Translated material
Monopoly self-regulation
Gazprom asks to support planned price liberalization
As the Vremya Novostey newspaper learned, as part of the fight for the abolition of gas price regulation since 2011, Gazprom a month ago sent a report to the Ministry of Energy, the Ministry of Economic Development and the Federal Tariff Service, justifying the need to switch to market pricing for industrial consumers. The monopolist's set of arguments is traditional for tariff discussions in recent years. Here is the disparity in prices for gas and other types of fuel (fuel oil and coal), and the statement of significant losses from sales on the domestic market. According to the company, in 2000-2008 it lost 1.24 trillion rubles. revenue, and the net loss from sales exceeded 280 billion rubles. Gazprom, in turn, promises to prevent uncontrolled price increases. Moreover, to keep prices within the 15% indexation of regulated prices pre-approved by the government in 2011 by introducing discount factors into the equal profitability formula. “In this regard,” writes Deputy Chairman of the Board of Gazprom Alexander Medvedev to Energy Minister Sergei Shmatko in a cover letter to the report, “there are no prerequisites for postponing the deadline for the practical implementation of previously adopted decisions of the Russian government on the development of market relations in the gas industry.”The departments that must submit their proposals to the government, according to Vremya Novostey, have not yet decided on their position regarding Gazprom’s initiative. An official from one of the relevant departments, on condition of anonymity, said that since the revision of certain pre-crisis guidelines is a purely political matter, they will wait for appropriate instructions from above. Gazprom is also not going to go ahead yet (usually, as is known, in such cases, the head of the company, Alexey Miller, turns directly to the country’s leadership), realizing that the main battle on the transition to equal-income prices from 2011 will only take place in a year.
Three years ago, the government decided to carry out a phased liberalization of prices on the gas market. A four-year schedule for indexing regulated prices that apply to sales of Gazprom group enterprises was drawn up. As a result, there was to be a transition to pricing based on a price formula tied to the average price of fuel under the concern’s export contracts in Europe, minus transportation costs and customs duties. Long-term contracts were signed with industrial consumers, which provided for the application of the formula from 2011 after a corresponding government decision. The FTS developed and approved by its order a formula, and also began quarterly to publish indicative prices calculated using it for Russian regions.
At the same time, as follows from the report, Gazprom, seeking to legalize pricing according to the formula in a year and a half, requires its revision. Firstly, according to the monopolist, the formula should be linked not to the average gas price in its contracts, but directly to the quotes for fuel oil and diesel fuel in Rotterdam with a lag of six to nine months. Gazprom's European prices are calculated using the same principle. The application of the current FTS method leads to the fact that prices in Russia will change with a one and a half year delay to fluctuations in the petroleum products market. Secondly, the concern requires that the formula include a lower price limit for Russian consumers, regardless of the situation on foreign markets, in order to ensure the stability of Gazprom’s investment position. “The level of such a limiter, in our opinion, should be determined by the level of prices for self-financing supplies to the domestic market,” the report says. The specific bottom bar is not specified. A year ago, Gazprom proposed to ensure that the average price did not fall below $80-$100 per thousand cubic meters.
However, based on the figures given in the report, one can quite easily calculate what level of self-financing the concern saw in 2008 or 2009. For example, according to the company, last year it lost about 220 billion rubles in the domestic market due to low prices. About 270 billion cubic meters of gas were supplied to Russian consumers excluding the population. That is, in order to meet the level of self-financing, the price had to be higher than 1,699 rubles. per thousand cubic meters (on average) by 814 rubles. This means, according to Gazprom, at an exchange rate of 24.9 rubles. per dollar the price of self-financing is exactly 100 dollars per thousand cubic meters. In 2009, due to devaluation, it turns out to be about $80.
But the most interesting thing in the monopolist’s calculations is that at the end of this year, for the first time, the concern expects a significant net profit from gas sales on the domestic market - 70-78 billion rubles. With planned revenue of 557 billion rubles. the profitability of operations is a completely commercially acceptable 13%. If we add 200 billion rubles “lost” to ensure the level of self-financing, then the profitability of the concern’s domestic sales would almost triple (36%).
It is clear that unless there is a significant collapse in oil prices in the world, the introduction of the principle of equal profitability will bring Russian consumers a multiple increase in gas prices. According to the forecast of the Ministry of Economic Development in 2011, the export price should be $236 per thousand cubic meters, that is, the price of equal profitability will be $128 per thousand cubic meters. At the same time, according to the government-approved schedule for indexing regulated prices until 2012 (15% annually), Russian enterprises will be able to buy fuel from Gazprom for $77 (calculated rate of 37 rubles per dollar). In order not to contradict the anti-crisis package of the Cabinet of Ministers, the monopoly promises to sell gas to industrialists at 40% cheaper than the predicted equal profitability, using a coefficient of 0.6.
“Gazprom is implementing and will continue to implement a balanced and balanced position on the issue of calculating prices,” the report emphasizes, “from the point of view of effective demand from gas consumers and the supplier’s price offers.” This shows the monopolist’s clear ambition for complete self-regulation, no less. Which looks very odious, even within the framework of the development of the gas market in recent years.