Conversation without strangers

Sergei Sobyanin will try to understand the development of the gas market

The head of the presidential administration, Sergei Sobyanin, will gather officials and top managers of Gazprom and RAO UES of Russia in the Kremlin in order to discuss in a narrow circle the next ideological crisis in reforming the gas supply system. The meeting, according to Vremya Novostei, will take place today or tomorrow. So far, however, none of the high-ranking participants in the discussion have publicly admitted that we are talking specifically about systemic reform. Judging by the fragmentary information that is leaking from the sidelines, many have already realized the unviability of the government’s half-hearted decision of November 30, 2006. Let us recall that then, after several meetings, Vladimir Putin adopted a schedule for increasing domestic gas prices for industrial consumers with a transition to a full price formula from 2011. In addition, it was decided to prepare the basis for concluding long-term five-year gas supply contracts with electric power enterprises from the second quarter of this year, and from next year - with other industrial consumers.

However, it is still not clear who should enter into these agreements (Gazprom or independent producers) and under what conditions. The gas monopolist requires the signing of contracts on the “take or pay” principle, which applies in its export practice. The main consumer - RAO UES of Russia - does not agree to this or demands that conditions be created for the resale of gas that will be purchased but will not be in demand by power plants. But then, in fact, a spontaneous gas market will appear before Gazprom’s eyes, and the concern, of course, is not ready to agree to this. As a result, the discussion again reached a dead end, and last week at a government meeting it even resulted in a confrontation between Economic Development Minister German Gref and First Deputy Prime Minister Dmitry Medvedev, followed by comments from Gazprom head Alexei Miller.

Mr. Gref complained in rather harsh terms that he still does not have an accurate forecast for gas production and cannot properly assess the development of the country's economy. “What we see now is Gazprom declaring that it will ensure an increase in production by 2011. But after 2011, even Gazprom specialists officially declare a shortage of gas supplies to the domestic market, said the head of the Ministry of Economic Development and Trade. “The scale of the problem is such that we need to somehow respond to it.” And he even specifically emphasized that postponing its decision until the end of the year or until 2008, when the presidential elections will take place, is impermissible. Prime Minister Mikhail Fradkov and Dmitry Medvedev, who heads the board of directors of Gazprom, came to the defense of the monopolist. “It seems to me that here, as Mikhail Efimovich (Fradkov) pointed out, there is no need to dramatize the situation, we need to get together and discuss it separately,” Mr. Medvedev responded and proposed paying special attention to the structure of energy consumption in the country and the energy intensity of the Russian economy. “If we want to quickly get a forecast of gas production and its transportation, then Gazprom has a different approach: they want to first create a market for long-term contracts and make a long-term forecast based on the real situation on the market,” he explained the behavior of the concern he supervised.

A little later, news agencies spread the words of Mr. Miller, who extremely rarely publicly reacts to such external irritants as critical speeches of German Gref. The head of Gazprom said that he has a forecast balance until 2020, which is a guideline for planning. Clarifications will be made after long-term contracts with industrial consumers are concluded within the country. “It is inappropriate to change the gas balance based on certain expectations before signing real contracts with consumers. Gazprom's motto is “gas will not be produced until it is sold,” Mr. Miller said.

But in the situation with long-term contracts, Gazprom’s motto does not provide simple answers. The government was going to receive proposals on the procedure for concluding contracts for the supply of gas to electric power enterprises and their maintenance from the Ministry of Economic Development, the Ministry of Industry and Energy and the Federal Tariff Service by February 15. However, the departments failed to agree on a more or less satisfactory scheme for everyone. The deadline was extended by a month, but now it is clear that it will again be impossible to do without political decisions (that is, without the intervention of the Kremlin).

The main question is how to organically rebuild the existing balance gas distribution scheme into a market one (based on contractual obligations) while maintaining Gazprom's monopoly position. RAO UES of Russia, which acted as the main lobbyist for the government's decision of November 30, required one thing - written guarantees of gas supplies for potential buyers of the holding's generating assets. But, of course, they are not ready to sign the obligations of specific OGKs to pay for this or that volume in five years without the right to resell gas to RAO. In addition, it is not clear what to do with independent gas suppliers: if they are forced to enter into long-term contracts with energy companies (a third of the gas to power plants is supplied by independent ones), then a system of long-term access to the gas transportation system is needed. But nothing has been done in this area. In addition, the approach to supplying gas to other industrial consumers on a residual basis looks, to put it mildly, strange.

Departments prefer not to talk about long-term contracts. According to Vremya Novostey, only one concept for organizing a market for long-term contracts was received from outside the government. In letters addressed to the prime minister and the head of the presidential administration, the Gas Market Coordinator (a non-profit partnership that includes almost all major gas producers and consumers) sent proposals. The KRG considers it necessary to remove long-term contracts for the supply of gas to industry from the regulated sector of the market (only supplies to the population and budgetary organizations will remain in it), and divide the unregulated sector into four segments. The first is supplies under long-term contracts within the traditional limit (supplied by Gazprom). The second is supplies under long-term contracts in excess of the limit and to new consumers (independent consumers and partly Gazprom). The third is bilateral contracts for up to a year (for medium-term balancing of consumer portfolios). The fourth is spot trading of excess gas that appears from suppliers on an electronic trading platform.

Alexey GRIVACHS