Translated material
Khristenko's theorem
The government is discussing gas market liberalization
Today, at a meeting of the Russian government, state policy in the gas industry will be discussed for the first time in five years. Although the issue on the agenda is formulated as the topic of a school essay on a free topic - “On the provision of electricity and gas to the country’s economy”, it is clear that it will be primarily about the development of the Russian gas market. Minister of Industry and Energy Viktor Khristenko will present a new version of the report, which, after discussion by government members, should form the basis of specific proposals to Vladimir Putin.“The task is this: to give investors a signal about how they will change the rules of the game in this market, but at the same time not to scare anyone with the figures for rising gas prices,” says the Kremlin official.
The final version of the report agreed upon at the interdepartmental level was supposed to arrive from the Ministry of Industry and Energy to the White House late yesterday evening. However, Mr. Khristenko voiced some points to journalists in the afternoon. “We plan to achieve 100 percent gas prices and liberalization of the electricity market by 2011,” he said. This assumes that all electricity will be sold on the free market, and domestic gas sales will be equally profitable with supplies to external markets (i.e. European prices minus export duties and logistics costs). According to the minister, to transition to such a model, it is planned to conclude bilateral long-term contracts for gas supplies for a period of up to five years. “The electric power industry will be the first to take this path. Starting next year, they will have long-term contracts (for gas supply) using the “take or pay” formula. But other consumers will also have the right to this,” Mr. Khristenko said.
In addition, the minister said that the gas balance was compiled until 2015, and that until 2010 it was “calculated strictly.” According to the Ministry of Industry and Energy, by 2010 a third of gas supplies in Russia will be provided by independent suppliers, and by 2015 the share of independent suppliers will increase further. The minister also said that the increase in the wholesale price of gas on the domestic market in 2007 will be 15%, as the head of the Ministry of Economic Development German Gref and Finance Minister Alexei Kudrin insisted. Although previously the Ministry of Industry and Energy proposed to carry out indexation twice next year: on January 1 - by 15%, on July 1 - by 13%.
The epoch-making nature of the meeting on Krasnopresnenskaya embankment is characterized by the fact that Gazprom Chairman of the Board Alexey Miller, who has long ignored such events, is also planning to come to the White House. Moreover, all previous attempts by the Cabinet of Ministers to discuss the situation in the gas sector (even under Mikhail Kasyanov, the current Prime Minister Mikhail Fradkov still did not allow himself to put such issues even on the agenda) were cut short by the Kremlin. Mr. Miller sent letters to the president warning about threats to the country's energy security if the government, God forbid, begins to discuss reforming the gas industry. Vladimir Putin then supported his protégé and put a taboo on this discussion. Then the president seemed to fear that the administrative weakness of the head of Gazprom would not allow him to restrain the attacks of those who wanted to divide the monopoly into separate assets. Now no one seriously harbors such hopes. But another problem has made itself known loudly - energy shortages in the country's inefficient but growing economy. The discussion spontaneously resumed, and has already taken place several times at meetings with the head of state.
As you know, a week ago the president publicly scolded his officials for inaction in preparing a clear balance of gas supplies and electricity generation for the needs of the population and the economy. Judging by the latest public statements of the main opponents - Messrs. Khristenko and Gref - after the Kremlin thrashing, their positions decisively came closer. The head of the Ministry of Industry and Energy "gave up" on the price issue - the regulated price of gas will grow according to Mr. Gref's calculations (slowly until mid-2008 and quickly then). And the head of the Ministry of Economic Development and Trade agreed that already in 2011 there will be free gas pricing in Russia, and not just an abstract $100 per thousand cubic meters. Gazprom, in turn, has come to terms with the introduction of long-term contracts on the domestic market next year (at least for electric power companies). Finally, RAO UES of Russia and its subsidiaries are ready to sign such contracts on a “take or pay” basis (a source in Gazprom claims that the monopoly is completely satisfied with this design).
However, the discussion about some derivatives of liberalization promises to continue. In particular, the Ministry of Economic Development and the Ministry of Finance are in favor of strict government control over the additional income of the gas monopolist. Mr. Gref demands not to spend money on acquiring “non-core assets,” primarily in the energy sector (Gazprom management, with the support of First Deputy Prime Minister Dmitry Medvedev, insist that these are core investments). And Mr. Kudrin wants the concern to spend funds to pay off its gigantic debt (net debt, according to international reporting, as of March 31, exceeded $25 billion). At the same time, both ministers are seeking mandatory consideration by the government of the budget and investment program of the gas monopolist, as was practiced in previous years. By the way, yesterday the board of directors of Gazprom did not approve the budget for next year, which provides for $6 billion in long-term financial investments, since the new parameters of the company’s financial plan will depend on the outcome of today’s discussion. But the concern’s press release states that after revision (based on today’s decisions), the document should be adopted by the board of directors in absentia.