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Power Politics: The Political Economy of Russia’s Electricity Sector Liberalization By Susanne Alice Wengle A dissertation submitted in partial satisfaction of the requirements for the degree of Doctor of Philosophy in Political Science in the Graduate Division of the University of California, Berkeley Committee in charge: Professor Steven Vogel, Co-Chair Professor Kiren Chaudhry, Co-Chair Professor Jason Wittenberg Professor Yuri Slezkine Fall 2010 Power Politics: The Political Economy of Russia’s Electricity Sector Liberalization © 2010 by Susanne Alice Wengle 2 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 1 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. 2 Acknowledgements Completing this project would not have been possible without the support of a great many colleagues, friends, family members and, of course, Russian electricity sector professionals. Foremost, I would like to thank my committee, Professors Steve Vogel, Kiren Chaudhry, Jason Wittenberg and Yuri Slezkine who taught me to value history but to keep looking for lessons beyond a particular time and place. I am thankful for conversations that have profoundly shaped and enriched my understanding of political economy, for the time and effort they devoted to helping me improve my work, and for invaluable advice in matters ranging from academic to practical. Wendy Brown, Ruth Collier, Andrew Janos, Edward Walker and Alexei Yurchak have also, at different stages of dissertation writing, made an impact on the project by providing support and insights. I consider myself supremely lucky to have been able to discuss my work with friends. In particular I would like to thank Jennifer Brass, Jennifer Dixon, Jonathan Hassid, Elif Kale, Jody LaPorte, Regine Spector and Rachel Stern for reading many early chapter drafts. I owe them a great deal for their thoughtful comments, and above all for their friendship and support throughout the years. Outside of Berkeley, I would like to thank David Woodruff, Bob Orttung, Stephen Collier and William Tompson for ongoing conversations, suggestions and practical assistance. I would also like to acknowledge the generous financial support by the William Davidson Institute, IREX, the Janggen Poehn Stiftung, and at Berkeley – the Institute for East European and Eurasian Studies, the Institute for International Studies, and the Department of Political Science. In Russia, I have benefitted greatly from the support of friends, colleagues and strangers, who volunteered their time, and shared their experience of a difficult period in Russian history. First and foremost, I am deeply grateful for the people who agreed to be interviewed for this project. Often on weekends and in their spare time, and usually over chai, they shared their views and experiences, and told me about their role in the transformation of the electricity system. With every detail they added an invaluable puzzle piece to my understanding of the matter. I am particularly indebted to Margarita Mezonshnik and Alexey Klaptsov, who openened countless doors, behind which I learned more about the electricity sector’s transformation than anywhere else. I also thank the people who have generously opened their personal archives, i.e. their collection of newspaper articles that seemed particularly important to them, often stretching back years. In three different cities, three such personal archives produced gems that I would not have been able to locate by myself. Lasting friendships with Kostya Dyakonov, Sasha Vylegshanina, Margarita and Alexey were the reason why I always looked forward, and still do, to going back to Russia. Last but not least, I would like to thank my parents, who have always supported me and my travels, no matter how outlandish the project, or how far-flung the destination. The dissertation is dedicated to Jay and Oren Rehm, whose contributions defy words on paper, but who are, both in their own ways, responsible for the completion of this dissertation. i Table of Contents Chapter 1: From Ministry to Market 1 1. Introduction: “Power Politics” 2 2. Competing theoretical approaches 11 3. Four themes 15 4. Methodology and logic of comparison 24 5. Conclusions: the Russian experience and theories of development 26 6. Overview of the dissertation 29 Chapter 2: Power Politics 35 1. Introduction: bargains for development 36 2. Power Politics I: regional bargains during the Yeltsin years 39 3. Power Politics II: an unlikely alliance 47 4. Power Politics III: post-Soviet economic planning 53 5. Three regions, three strategies, three bargains 58 6. Conclusion 67 Chapter 3: Privatization – Competing Claims and New Owners 70 1. Introduction: privatizing

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