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Russia: Pipeline Fees Pay For Government Projects

Russia has been raising pipeline fees and railway rates to pay for strategies in Chechnya and the Baltics. The trend suggests that the government will use its increasing power over Russian business to achieve its goals. Correspondent Michael Lelyveld reports:

Boston, 20 July 2000 (RFE/RL) -- The Russian government appears to be following a new policy of raising fees and tariffs to pay for strategic projects, but the trend could have impacts on business and inflationary results.

In recent days, Russian authorities have announced increases in rail transport charges and two separate hikes in oil pipeline fees. The moves follow a series of rate rises for consumers of electricity and gas.

The higher utility prices appear to be part of an effort to deal with the costly problem of fuel subsidies in the Russian economy and the gap between energy markets at home and abroad. But other increases may be part of a different pattern. At least two are related to the war in the Chechnya.

On 10 July Russia's Federal Energy Commission raised pipeline tariffs for oil by 12.2% to cover part of the cost of building an oil line around Chechnya. The Russian pipeline monopoly Transneft had urged that the increase be more than twice as much, according to the Financial Times. Since last year, the company has proposed several schemes to pay for the bypass, which was ordered by then-Prime Minister Vladimir Putin.

On Monday, Russia's Antimonopoly Ministry also announced a hike of 18.5% in railroad cargo rates, citing higher costs for fuel and other goods. But 3.5% will be used to pay for rail repairs in Chechnya, where some lines were sabotaged while others were torn up to provide easier passage for Russian tanks. Like Transneft, the Railway Ministry also asked for a greater increase. Rail rates were previously raised by 15% at the start of the year.

The two actions suggest that the government may try to meet some of the associated costs of the Chechnya war by shifting them to entities like Transneft. At least some costs can then be passed on to Russian oil companies and railway users. The remainder may be absorbed as a loss by the pipeline and rail monopolies, which are still state-owned.

While the treatment of these costs may keep them off the government's budget, it is unlikely to prevent them from having economic effects. Higher tariffs and rates will eventually be reflected in lower profits, lost tax receipts and inflation, which has already shown an increase in June.

But a third case of higher fees may raise even greater concerns for Russian business and relations with the Putin government.

This week, Transneft announced plans to raise pipeline fees by another 12% to help pay for the Baltic Pipeline System, which is designed to give Russia a direct oil route to the Baltic Sea. Last year, Russia's oil companies reportedly paid $106 million in increased tariffs with the promise that they would receive shares in the new system. In February, Deputy Fuel and Energy Minister Vladimir Stanev said that the size of each company's share would depend on how much it paid.

But on Friday, Prime Minister Mikhail Kasyanov signed a government resolution for the pipeline plan that would give Transneft exclusive rights to develop and own the $800-million system. Transneft vice president Sergei Grigoriev said the government will decide what to do with the funds it has already collected, according to the Russian publication Vedomosti and the Moscow Times.

Despite the broken promise, the Russian oil companies now seem powerless to call the government to account in an atmosphere where many enterprises are worried about tax probes.

Earlier this year, the government said that exporters would save 3 dollars to 4 dollars per ton by shipping oil through the new pipeline system instead of the port of Ventspils in Latvia or Butinge in Lithuania. Now, it is unclear whether the savings from the Baltic bypass will be realized, especially if the latest tariff increase proves to be the first of many to help Transneft cover its costs.

The government's actions suggest that it will continue to use Transneft as a tool for strategic policy and power over the oil industry. It may also see the pipeline monopoly as a convenient way to raise revenues for projects outside the budget and the legislative process.