Moscow - A classic situation comedy is where a snarl of ridiculous situations flow from one small lie that the hero says is only from good motives. For the justification of one untruth another is offered, then another…and that is how a house of cards is built only to collapse amid uproarious off-screen laughter.
FIRST STEP
The source of our comedy lies in the Gazprom battle for the last giant gas condensate deposit in Russia – Kovykta. Looking to weaken the negotiating position of the deposit license’s previous holder, TNK-BP, the gas monopoly pushed for the passage of a law on gas exports that says Gazprom can be the sole exporter of Russian gas.
So was torn asunder the link between the Russian gas market and any of the other adjacent markets. The markets of Russia and Europe are connected by Gazprom’s export pipelines. But de facto connections between them are nil, and since the gas-export law was passed these are different planets.
Russian producers’ gas is boxed into the Russian Federation, leading inevitably to rising pressure in a closed vessel.
GREED
On the other hand, as it strove to maximize prices for its product on the Russian market, Gazprom continued to harp on that market’s prices being deflated and needing to be raised to the European level.
The regulated price is the basis for price-formation for independent producers. At one time they were selling their gas according to the ‘Gazprom plus’ formula, but with the rise of regulated prices independents groped about for a fair gas price level and were able to sell their fuel at ‘Gazprom minus’ prices.
But Gazprom is not only the guilty party in all this. Amid the din of the financial crisis appeared government resolution №311 of May 10, 2010. That gives the gives the consumer a gas ‘overdraft,’ allowing – without increased coefficients – a 10% over-selection of the contracted limit or a 20% under-selection.
This decision ‘flooded’ the market with Gazprom gas. What remained for independents to do in this situation? To continue to sell gas at a price lower than Gazprom’s.
The market, though perverted by inadequate decisions by regulators, has for many years now given the government a sign that the Russian price had reached a fair level – regulated Gazprom prices need be raised no more – the foundation for the country’s gas balance. But the inertia of the state machine cannot be restrained, and prices continue to be indexed 15% per year.
GAS AS AN EXAMPLE OF LUXURY AND TAXES
Finally, the Finance Ministry realized that Gazprom is getting progressively higher margins on deliveries to the Russian market, aiming at an economy of top-end goods. “The time of cheap gas is over,” the heads of state companies with major gas reserves are constantly chiming.
Rising prices and income from deliveries to the Russian market caught the Finance Ministry’s eye, and it began to hike taxes on the monopoly. And even Gazprom has a hard time arguing with the ministry.
Gazprom was subject to higher taxes than independents, and the monopoly found itself in an even tighter squeeze while independents enjoyed additional pricing flexibility.
The Finance Ministry’s decision to take from Gazprom a large chunk of additional revenues from gas sales at home could be understood in terms of Gazprom becoming an agent for the administration of yet another tax on the population and the country’s economy.
DANGEROUS DREAM
At Gazprom it was understood that the dream had become a nightmare, but that winning everything back was impossible. And at both the company and in the government they are already scared of the chosen goal of moving to netback prices for exports. Gazprom, after prices increased, worries it will lose the support of the state and free deposits holding trillions in reserves, and the Economic Development Ministry was frightened for the competitiveness of the entire Russian economy.
About price increases now is helplessly talking only the head of the Gazprom economic analysis and pricing department, Yelena Karpel, while company CEO Alexei Miller has said the company agrees with all the levied taxes and government approaches to dividend policy.
An analysis of errors in price-formation was provided this year by consumers who had in 2012 chosen with whom to secure new long-term agreements for gas. Gazprom itself, in the person of its power subsidiaries, turned away from gas. Not long ago, buying the gas of independent producers for them was ‘a betrayal of the people,’ but now Mosenergo is hurrying to save on purchases of cheap non-Gazprom gas before it is snapped up by competitors.
In the race for discounts, consumers are joined not only by gas-market grandees, but also oil companies that have recognized their own gas potential.
