UC Berkeley

Abstract

Power Politics: The Political Economy of Russia's Electricity Sector Liberalization

by

Susanne Alice Wengle

Doctor of Philosophy in Political Science

University of California, Berkeley

Professor Steven Vogel and Professor Kiren Chaudhry, Co-Chairs

This dissertation tells the story of the post-Soviet electricity system and the politics of its transformation from a ministry to a market. A core concern of the project is the process of building institutions for new markets. The aim of my research is to provide an empirically grounded analysis of how markets are constructed in the post-Soviet context. Who has been able to shape post-Soviet markets, how and why? And what does this process tell us about the emergence of market institutions more generally?

Dominant theories of state-market relations tend to regard the Russian state as captured by either oligarchs or corrupt bureaucrats: either oligarchs prevented the creation of markets, or institutions were shaped to enable rent-seeking by the most powerful oligarchs or bureaucrats. Neither approach successfully accounts for significant sub-national variation in the institutional architecture of newly created electricity markets. Many observers have also argued that with political recentralization, the Russian state has veered toward full-fledged economic re-nationalization. I find, rather, that different tiers of the Russian government have been combining market forces with state control, pursuing a developmentalist agenda that aims at integrating a more economically robust Russia into the international economy. A central aim of the dissertation is to highlight a developmental strand in Russian economic policy, which at its broadest aims to create strong domestic economic actors who can compete internationally while generating employment domestically.

The prevailing paradigm of how liberal reforms happen in Russia rests on an anemic logic: liberalizing forces in the government make concessions to opponents of reform to buy their approval. These concessions are usually considered rents, or rent-seeking opportunities. I found that during the transformation of the electricity sector interactions between the state and Russia's new private entrepreneurs followed a different logic: the government, first at the regional and later at the federal level, made concessions to opponents of full liberalization to enlist their assistance for broader social and developmental aims, rather than to buy approval or for the narrow goal of creating rent-seeking opportunities. During the 1990s, regional governments sought to cooperate with regional oligarchs in their attempts to cushion the impact of liberal reforms emanating from Moscow. Subsequent institutional outcomes in the electricity sector resulted from President Putin's strategy to selectively grant concessions to different types of oligarchic conglomerates - with either an energy or an industrial lead-firm - in return for their contributions to the federal government's developmentalist agenda.

The dissertation considers two further elements central to the transformation of the electricity sector from ministry to market: the influence of competing experts and the legacy of Soviet-era industrial geography. Two aspects of the governments' developmental agenda shed light on each of these questions. First, international integration, a key component of the government's developmental agenda, contributed to the replacement of Soviet-era technical experts with managerial experts over the course of reforms. These new managers promised to modernize the electricity sector in a way that would further the competitiveness of electricity companies and Russia's economy more broadly, making the electricity sector legible for both domestic and international investors.

Secondly, the government's development strategies often aimed at keeping elements of the Soviet-era industrial structure intact. Even as production chains were torn apart and reassembled during the turbulent post-Soviet collapse and transition period, some elements were preserved and shaped the politics of electricity sector reforms. Depending on the industrial geography of a region, conglomerates' interests vis-à-vis the electricity sector differed across regions. Up-stream energy conglomerates and down-stream industrial producers ended up influencing the transformation of the electricity sector differently in Siberia, European Russia and the Far East, which resulted in the different ownership and subsidy regimes in the newly created electricity markets. The broader implications of these findings concern the boundaries of new "zones" of regulation that are created during liberalization. My findings suggest that the boundaries of emerging regulatory zones cannot be taken for granted: they may or may not overlap with established political boundaries, they are themselves subject to political conflicts and industrial geography is an important factor shaping new regulatory zones.