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RUSSIA may not seem like the most alluring destination for big Western energy firms at the moment. After all, government inspectors have a nasty habit of harassing big foreign investors, which have found themselves squeezed out of several lucrative projects in the country’s oil and gas industry in recent years. Meanwhile, the authorities have methodically built up Gazprom, the state-controlled gas giant, into a national champion. Yet in the field of power generation, European firms are lining up to invest billions.

Enel, Italy’s former electricity monopoly, has purchased 37% of OGK -5, one of Russia’s six wholesale power-generators, for 50 billion rubles ($1.9 billion). Last week it offered to buy the rest, which could cost it a further 98 billion rubles. E. ON. a big German utility, has bought 47% of another wholesaler, OGK -4, and plans to raise its stake to 70%. Fortum, a Finnish utility, owns a quarter of a regional generator, and is planning further investments. In fact, claims Anatoly Chubais, the head of UES. the former parent of all these generation companies, a host of foreign firms, such as Gaz de France and Korea Electric Power Corporation, want to get involved.

Russia’s power industry is enticing, explains Marco Arcelli, the head of Enel’s Eastern European business, because it is one of the world’s fastest-growing. In some regions, including areas where OGK -5 has power plants, demand for electricity is increasing by 6% a year—more than twice the rate in Italy. As it is, Russia is the world’s fourth-biggest power market. Profits are meagre at present, but should increase when prices are deregulated.

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Until recently, almost the entire power industry was in the hands of state-owned UES. But the government, at Mr Chubais’s urging, has separated generation from transmission and retailing, and divided UES ‘s power plants among the six competing wholesalers and 14 regional generators. These OGK s and TGK s are all being sold to private investors to finance an overhaul of Russia’s rickety grid, which will remain in state hands.

If all this sounds rather like a throw-back to the Yeltsin era, when the Russian government sold entire industries at knockdown prices, it is no coincidence. Mr Chubais served for a time in Mr Yeltsin’s government, and was the architect of its privatisation scheme. He says the present government will see through the overhaul of the industry, despite its penchant for national champions and its distaste for foreign profiteers, because it fears power cuts and the popular ire they might spark.

Russia’s grid and power plants are going cheap because they are clapped out. Last year UES managed to fulfil only a third of requests for new grid connections in Moscow, says Mr Chubais. In 2005 a huge blackout crippled the city, much to the government’s embarrassment. UES reckons that investment of $128 billion is needed by 2010—a sum that the government, though flush with oil revenues, is reluctant to provide by itself. Hence the sudden enthusiasm for foreign investment.

Some observers worry that the government will lose enthusiasm for deregulation when prices begin to rise and voters start to gripe. It has put off the hardest part, the deregulation of domestic power-prices, until 2014. But Mr Arcelli points out that sales to industry are more lucrative, are already partly liberalised, and should be entirely deregulated by 2011.

Gazprom is another worry. It has already won control of two of the generation companies, and will be the biggest supplier of gas to virtually all of them. It could favour its subsidiaries by selling them gas on preferential terms. No wonder, then, that Enel has invested in several Russian gas fields. It is also offering to sell a stake in one of its Italian power stations to Gazprom. For its part, E. ON is Gazprom’s partner in a controversial pipeline scheme. Whether such special ties to Gazprom will help remains to be seen.