Translated material
Plan 2011
The FTS will propose to limit gas prices from rises and falls
By the end of summer, the Federal Tariff Service (FTS) will finally agree on new principles for calculating the formula for equal-income gas prices , the head of the department, Sergei Novikov, told reporters yesterday. According to him, the FTS proposes to introduce restrictions on the minimum and maximum price changes. “If the price on the foreign market rises significantly, we will adjust it on the domestic market using a formula,” RIA Novosti quotes him as saying. “This is consistent with the principles that were voiced, that equal profitability is calculated using a formula taking into account the transport component and duties.” A source in the FTS explained to Vremya Novostey that there is no ready-made mechanism for implementing this idea. And it is possible that the issue will be postponed until 2010, when it will be clear how much the price will have to increase according to the approved formula. At the same time, it will be decided how exactly to implement the government’s decision to limit the increase in gas prices in 2011 to 40% compared to 2010.As you know, in the fall of 2006, the government headed by Mikhail Fradkov approved a schedule for increasing regulated gas prices for four years in advance. It also instructed to prepare the transition to long-term contracts with industrial consumers with a price formula that is equally profitable with the supply of Russian gas for export, which should start working in 2011. 5-year contracts were signed with two thirds of Russian enterprises consuming blue fuel over the past year. And the FTS approved a price formula that calculates the domestic price of gas by subtracting the cost of transportation and export duty from the average quarterly gas price at the German border.
However, this spring, the Ministry of Economic Development, as part of preparing a forecast for the country’s socio-economic development for three years ahead, took the initiative to postpone the transition to equal income. Elvira Nabiullina’s department considered that in the context of a sharp increase in export gas prices, Russia will have to endure a sharp increase in domestic prices in 2011, which would be dangerous for the economy. After long consultations, the government approved a three-year forecast, in which the growth rate of gas prices for industry for 2009-2010 remained unchanged (19.6% and 19%, respectively), and for 2011 a 40% increase was envisaged instead of switching to the equal profitability formula .
Mr. Novikov obviously had in mind the inclusion of precisely this limitation in the price formula. The problem, however, is that now there is no decision regarding the real time frame for achieving equal profitability. Whether it will happen in 2012 (as Gazprom insists) or will be delayed again to smooth out the trajectory of rising prices for consumers (if export prices remain too high) will have to be decided by the government next year when it considers the next three-year budget plan. At the same time, apparently, the FTS wants to make the application of a 40% price increase more flexible. Namely: if suddenly, by some miracle, the price of gas in Europe falls and, according to the equal profitability formula, in 2011 the domestic price in Russia increases by less than 40%, then consumers will be able to pay exactly according to the formula, and not according to the regulated tariff.
At the same time, the government is unlikely to get involved in these battles now. It is obvious that final decisions on the gas price regulation system and the permissible level of growth will be made no earlier than 2010 - when the level of gas prices in Europe and, accordingly, the prospects for their growth for Russian consumers will be approximately clear.