Should Russia raise domestic gas prices?


MOSCOW. (RIA Novosti economic commentator Vlad Grinkevich) - Russian gas companies badly want the national gas market to be liberalized.

One plan envisages domestic gas prices growing almost level with export prices by 2010-2011.

The European Union, which thinks that its member states act as donors for Russian consumers, has long demanded that gas prices in Russia be raised to European standards. Russian gas monopoly Gazprom would also benefit from the increase, because it sells more than half of its output on the domestic market - currently at dumping prices.

However, domestic gas prices are lower than export prices in the majority of gas-producing countries.

A year ago, the Russian government approved a program to raise domestic gas prices on a par with export prices by 2010-2011. At present, consumers in Russia pay several times less than in Europe, between $50 and $70 per 1,000 cubic meters against more than $300.

This does not make Gazprom and its European partners happy. Europeans complain that Russian consumers get gas at prices below the prime cost, and that Gazprom makes up for its domestic losses by hiking export prices.

Gazprom would be glad to raise prices, because it sells more than half of its output in Russia and claims to be losing huge sums because of this. Gazprom mangers say the company lost as much as 9 billion rubles ($378.95 million) because of this in 2006 and 11 billion rubles ($463.16 million) last year.

However, the monopoly does not report its spending on production and transportation.

Russian gas producers are emulating the policy of oil companies. Gasoline prices in Russia, one of the largest oil producers and exporters, are among the highest in the world. A liter of gasoline in Russia costs almost as much as in the United States, which is the largest oil importer.

Russian fuel and energy companies and their lobbies do not think this situation can easily be changed, because producers will export their output as long as global prices remain high. They argue that attempts to limit exports will only increase corruption and reduce the sector's transparency.

Domestic fuel prices in nearly all oil and gas producing countries are considerably lower than world export prices. Their fuel and energy sectors are usually controlled by the state, which also fixes domestic prices.

In Turkmenistan, a liter of gasoline costs $0.02 and gas is free for domestic users. Algeria, the third largest gas supplier to Europe, has been resisting European demands that it increase domestic prices for 21 years.

The only exception is Norway, where the government, which controls the fuel sector, levies high taxes on gasoline sales for environmental reasons, so that gasoline in Norway costs twice as much as in Russia. However, Norwegians' incomes are five to six times higher than in Russia, and the bulk of the revenues raised are used to urge social and economic development. Gas prices, on the contrary, are low in Norway.

Even the "citadel of liberalism," the United States, has started controlling fuel prices. In 2006, when gasoline prices went up to $1.3 per liter, Congress approved by a 389-34 vote a bill on criminal penalties and fines of up to $150 million for "unconscionable pricing" and "false price reporting."

At first glance, Russia should resist encouragement to raise domestic gas prices. Nearly a third of Russia's GDP is ensured by cheap gas, making it a pillar of state power. If gas prices rise, Russian industry will lose its competitive edge. Besides, the growth of tariffs for ordinary people would disrupt the country's much-vaunted stability.

Yet the government has been advocating the liberalization of the gas market, at least until recently.

The first signs of resistance to the idea appeared on May 5, when Deputy Economic Development and Trade Minister Andrei Klepach said gas prices would not be fully liberalized in 2011.

"We have not abandoned the idea [of liberalization], but propose a smoother advance to this principle," he said.

The smooth approach has been proposed by the Economic Development and Trade Ministry, which may yet change its position after negotiating the issue with Gazprom.

The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

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