The Russian government, concerned at mounting inflation, is again considering putting the brakes on long-planned increases in regulated gas, water and electricity tariffs.
The government decided last year that regulated wholesale gas tariffs would rise by 15% per year, with a view to reaching parity with gas export prices by 2015.
But mounting inflation – in which these tariffs are a key component – is causing concern. And last month there was a rethink: on April 21 prime minister Vladimir Putin ordered civil servants to review planned increases in tariffs for rail freight, gas, electricity, water and heat.
Tariffs had to generate the funds to renew infrastructure, Putin acknowledged, but the increases “must not suppress economic activity”. The cost of slowing down tariff increases is that it exacerbates gas and power companies’ difficulties in planning investment.
Gas prices are the most significant economically, and are the biggest item in many electric power producers’ costs. Gazprom, the main state-controlled gas producer, says it needs the revenue to fund investment – and analysts reckon the slowdown in price rises would cost it 70 billion rubles next year alone.
Nevertheless, the economic development ministry had drawn up an alternative schedule, under which tariffs would rise “no faster than the expected level of inflation” – or 5-6% a year – Putin said. He told officials to look at the two schedules and come back with proposals within six weeks.
On Wednesday the federal tariff service was reported to be preparing to limit this year’s rise in end-user electricity tariffs to 8-9%.
Analysts said that Russian politicians have long slowed down or stopped tariff increases as elections approach. A presidential poll is due in March next year.
Yaroslav Lissovolik, chief strategist at Deutsche Bank in Moscow, told Emerging Markets: “It is election year and, no question, this is leading the government to keep a lid on regulated tariffs.”
Alfa Bank analyst Pavel Sorokin said that manufacturing companies strenuously resist rapid gas price rises, “and the industrial lobby is an important factor for politicians facing elections.”
The tariff increase slowdown, together with plans to tax gas production and exports more heavily, treats Gazprom as a revenue-raising machine, some observers argue. To make matters worse, parts of Russia’s domestic gas market, the world’s second largest after the USA, are being ceded to Gazprom’s competitors.
The largest non-Gazprom gas producers – Novatek, and oil companies including Rosneft, Surgutneftegaz, TNK-BP and Lukoil – collectively accounted for a quarter of gas sales in Russia, Gazprom admitted recently.
They have received powerful political backing, particularly from deputy prime minister Igor Sechin, for their efforts to break into what was previously a Gazprom near-monopoly.
Proposals made last month to changes the taxation of gas production sparked speculation that the rules of the game could be further tilted against Gazprom. Mineral resources extraction tax on gas, which was unchanged in 2006-2010, rose by 60% this year. In March, the finance ministry urged a further 123% increase in 2012 followed by a further 5% rise in 2013.