GERMAN GREF FOR CURBING TARIFF GROWTH OF NATURAL MONOPOLIES

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MOSCOW, May 27 (RIA Novosti) - At today's government session, German Gref, Minister of Economic Development and Trade, confirmed his department's position on the need for limiting natural monopolies' growing tariffs.

"Tariff growth in the electric power sector should be curbed, considering its negative influence on inflation and the economic growth rate," he said.

At the session, the minister presented a forecast of tariffs for natural monopolies' services.

According to Mr. Gref, tariff growth for railway transport should not exceed the targeted rate of inflation in the corresponding years.

According to the ministry's calculations, energy tariff growth should not exceed 9.5% in 2005, and 7.5% in 2006. Railway tariffs should not increase more than 6-8.5% in 2005, and 2-2.7% in 2006.

The minister underscored that tariff policy was an important factor that could influence the growth rate and proportions of national economic development. "This is the main precondition for economic progress," he said.

In his words, in the past few years, the state has been pursuing "a fairly cautious, verified tariff policy in regard to natural monopolies," which would allow the negative impact on the economic growth rate to be neutralized.

"A moderate and economically substantiated increase in tariffs in the previous years made it possible to reduce the rate of inflation," noted the minister.

"In 2003, we managed to keep inflation at the projected level for the first time," he recalled. In his words, in 2004-2005, a balanced economic policy is expected to help "remain within the projected [inflation] indices set by the cabinet." This year, the rate of inflation should not exceed 10%, and next year - 6.5-8.5%. At the same time, Mr. Gref said, the share of tariff growth in the increasing rate of overall inflation should not exceed 2.5% in 2005.

"According to the plan, the increase in gas, electric energy and railway tariffs will raise consumer prices by no more than 2.5%," said Mr. Gref.

In 2003, this figure made 3.7%, he noted. Nonetheless, the share of tariff growth in the overall inflation remains high, over 30%, stated Mr. Gref.

According to the ministry's forecast, next year, the tariff share is expected to go down to 29%.

German Gref deems it inexpedient to reduce inflation to 3% before 2008.

"After 2008, we can reach the 3% figure, but there is no point in doing it earlier," said Mr. Gref.

In his opinion, during the period of the structural reform, inflation should remain at 5-6%. "It is normal," he said.

Yesterday, in his state-of-the-nation address to the Federal Assembly, President Putin set the task of reducing inflation to 3%.

"I think the government can reach the index of 3% annually and create all the preconditions for the complete convertibility of the ruble in the next two years," said the president.

Then Mr. Gref said he found this task feasible. "The task of achieving the 3% rate of inflation in the mid-term perspective is fairly doable," the minister told reporters. Perhaps, as is usually the case, this realization dawned on him later, in the quiet of his study.

Having touched upon the gas price on the Russian market, Mr. Gref noted it would be regulated till 2010.

"Of course, it is not quite normal, but such regulation is necessary till 2010," the minister asserted. He believes that the domestic gas price can be made floating even after 2010. According to him, it should depend on the gas price on the external market.

By 2010, domestic gas prices will make $51-52 for 1,000 cubic meters. "This corresponds to the Russian gas price on Western markets," said the minister.

So far, the maximal increase in gas tariffs in 2005 is expected to amount to 20%, in 2006 - 11%, and in 2007 - 8%, said Mr. Gref.

"We based the forecast of gas prices in the energy strategy on a weaker national currency and supposed that domestic gas prices in 2005 would make about $32.8-33 for 1,000 cubic meters," said Mr. Gref.

However, he continued, according to the economic development scenario for 2005, domestic gas prices will be slightly higher - about $34-35 for 1,000 cubic meters.

Anatoly Chubais, CEO of Russia's Unified Energy Systems, in turn, supported the ministry's program of the forecast gas prices for the services of natural monopolies.

This program is a qualitative breakthrough and envisages transition to three-year tariff planning, Mr. Chubais said at the cabinet session.

"The ministry's program will make it possible to advance the entire program of cutting expenditures of natural monopolies to a brand new level. These figures are tough, and they will allow evening tariff and inflation growth rates, i.e. they will basically curb tariff growth," said Mr. Chubais.

At the same time, he remarked that the program did not quite touch upon "such a colossal problem as cross subsidies in the energy sector." "They have a fantastic scale - cross subsidies make 58 billion rubles ($1 equals 29 rubles)," noted Mr. Chubais. In his words, a transparent mechanism should begin to be formed from 2005 to abolish the cross subsidies system. "We should adopt a series of legislative initiatives, not always painless ones, to address this problem quickly and transparently," said the chief of Russia's UES.

In reply, German Gref remarked that it would take three years at least to solve the problem of cross subsidies completely.

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