THE PROBLEMS OF REGULATION OF FUEL AND ENERGY SECTOR: REGIONS AND FEDERATION ¹ 1-99
Annotations
Y. Egorov, I. Evgenin “The Association – a Body Where Each Voice Should be Heard.”
The article gives a brief overview of the goals and aims of the newly established Interregional Association of the Regional Energy Commissions. The authors express their views of the role of the IAREC in the development of the Russian energy sector on the whole, and power sub-sector in particular.
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V. Roslyakov “The Tyumen Experience of Regulation”.
The article covers the experience of the Regional Energy Commission of Tyumenskaya Oblast for the period of 1998 - first half of 1999. It reports on the achievements of the Regulator as well as highlights the problems that the Commission is facing both on the regional and federal levels.
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A. Lazarenko “The Initiatives of Electricity Sales Department of JSC “Kourskenergo”.
In 1997 "Kurskenergo" delegated its electricity sales rights for 20 settlements to local trading companies. The analyses of the sales tariffs determined that all the traders inflated their costs by different manipulations with the personnel lists and reporting wrong data in the normative forms distributed by the Regulator. Presently the REC does its utmost to raise the efficiency and quality of electricity supplying.
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V. Volkonsky, A. Kouzovkin “Price Regulation of Energy Resources: Regional Experience”.
Analysis of the experience of the REC of Novosibirsk as well as other RECs of the Russian Federation shows that the measures to revive the economic activities in the regions could and should be taken on the regional level. One of the means to achieve the desired result could be optimizing of the energy tariffs and fuel prices.
IAREC has check the available data and arrived at the following conclusion:
1) The internal fuel prices should be stable and independent of the international prices' fluctuations. This is one of the most vital prerequisites of the well-balanced regional industrial policy.
2) The restriction of the fuel prices and the resulting stabilizing of the energy tariffs should not be the main goal of the regional energy policy. On the contrary, tangible results could be achieved through a reasonable fiscal policy, i.e. further tax respites for the industrial sector while the enterprises in the energy sector should be paying rent for the use of the natural resources. If the prices of the energy resources remain on a very low level the energy saving policy would be very difficult to implement the energy saving measures in the regions and at the federal level. At the same time the proceeds from the energy saving measures should be used to stimulate the industrial growth in the country.
3) Its should be noted that an attempt to curb the growth of fuel prices, if not lower them, in the present situation when most of the enterprises in the energy sector are in the red might lead to a sound decrease in the production of fuel and further deficit of fuel (gas included) in the internal market. The tax collection in the energy sector would also drop substantially. That is very important since the taxes collected in the energy sector dominated by big corporations would immediately tell on the national budget.
4) The problem of the national products being non-competitive in the international markets because of the high energy prices has been mitigated by the devaluation of the national currency with a further stabilization of the r.o.e. of the Russian Ruble in the internal market by the middle of 1999.
5) Big corporations in the energy sector might play an important role in an attempt to overcome the practice of non-payment. They can act as partners for the federal and regional administrations using the energy and fuel prices as an important instrument to improve the situation with cash payments and elimination of bartering procedures.
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I. Elyakova, D. Timofeev “Problems of the energy Sector of Republic of Sakha (Yakoutia)”.
The main generator in the territory of Sakha is "Yakoutskenergo", an affiliated company of RAO "UES of Russia". The power system of the Republic is decentralized and consists of four isolated power regions. Only Neryungri CHPP is connected with the FOREM and supplies electricity to the Far East. The total generation in 1998 in the republic amounted to 7.2 billion kWh, out of which 6.8 billion kWh were generated by the stations belonging to "Yakoutskenergo". It is expected that in 1999 the total generation would reach the figure of 7.3 billion kWh with the increase of nodal transfer to 800 million kWh. A difficult financial situation in the sub-sector and a substantial deficit of investment resources have resulted in the dramatic drop in the security and safety of energy supplying (total depreciation of main assets - 36.3%, power lines - 65%).
Coal industry in the Republic is comprised of large coal exporting enterprises and smaller pits supplying coal in the internal market. Total reserves of coal are estimated at the level of 425.3 M Mt. That ensures 20 to 50 years of production. Total production of coal in 1998 amounted to 10.04 M Mt, including 3.4 M Mt for exports. The forecasts for 1999 show total production at the level of 10.03 M Mt with increase of exports up to 4.1 M Mt.
The Republic has a huge deposit of natural gas. The explored deposits amount to 1.3 trillion cubic meters, while the estimates showed that the total deposits should amount to 8.3 trillion cubic meters. The main supplier of the natural gas in the Republic is "Yakoutgazprom", that is one of the few gas producers in the country not incorporated in the "Gazprom" holding. The level of annual production is determined by the demand and varies from 1550 to 1650 million cubic meters. All the gas produced in the territory of the Republic is sold in the local market.
The level of oil production (explored deposits are evaluated at the level of 295 M Mt) in 1998 was 168 thousand Mt. However, the plans for 1999 show the figure of 258 thousand Mt.
The position of the government of the Republic gives preference to the development of the explored oil and gas fields by the consortiums created by the republican companies in the big Russian regional companies, rather than private investors.
The development of the energy sector of the Republic would be based on the strengthening of the inter-regional ties and further inter-regional co-operation in the exporting sub-sectors. The proper investment policy would create proper conditions for the development of Sakha Republic and the Russian Federation, as well.
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Y. Skrypnik “The Problems of Russian Energy Sector – a View of a “State-Minded” Adept”.
The energy sector plays a strategic role in the economy of all developed countries. In Russia it plays an exceptional role due to a high percentage of energy consuming industries, severe climatic conditions and a vast transmission network.
The main suppliers of energy to the federal wholesale market are the power plants owned by RAO "UES of Russia", NPPs of Ministry of Nuclear energy of the Russian Federation and the regional power supplying utilities that have energy surplus. On the other hand the main buyers of energy in the wholesale market are the regional utilities with energy deficit. All nodal transfers are regulated by the Central Dispatching Department (located in Moscow) and the United Dispatching Departments (7 of them - the UDD of Center (located in Moscow), the UDD of Northwest (located in St. Petersburg), the UDD of Central Volga (Samara), the UDD of the Urals (Ekaterinbourg), the UDD of South (Pyatigorsk), the UDD of Siberia (Krasnoyarsk) and finally the UDD of the Far East (Khabarovsk).
The initial idea behind the establishing of the wholesale energy market was to have around 50% of all energy generated in the Russian Federation sold in it (through RAO "UES of Russia"). However, the share of energy sold through the wholesale market has been continuously decreasing and in 1995 dropped down to sheer 33% of the total volume generated in the country. In the former days of the Soviet Union the energy sector used to be an industry operating at a profit, while the energy was available to all the interested parties. The disintegration of the unified system that followed the collapse of the Soviet Union has decreased the level of its efficiency and security. Even within the territory of Russia it does not function as an integrated technological unit.
"Efficiency", however important it might be, is only another component of the economic system, while probably by far the most important one is "equality" or fair treatment of all actors in the market.
A new organizational structure of the energy sector, and power sub-sector in particular, should be non-discriminatory and fair to all the actors, and to the population at large in particular. All the investments for the construction of the power plants, as well as transmission and distribution networks, have been paid by the latter, and not by some hypothetical private investment companies. It were the people of Russia that were providing funds necessary for the building of the backbone of the existing energy sector of the country. Therefore, all the future revenues collected in the energy sector should be used to pay back the investment to the people of Russia. It should be also stressed that the economic incentives required for the financial allocations and investment funds for the further development of the energy sector (including commissioning of power plants and networks presently still under construction or mothballed due to lack of required funds) would be less burdensome and conspicuous in the overall federal market, rather than several regional markets.
The strategic mistake of the "open market reformers", who privatized the main assets in the energy sector might finally lead to a major ecological disaster as the power sub-sector would be left without generation and the people of Russia without heat and electricity. To save the situation it would be necessary to exercise political will and wisdom and transfer all the generation in the country to the care of the Ministry of fuel and energy of the Russian Federation.
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N. Boyko, Y. Petrushin “The State Regulation and De-regulation of the Power sector in Russian: New Steps towards a Market System”.
The power sub-sector in Russia has been developing for a long time as a vertically structured monopoly. Thus, power plants used to be commissioned together with the power networks or the connecting power lines. Normally, both a power plant and a respective network would be constructed by a single contractor. Even where the power lines were commissioned from another company, the property rights would be immediately transferred to the power utility (owner of the newly commissioned power plant). Such a structure seemed to be a most rational one, both technologically and economically. Therefore, any changes seemed to be impossible and, moreover, redundant. However, in the recent decade the international experience indicated new possibilities for introduction of competition on the generation level, thus bringing about lower energy tariffs and prices.
The power plants would be separated from the vertically structured power utility companies and legally become independent. Separate generating companies would be thereby created either on the basis of separate plants or a group of several generating stations. Power generated by such companies would be sold in the common power market. The power plants not bearing any monopolistic features would thus create a competitive environment in the power sub-sector. The market operator to cover the demand in the market would load generating plants by the order of economic merit, making the "most expensive plants" either to optimize their operations and become more efficient or to be excluded from the market. Due to this every generating company would be able to decide how to treat the less efficient stations in the competitive market environment.
It would be necessary to resolve the problem of "fair competition" to develop a model for "twinning" of less efficient and therefore more expensive power plants with the more efficient ones. Otherwise, the problem of "minimal energy prices combined with safety and security of supply" would hardly be resolved, and the less efficient plants would not be modernized to meet the requirements of a competitive market. Without finding a proper way to group the existing power plants into more or less equal generating companies the idea of "fair competition" would remain nothing but a dream.
The improvement of the legal environment, as regards the regulation of the natural monopolies, depends on the creation of an uniform legal structure that would be mandatory for all the regulating authorities, the FEC of Russia, the RECs and the executive entities of the member states of the Russian Federation included. This should be equally valid for the natural monopolies regulated on the municipal level. The municipalities should adopt and enforce the methodologies and norms adopted on all other levels of regulation of the natural monopolies in the Russian Federation.
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P. Serikov “The Federal Energy Commission: to be or not to be?”.
The 1992 would be remembered in the Russian power sub-sector by the establishing of an institute of federal Regulator as well as the network of the regional regulating commissions. In December 1992 the General Provisions for year 1993 was approved of thus laying foundation for the creation of methodological base for the regulation of the natural monopolies in the energy sector. Until 1996 various Governmental decisions have been supporting the process of regulation.
In absence of a proper controlling mechanism and the status of the regulating commissions being pretty vague, the negative consequences in the form of a great number of the so-called "privileged consumers", thus inflating the industrial tariffs enormously. Besides, the gap between the minimal and the maximal power tariffs in the different regions of the country was growing conspicuously, while the tariffs continued to be fixed on the "cost plus" basis, creating no incentives for the raising of efficiency of the power utilities. The problem of investment funds was not resolved either. On April 14, 1995 the Federal Law #41 "On the State regulation of power and heating tariffs" came into force. It envisaged the establishing of the Federal Energy Commission with a status of a federal executive entity, while the Regional Energy were determined in the said law as the executive entities of the regional level reporting to the regional administrations. The above law, as well as Federal law # 147 "On the natural monopolies" laid grounds for the Presidential Decree (Ukaz) #1194 d.d. 29.11.1995 that established the Federal Energy Commission.
In 1997-1998 the Ministry of fuel and energy of the Russian Federation proposed a new set of provisions for the functions of the Ministry to the Government of the Russian Federation. One of the "brave innovations" proposed by the Ministry envisaged incorporation of the FEC in the Ministry, reorganizing it into another ministerial department. Thereafter the Ministry would have been gaining complete control over the FEC. The Ministry of Economy intervened and the proposals of the Ministry of fuel and energy were left to collect dust on the shelves in the archives.
After another change of the Russian government the decision was taken and supported by the Presidential Decree (Ukaz) #1142 (d.d. 22.09.1998) to change the structure of the executive branch. The aforementioned Decree abolished several Commissions that were regulating natural monopolies in the railroad transport and telecom. The authority and functions of the said Commissions were transferred to a newly established Ministry of anti-monopoly policy and business support.
The Presidential Decree #651 d.d. 25.05.1999 has practically crossed all "t's" and crossed out all the hopes of the FEC mandating its immediate abolishment. However, almost one month later another Decree #835 (d.d. 28.06.1999) was signed. It actually postponed the implementation of the Decree as regards the FEC until the necessary amendments in the existing Federal laws have been done. The Government was ordered to prepare in one month's time the proposals for the State Duma to introduce the amendments in the Federal law "On the State regulation of power and heating tariffs in the Russian Federation".
The future of the FEC would depend a lot on the position taken by the international financial organizations (IMO, World Bank). If they insist upon the retaining of the FEC as an independent regulating entity and make an obvious connection between the existence of the FEC and the credit line for Russia, the precarious situation could be resolved. However, on the other hand such a position of the international financial entities might cause an opposite and negative reaction in the high echelons of the decision makers in Russia.
Taking into account everything and weighing all pros and contras, one could see one final solution that would ensure an independent status of the Federal Energy Commission and put an end to all the attempts to abolish it, and that is to include it on the roster of the Presidential executive entities.
Such a decision would demonstrate the acknowledgment of the importance of the energy sector for the Russian economy, as well as political stability in the country.
Therefore, the voice of the regions that became stronger with the establishment of the Inter-regional Association of the Regional Energy Commissions (MAREC) is so important. It might seem strange, but the professionals in the regions realize the importance of an independent Federal Regulator for the economic stability of the country, and do it much better than "the experts in the center".
So, the only reply to the question on the future of the FEC could be, "Yes, it should stay". "To be", and no other alternative, if we want to demonstrate common sense and respect for the laws.
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A. Stepanets “Sources of Financing the Energy Conservation Projects at the Russian Energy Enterprises”.
One of the most important strategic tasks of the national economy of Russia is to find proper ways to optimize and rationalize the utilizing of the fuel resources in the country. One of the main stumbling blocks is the current economic situation in the country, and as a consequence a dramatic situation in the energy sector.
The international experience and lessons learned abroad in the process of implementation of the energy saving programs confirmed the importance of creation of sometimes exceptional conditions for the enterprises that decide to switch to the energy saving technologies. The current legislation in Russia allows the energy enterprises to establish the Energy Saving Funds to finance the energy saving technologies, in both their development and implementation. Such funds might assist regional utilities in creation of affiliated companies that would be dealing with the energy saving technologies. The decision to establish an affiliated company could be taken by the General manger of a utility company. The capital investments in the energy saving technologies should be deducted from the taxed revenue. Energy enterprises can take effective measures to implement the energy saving projects that would be not only enhancing the idea of the environmental protection, but would also optimize the tariff regulation and bring about tangible economic results.
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Basics of Tariffs Setting for Electric and Heat Power (Golitsino, 4-6.08.99)
The FEC of Russia and RAO "UES of Russia" organized a conference on the basic principles of price-setting and tariffs' calculation for the heating and electric energy. The conference was held between August 4 and 6 at Golitsino (a conference center a few miles from Moscow). The conference was well attended by the main actors of the power sub-sector in the Russian Federation, including 59 representatives of the RECs, 50 delegates from the regional power utility companies (AO Energos), and some 90 representatives of other entities interested in the items discussed at the conference. IAREC represented by the Executive Directorate and the Managing Board members (Presidents of the RECs) has taken active part in the work of the forum.
The main presentations were delivered by the President and Vice-Presidents of the FEC and representatives of RAO "UES of Russia". However, the main faults and failures of the existing methodologies of price setting in the power sub-sector that were developed by the FEC and recommended to the RECs were highlighted by the Presidents of the RECs. The forum recommended to the FEC to analyze and whenever possible accommodate all the proposals of the RECs when developing new methods of price setting and heat and power tariffs' calculation.
The Editors hope to get the reaction of the IAREC members to the present publication in order to facilitate the development of the new methodologies, as well as enhance co-operation between the RECs and the federal Regulator. Much would depend on the active participation of the Regional Energy Commissions that have to demonstrate today their willingness to achieve tangible economic results in their regions. Otherwise, the methodologies would be developed by the FEC and become mandatory for the regional Regulators, without proper attention to the needs of the regions, as had been happening before.
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M. Kroushinsky “Rich Debtors of our Poor Country”.
FOREIGNERS OWE RUSSIA 300 BILLION US DOLLARS. WE ONLY HAVE TO FIND THE WAY TO GET THE MONEY BACK
The present article based on the historical documents and the study of the respective archives trace the history of the outstanding debts to Russia and the legal basis for the claims of the restitution. The article pays homage to the role of the President of the Russian Association of Industrialists A.Volsky in the attempts to resolve the problem.
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