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Unnatural Monopoly: The Endless Wait for Gas Sector Reform in Russia

2005; Routledge; Volume: 57; Issue: 6 Linguagem: Inglês

10.1080/1080/09668130500199376

1465-3427

Rüdiger Ahrend, William Tompson,

Canadian Policy and Governance

Click to increase image sizeClick to decrease image size Notes This article is based on material originally prepared for the OECD Economic Survey of the Russian Federation, which was discussed in the OECD's Economic and Development Review Committee on 25 May 2004 and published in July 2004. The authors are grateful to the many Russian and Western officials, experts and businessmen, too numerous to list here by name, who discussed the gas sector with the Survey team. The authors are also indebted to colleagues in the Economics Department, in particular Andrew Dean, Val Koromzay and Silvana Malle, for useful discussions, comments and drafting suggestions. Special thanks go to Corinne Chanteloup and Anne Legendre for technical assistance, as well as Muriel Duluc and Lillie Kee for secretarial assistance. Responsibility for any errors of fact or judgement in the article rests entirely with the authors. The opinions expressed here are those of the authors and do not necessarily reflect the position of the OECD or its member states. See OECD (Citation2004, pp. 57 – 59) BP (2004, p. 20). This estimate includes reserves in categories A, B and C1. According to the Ministry of Economic Development and Trade ('O kontseptsii', Citation2002, p. 3), reserves in categories C2, D and E could constitute a further 100 tcm. 'Energeticheskaya strategiya' (Citation2003, p. 21); IEA (Citation2003, II, p. 165). The sector's exact GDP share cannot be stated with precision, because it is far larger than it appears in the official data, owing to transfer pricing. The estimate here is based on World Bank (Citation2004). Authors' calculations based on data in IEA (Citation2004a). IEA (Citation2002b, pp. 177 – 196). 'Doklad' (Citation2003, p. 15). This figure pre-dates the Gazprom – Rosneft merger planned for early 2005. Rosneft has significant gas reserves of its own, so the post-merger share would be even higher. IEA (Citation2002a, p. 119). Vedomosti, 23 December 2003. RIA TEK, 6 February 2004; for details of the case see Vedomosti, 23 December 2003, and Kommersant", 23 December 2003. 'Energeticheskaya strategiya' (Citation2003, p. 33). For a more explicit statement see Section 3.5.1 of the government's medium-term economic strategy ('Osnovnye napravleniya', Citation2001). Gazprom already owned gas-processing plants in Astrakhan and Orenburg; the purchase of Sibur brought control of the nine major processing plants in Siberia. The only major exception to this is the oil company Surgutneftegaz, which alone among the Russian oil companies has a significant gas-processing plant of its own. Interfax, 28 May 2004. Since export prices in the CIS are still relatively low, this income is overwhelmingly derived from the 25% or so of output that Gazprom exports to non-CIS markets. At present, the state controls the company only with the aid of the 15.9% of Gazprom shares that are held by the company itself, effectively as treasury stock. In early 2004 the state owned 38.37% of Gazprom's equity. Russian legal entities owned 35.07%, Russian individuals 15.06% and foreign investors 11.5%. However, almost half the total held by Russian corporates was held by Gazprom or its subsidiaries. At present, trading in Gazprom domestic shares is restricted by presidential decree to just four stock exchanges (Moscow, St Petersburg, Siberia and Ekaterinburg). Although the government and the company have been committed for several years to organising the trading of Gazprom shares on the Moscow Inter-bank Currency Exchange, where turnover tends to be much higher than on the stock exchanges, this has not occurred. 'O kontseptsii' (Citation2002, p. 6). See 'Doklad' (Citation2003, p. 5). In addition to the regular purification processes, associated gas must go through additional processes because it has a high liquid content that must be separated out before it can be sold. The gas extracted by the independents generally requires more processing than is needed for the relatively shallow cenomanian deposits that continue to account for most of Gazprom's production. OTAC (Citation2003, p. 18) notes that Gazprom's contracted export commitments amount to 180 bcm in 2008, while IEA (Citation2002a, p. 110) anticipates an even higher level of around 200 bcm. Gazprom CEO Aleksei Miller has spoken of figures as high as 580 – 590 bcm by 2020 and 610 – 630 bcm by 2030. This roughly matches the trajectory set out in the government's energy strategy ('Energeticheskaya strategiya', Citation2003, p. 31). In 2001 these three fields produced 68% of Gazprom's output, but this share has been slipping from year to year; see 'O kontseptsii' (Citation2002, p. 3) and IEA (Citation2002a, p. 112). On the decline of the big three see 'Energeticheskaya strategiya' (Citation2003, p. 31) and also the charts in IEA (Citation2002a, p. 114). IEA (Citation2002a, p. 113), based on 'Energeticheskaya strategiya' (Citation2000). It should be noted that the revised energy strategy adopted in 2003 omits such estimates. OTAC (Citation2003, p. 18 and Appendix 1). For a far more bullish view on likely Russian gas production see Landes et al. (Citation2004). IEA (Citation2002a, pp. 113 – 114). The debate largely concerns the possible consequences of poor field practices in the 1980s for the long-term productivity of the three fields. There are five known super-giant fields still to be brought into full production, but all are located in the far north and will be extremely expensive to develop in view of complex geological conditions and the Arctic climate; see OECD (Citation2004, p. 153). Of this, $44/tcm is paid to Turkmenistan and $6/tcm constitutes transit costs. Until 2007 Russia will pay half of the Turkmen portion ($22/tcm) in bartered goods. There is also some concern in Europe about Gazprom's apparent strategy of 'locking up' Central Asian and Transcausian gas supplies by means of such mechanisms as the Central Asian deals alluded to above. IEA (Citation2002a, p. 118). Interfax, 17 December 2003. Priority is, however, given to allocations of gas for the household sector, and there are principles governing allocation to organisations financed from federal and regional budgets. 'Doklad' (Citation2003, p. 8). The mark-ups on such 'above-quota' (sverkhlimitnyi) gas are regulated. They rise in winter and fall in summer. 'Ob obespechenii dostupa' (Citation2001). The decree in question was adopted in July 1997 but amended in 1999, 2000 and 2001. Should an independent producer challenge Gazprom's decision by appealing to the Government Commission on the Use of the Long-Distance Oil and Gas Pipeline Systems, the Commission can require Gazprom to provide information on the presence of spare capacity in the system. These rose from 28.1 bcm in 1998 to 83.1 bcm in 2002. Gazprom leaks. Other gas producers are sometimes able to obtain surprisingly precise data on pipeline usage in particular segments of the network, albeit on a strictly informal (and probably illegal) basis. Private information provided to the OECD by a former official involved in the discussions. See OECD (Citation2002, pp. 121 – 132). See also Gaddy & Ickes (Citation1998) and Woodruff (Citation1999). OECD (Citation2002, pp. 121 – 132). Ryazanov & Medvedev (Citation2004). Vedomosti, 24 May 2004; 'Energeticheskaya strategiya' (Citation2003, pp. 8, 32). See for example Pryadilnikov (Citation2003), Tarr & Thomson (Citation2003), Breach & Westman (Citation2002), Granville & O' Sullivan (Citation2002), Nash, Jacob & Moiseev (Citation2002), OTAC (Citation2003). The Institute for the Strategic Development of the Energy Industries (part of the Centre for Strategic Research overseen by Economic Development and Trade Minister German Gref) provided the authors with an estimate of $37 – 38 in mid-2003. For details of the survey see OECD (Citation2004, pp. 177 – 179). The sharp increases in both industrial and household tariffs reflect ruble appreciation as well as administered tariff increases. 'Energeticheskaya strategiya' (Citation2003, p. 21). See also the even more pessimistic estimates in ISDEI (Citation2003). For a detailed discussion of Russia's energy efficiency potential see IEA (Citation2002a, pp. 229 – 237). 'Energeticheskaya strategiya' (Citation2003, p. 21). He also observes that it was the privately owned oil companies that accounted for almost all of this growth. State-owned companies performed poorly in terms of raising output or exports. See Ahrend (Citation2004a). On productivity and competitiveness trends in various industrial sectors see Ahrend (Citation2004b). Moscow Times, 8 June 2004. For a particularly full and at times impassioned statement of Gazprom's position see Gazprom (Citation2003a and Citation2003b). See 'O strukturnykh' (Citation2003) and the company's reaction as set out in Gazprom (Citation2003b). Gazprom (Citation2003b, p. 2). OECD (Citation2002, p. 111). Gazprom shareholders and other observers have criticised the company's decision to extend loan guarantees to the little known Eural Trans Gas (ETG) and to appoint ETG as the agent for transporting 36 bcm per annum of Turkmen gas to Ukraine. According to Russian media, ETG subsequently signed a contract to ship Turkmen gas to Poland via Ukraine, thus competing with Gazprom in that market. See Moscow Times, 27 February 2003 and 27 November 2003; and Vedomosti, 27 February 2003, 22 March 2003, 4 November 2003, 21 November 2003, 24 November 2003 and 26 December 2003. Vedomosti, 19 March 2004; Gazeta, 19 March 2004. See OECD (Citation2000). Gazprom (Citation2003b, p. 3). There is some evidence to suggest that Gazprom's own investment behaviour in recent years reflects such distorted incentives. In any case, to the extent that Gazprom is required to provide a subsidy to the domestic economy in the form of below-cost gas sales, it would probably be more efficient to compensate the company via direct budgetary support rather than by allowing it to capture a very large share of the export rents. The gas in the ground is state property. Any rents that accrue in the process of extracting and selling it should in principle accrue to the state on behalf of the population. See Soyuzgaz (Citation2003a); and Itera (Citation2003). Soyuzgaz (Citation2003b, p. 7). IEA (2004b), Appendix 2 to Chapter 7. Their ability to compete for such contracts would, of course, depend on fair access to the pipeline network and transparent setting of transport tariffs; otherwise, Gazprom might still be able to exclude them. Since international gas prices tend to be linked to oil prices, fluctuations in world oil prices tend to drive changes in the export price of gas. See OECD (Citation2002, p. 151). It is crucial to recognise that the potential rents to be derived from Russia's market power are distinct from the domestic/international price wedge that exists as a result of the under-pricing of domestic gas. For detail, see Tarr & Thomson (Citation2003). See IEA (Citation2004b), especially Chapter 7 and Appendix 2 to Chapter 7. Additional informationNotes on contributorsRudiger Ahrend This article is based on material originally prepared for the OECD Economic Survey of the Russian Federation, which was discussed in the OECD's Economic and Development Review Committee on 25 May 2004 and published in July 2004. The authors are grateful to the many Russian and Western officials, experts and businessmen, too numerous to list here by name, who discussed the gas sector with the Survey team. The authors are also indebted to colleagues in the Economics Department, in particular Andrew Dean, Val Koromzay and Silvana Malle, for useful discussions, comments and drafting suggestions. Special thanks go to Corinne Chanteloup and Anne Legendre for technical assistance, as well as Muriel Duluc and Lillie Kee for secretarial assistance. Responsibility for any errors of fact or judgement in the article rests entirely with the authors. The opinions expressed here are those of the authors and do not necessarily reflect the position of the OECD or its member states.