UPDATE 1-Putin says economy needs more power for growth

* Government cuts spending plan for state utilities by $9 bln

* Putin says economy needs more power to recover

* Russia could delay, not reduce construction plans

(Adds approval of cuts to investment programme, Putin comments on sector)

MOSCOW, April 9 (Reuters) - Russia’s government trimmed 300 billion roubles ($9 billion) from state utilities’ spending plans for 2009-11, but warned them not to slacken the pace of construction lest they hurt prospects for economic recovery.

“It will be impossible to return to stable economic growth without developing the power industry, thorough modernisation of old equipment, construction of new power plants and development of networks,” Prime Minister Vladimir Putin told a government hearing.

Energy Minister Sergei Shmatko told reporters after the hearing that the government had backed plans to cut the three-year spending plan for state companies.

Late on Wednesday, a government source said the government was looking to cut 300 billion roubles off the 2.1 trillion roubles ($60 billion) spending plan, which envisages construction of 5.8 gigawatts of new generation capacity.

Generators, bearing heavy government mandated investment requirements and cut off from public debt markets, pleaded for cuts as an economic slowdown reduced demand.

Russia’s once buoyant economy fell into decline after a decade of dramatic economic growth, hit by a collapse in prices for the key commodities that bring the country the bulk of its revenue.

A warm winter and production cuts at steel mills and other energy intensive raw materials processing plants across Russia hit peak winter demand by as much as 9 percent. Last week Russian power consumption was down 4.8 percent from a year ago.

Two gigawatts of new generation capacity were brought on line in Russia last year, twice as much as the previous year. Putin blamed lack of power and the high cost of connections for the failure of some industrial projects in the boom years.

“It is very important to keep up the pace,” Putin said.


Shares in Russian utilities rose sharply ahead of Thursday’s government hearing on hopes for a reduced investment programme.

It was widely assumed the bulk of cuts would be generated by delaying the launch of new capacity and reducing project costs, not by reducing the overall construction plan.

Of listed Russian utilities, the key beneficiaries of the cuts would be the state controlled Federal Grid Co FEES.MM, RusHydro HYDR.MM, and thermal generator OGK-1 OGK1.MM.

OGK-1 shares rose 6.36 percent, while Rushydro was up 5.41 percent and the grid company corrected down 1.14 percent.

Recently privatised utilities do not yet have permission to cut spending. A source in Russia’s economy ministry said the private generators were seeking cuts of 25-40 percent.

“While we consider capex cuts inevitable, we think that they are likely to be done as a result of internal, case-by-case negotiations, as opposed to a one-off public decision by the government,” UBS said in a research note, referring to privatised generators.

The sector got a boost this week from Putin’s defence of unpopular tariff increases to guarantee a return on private investment.

Reporting by Darya Korsunskaya and Tatyana Yegorova; writing by Melissa Akin; editing by Alfred Kueppers and David Cowell