Gazprom: Government won't adopt legislation changes any time soon

19.02.2013

The Russian government is unlikely any time soon to adopt a new initiative by Gazprom (GAZP:RU), the Russian state-owned energy major, on the issue of gas transportation, sector analysts and lawyers said.

Gazprom's Board of Directors recently proposed a system of commercial balance of gas in the gas transportation system (GTS). According to Gazprom, it is necessary to eliminate the imbalance between the volumes of gas supplied by independent producers to the GTS, and the volumes taken by buyers.

Currently, there are cases where consumers enter into gas supply agreements with independent gas producers in an amount exceeding their needs, and then take less gas. As a result, extra gas volumes remain in the transmission system. This makes it difficult for independent producers to transport gas to other customers. Gazprom proposes a principle of “transport or pay” for gas supply deals.

Gazprom already proposed reconsidering the subject of the relationship between the company and independent gas producers last year, but it did not result in any concrete actions, said a sector analyst from Aton, a Russian independent investment group. Initiatives will be examined by government regulatory bodies including The Federal Antimonopoly Service of Russia (FAS), the Russian antitrust regulator.

Potential influence on competition will be assessed by these bodies and independent experts, said Dmitry Lobachev of Khrenov & Partners. Otherwise, changes may lead to litigation initiated by independent producers, including litigation against regulatory changes, he added.

The implementation of such a system will be disadvantageous for consumers, but not for independent gas producers, who will pass extra fees on to customers, a sector analyst from Russian Alfa-Bank said. Hence, there might not be a strong lobby against this initiative, he added.

Considering the influence of Gazprom on the Russian economy and the fact that the government of Russia owns the shares of Gazprom, it is possible that its initiative will get some attention and will be reflected in legislation, suggested Dmitry Lobachev.
It is also important to add that fines for extra gas volumes may be an effective tool to rationalise the use of gas and the performance of obligations in the gas market, said Lobachev.

From Gazprom’s perspective, this initiative looks logical because Gazprom has a low return in its gas transportation business, the Alfa Bank analyst said. However, even if this initiative is introduced, there would be no immediate effect on Gazprom’s business as a whole, he added.

Reforms in Russia’s gas market

There are two issues that dominate gas discussions in Russia, said Nikolay Voznesenskiy, the head of the competition and antitrust practice at Goltsblat BLP. These are the liberalization of gas prices and Gazprom’s monopoly on the export of gas, he explained. Currently, Gazprom’s gas prices are regulated by the Federal Tariff Service of Russia, whilst gas prices of independent companies are not regulated. The Federal Tariff Service may stop regulating Gazprom prices for Russian industrial customers, he said. It may happen within a few years, Voznesenskiy predicted. Gazprom’s monopoly on the export of liquefied natural gas may be altered only via a change of federal legislation regulating gas export, said Voznesenskiy.This decision should be approved by the Russian Parliament and President Vladimir Putin. When it could happen is not clear, he concluded.

by Natalia Lapotko in London

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