oligarchs in the early years of his presidency, the business barons are no less powerful today than they were during the Yeltsin era, when they virtually took over the state.

“Today the oligarchs may not dictate their will but they speak on behalf of the state,” said the study prepared by respected economists Nikita Krichevsky and Vladislav Inozemtsev. The authors call Russian oligarchs “time-serving operators” who, with government connivance, have transferred industrial assets to offshore zones and have stashed away profits in foreign banks.

“It cannot be ruled out that government officials helping the oligarchs have been guided by selfish interest: they may be among secret beneficiaries of leading Russian corporations,” the study said.

In recent years, the oligarchs have been paying to themselves increasingly generous dividends that have sometimes exceeded company profits, even as their firms ran up huge debts. Mr. Deripaska, who recently ranked as Russia’s wealthiest oligarch, received $8.2 billion as dividends between 2005 and 2008. When the crisis struck, he applied for and got a $4.5-billion bailout from the government to refinance a syndicated loan to western banks. Economist Delyagin has formulated the underlying principle of Russian reforms under both Yeltsin and Mr. Putin as “privatisation of profits and nationalisation of losses.”

Ten days after the accident at the Sayano-Shushenskaya plant, the government approved a new energy strategy that calls for investing $40 billion in the power generation sector every year till 2030. Experts are sceptical of the success of the plan unless Russia reforms its unworkable economic system.

“While external factors — oil prices, hard currency reserves, foreign crediting — have changed since the Yeltsin era, the Putin economic model is basically the same that was then and that brought the country to a default in 1998,” concludes Dr. Delyagin.

Correction

The third paragraph of an article “Lessons from a deadly catastrophe” (Editorial page, September 4, 2009) was “The accident [at the Sayano- Shushenskaya station] caused a complete shutdown of the world’s fifth largest hydropower plant.” It is the sixth largest. In response to a query, Carrieann Stocks, Editor, International Water Power & Dam Construction, says that the 10 largest hydropower plants in the world are: 1. Three Gorges Dam, China (22,500MW); 2. Itaipu, Brazil/Paraguay (12,600MW); 3. Guri, Venezuela (10,200MW); 4. Tucuruí, Brazil (8,370MW); 5. Grand Coulee, U.S. (6,809MW); 6.Sayano Shushenskaya, Russia (6,400MW); 7. Longtan, China (6,300MW); 8. Krasnoyarskaya, Russia (6,000MW); 9. Robert-Bourassa, Canada (5,616MW) and 10. Churchill Falls, Canada (5,429MW).

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