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Russia: Decision On Gazprom Signals Caution In Reforms

The Russian government has decided against any speedy restructuring of the gas monopoly Gazprom, according to reports. The latest plan seems to be a sign that President Vladimir Putin's economic team has had second thoughts about the pace of reform.

Boston, 12 December 2000 (RFE/RL) -- The Russian government's decision to go slow on restructuring the gas monopoly Gazprom seems to reflect the cautious approach of President Vladimir Putin's economic reform team.

According to reports in the past week, Kremlin officials have decided that any changes to the operation of giant Gazprom will be gradual. A Gazprom board meeting called on Saturday to review shareholder complaints about the company's questionable ties to the gas trader Itera also put off discussing the issue until next month.

The delays appear to be a sign that the Putin government will not take on the task of reforming the politically-powerful company quickly.

German Gref, the economic development and trade minister, told the newspaper Vedomosti last week that "radical measures are not required for the reform of Gazprom as they are for other natural monopolies like the Unified Energy Systems and the Railways Ministry."

Critics including Boris Federov, a Gazprom board member and former finance minister, have previously disagreed with that assessment. Federov asked for the Saturday meeting to force a full disclosure of dealings with Itera, amid suspicions that Gazprom's assets are being stripped to hide profits from the state.

The issue of Gazprom and its profits is seen as crucial to Russia's economic future. As Russia's biggest taxpayer, Gazprom is said to owe the federal budget $1.3 billion. At the same time, the world's biggest gas company is 38 percent state-owned.

Gazprom also plays a critical role in the life of Russia's consumers. As the provider of gas within Russia at subsidized rates, the company supplies the market with cheap energy. But Gazprom also sells all of Russia's exported gas to Western markets at world prices, a trade that is likely to bring in revenues of $15 billion this year.

Calls for reform of these multiple roles have come from many quarters. Russia's independent oil producers, for example, want to gain access to Gazprom's export pipelines to sell the gas they produce. Others see the country's low tariffs as discouraging investment in Russia's aging gas fields.

But the government's plan, which has been leaked to publications including Vedomosti and Petroleum Argus, suggest that change may come so slowly that any meaningful reforms could take at least a decade. Under the three-stage plan, Gazprom could remain a protected monopoly even longer than that.

On the subject of gas pricing, the government would reportedly raise the domestic tariffs to between $18 and $20 per thousand cubic meters in 2003. Gas in Russia sells for $10 to $15 per thousand cubic meters now. In 2005, the price would rise to between $28 to $30. Two or three years later, it would go up to between $43 and $45. After that the government would relinquish all price controls, except on transport charges for gas.

The advantage of the plan is that it may avoid rude shocks for Russian consumers. The problem is that it may take six years before the domestic market is asked to pay even as much as Russia is now charged for the gas it imports from Turkmenistan. Even in 2008, Russian gas users will be paying less than half of what Gazprom charges to European customers now. It is uncertain that such an approach will promote near-term investment in Russia's gas fields.

But the government seems to be just as concerned about protecting Gazprom as Russia's consumers. Plans to split the company into separate production and transport units appear to have been dropped, Petroleum Argus said. Instead, 17 of Gazprom's transportation subsidiaries may be merged into one or two larger companies, potentially creating an even more potent monopoly.

In perhaps seven years, independent oil producers would be allowed to pump gas through Gazprom pipelines, but only to CIS countries, which generally pay about half of European tariffs. The plan would permit the independent producers to export to Europe by 2010, but even then, the deliveries would take place under the supervision of Gazprom.

The pace of the plan suggests that Putin's reform team may be having second thoughts about how far and how fast to press the restructuring of the Russian economy.

Although the government has supported strong measures to increase collections for electricity and gas, the plan for gradual change at Gazprom seems to be a sign that the country will rely on heavy energy subsidies for years to come. Even slow changes may require political support rather than conflict with a monopoly as powerful as Gazprom.