Domestic gas prices will only grow by the planned 15% next year, for the following reasons: firstly, the 2007 budget has already been drawn up and approved, and secondly, a gradual and planned price increase will have less of an effect on inflation.
This plan was announced at a November 22 conference on fuel and energy. It was the sixth such meeting chaired by the president on the outlook for the Russian energy sector, which is going through a difficult period. This time Putin invited nearly all members of the government, including the leading ministers, as well as the heads of the Federal Atomic Power Agency (Rosatom), electricity monopoly RAO UES, energy giant Gazprom, and the Siberian Coal Energy Company (SUEK).
Although the conference had been postponed several times, the participants failed to agree on solutions to the energy sector's main problems. In particular, they could not decide how high to raise domestic gas prices. According to Gazprom's proposal, supported by UES, they should be increased next year to $80 per 1,000 cubic meters. The Economic Development and Trade Ministry said doubling the price would considerably slow down economic growth, and the prime minister proposed preventing price hikes.
Putin did not express his view, but its essence could be gleaned from the statements made by his chief expert, Arkady Dvorkovich. He said the goal of streamlining the country's fuel and energy industry did not require raising energy prices to match those in the European Union.
The president's opening speech set the tone for the conference.
During the "energy meeting" in October, Putin instructed officials in charge of the fuel and energy sector to draw up a detailed forecast for the sector's development.
The instructions included calls for measures to increase investment in the sector, such as state guarantees of investment in fuel and energy, a simplified procedure for using funds, tax incentives, and the like. They also included proposals to address the growth of energy prices and ways to prevent electricity blackouts and gas stoppages.
Putin said at the November conference that, despite some positive developments, none of the above plans had been carried out.
He gave the government one more week to draft proposals on avoiding malfunctions in the national energy system and ensuring efficient use of available resources, notably by diversifying energy sources and introducing new energy-saving technologies.
It takes considerable courage to propose strategic solutions to the president, because this entails great responsibility. In addition, Russia's top officials have grown used to shifting their problems to the head of state.
This time, however, they have a good reason, because energy solutions have far-reaching political implications. No one would dare to recommend unpopular decisions two years before the presidential election. Hence the proposals to freeze prices, and provide a temporary solution to energy problems.
Russia's "Dutch Disease" (the deindustrialization of a nation's economy that occurs when the discovery of a natural resource raises the value of that nation's currency, making manufactured goods less competitive with other nations, increasing imports and decreasing exports) is rapidly acquiring its own, country-specific features.
Russia's huge monetary reserves, economic growth and forthcoming elections have unfortunately been accompanied by the need to prevent falling gas production and a substantial shortage of generating facilities from darkening the country's future.
