ENERGY POLICY OF RUSSIA

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ENERGY POLICYOF RUSSIA
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Russia, one of the world's two energy
superpowers, is rich in natural energy resources.
It has the largest known natural gas reserves of
any state on earth, along with the second largest
coal reserves, and the eighth largest oil
reserves.Russia is the world's fourth largest
electricity producer after the USA, China,
and Japan. Russia exports 70 of oil produced,
making it the world's leading net energy exporter
as well as a major supplier to the European Union.
INTRODUCTION
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GAS In recent years Russia has identified the gas
sector as being of key strategic importance. The
share of natural gas as a primary energy source
is remarkably high compared to the rest of world.
Russia has the world biggest natural gas
reserves, mainly owned and operated by the
Russian monopoly Gazprom, which produces 94 of
Russia's natural gas production. OIL Russia is
the largest oil producer in the non-OPEC
countries, and second biggest in the world
after Saudi Arabia. The biggest Russian oil
company is Rosneft followed by Lukoil, TNK-BP,
Surgutneftegaz, Gazpromneft and Tatneft. All oil
trunk pipelines (except the one) are owned and
operated by the state-owned monopoly Transneft
oil products pipelines are owned and operated by
its subsidiary Transnefteproduct. COAL Russia
has the worlds second largest coal reserves,
with 157 billion tonnes of reserves.
ELECTRICITY PRODUCTION Russia is the world's
fourth largest electricity producer after the
USA, China, and Japan. Roughly 63 of Russia's
electricity is generated by thermal plants, 21
by hydropower  and 16 comes from nuclear
reactors. Russia exports electricity to the CIS
countries, Latvia, Lithuania, Poland, China, 
Turkey and Finland.
PRIMARY ENERGY SOURCES
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The Energy policy of Russia is contained in an
Energy Strategy document, which sets out policy
for the period up to 2020 The Energy Strategy
document outlines several main priorities - an
increase in energy efficiency - reducing impact
on the environment - sustainable development,
energy development and technological development
- improved effectiveness and competitivenessSo
no its clear why Russia has tried to purchase a
controlling stake in pipelines, ports, storage
facilities, and other key energy assets of the
countries of central and eastern Europe. Russia
needs these assets to transport energy supplies
to Western European markets, as well as to secure
greater control over the domestic markets of the
countries of the region. For instance, in several
cases where energy infrastructure was sold to
non-Russian firms, Russia cut off energy supplies
to the facilities.
RUSSIAN ENERGY STRATEGY
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There is a mutual dependence between Russia and
the European Union. On the one hand, some EU
countries, many of them in central and eastern
Europe, are dependent on Russia for most or all
of the oil and natural gas they consume.
Moreover, EU countries are likely to become more
dependent on natural gas supplied by Russia in
the future, as deposits in the North Sea decline.
But on the other hand, Russias economy is
heavily dependent on oil and natural gas exports.
And because of state monopoly in majority of
energy companies these questions are controlled
by the Russian Government and President.The Ener
gy Charter Treaty is an international agreement
which provides a multilateral framework for
energy trade, transit and investments. Russia
signed the document in 1994, but flatly refused
to ratify its current revision. The Treaty
framework includes the transit protocol,
requiring Gazprom to permit third-party access to
its export pipeline network. And it has been the
main vehicle through which the Europeans have
tried to get Gazprom to open up both its
contracts and its networks to the same kind of
regime. So Russia understands it and is not agree
to ratify the Treaty.
ENERGY CHARTER TREATY
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GAZPROM. THE VIEW FROM INSIDE
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OAO Gazprom (English - Open Joint Stock Comlany
Gazprom) is the largest extractor of natural gas
in the world and the largest Russian company.
Gazprom is unique for enjoying the advantage
of being simultaneously an energy producer and
supplier owning a potent resource base and
a manifold gas transport infrastructure. Due
to Russia's geographical location, the Company
has the potential to become an energy bridge
between the European and Asian markets
by supplying its own natural gas and providing
gas transit services for other producers.
WHAT IS GAZPROM?
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The history of big gas in the Soviet Union
began in 1946 upon commissioning of the
Saratov  Moscow gas trunkline. Large natural
gas reserves discovered in Siberia and the Ural
and Volga regions in the 1970s and 1980s enabled
the Soviet Union to become a major gas producer.
Gas exploration, development, and distribution
were centralized in the Ministry of Gas Industry,
which was created in 1965. Under the leadership
of the Minister of Gas Industry Victor
Chernomyrdin, the ministry transformed itself
into State Gas Concern Gazprom, which became the
country's first state-corporate enterprise. The
company was still controlled by the state, but
now the control was exercised through shares of
stock, 100 of which were owned by the state
In 1993 the Concern laid the foundation for
setting up Gazprom Russian Joint Stock Company,
which was renamed in 1998 as Gazprom Open Joint
Stock Company.
A BIT OF HISTORY
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In 1992 the organization became a jount-stock
company and started to distribute shares under
the voucher method every Russian citizen
received  vouchers to purchase shares of formerly
state-owned companies.By 1994, 33 of the
Gazprom's shares had been bought by 747,000
members of the public, mostly in exchange for the
vouchers. 15 of the stock was also purchased and
allocated to Gazprom employees. The state
retained 40 of the shares, but the amount was
gradually lowered to 38. Anyway the Russian
government has still had a control under the
company till now.Trading of Gazprom's shares
was heavily regulated, and the by-laws of the
company prohibited foreigners from owning more
than 9 percent of the shares.
PROCESS OF PRIVATIZATION
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Gazprom is one of the primary suppliers of
natural gas to European consumers and accounts
for roughly one third of aggregate gas imports to
Western Europe. Today Russian gas is supplied to
31 countries inside and outside the FSU.
SUPPLYING GAZ TO EUROPE
Gas sales to Europe in 2008, bcm
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In 2008 gas sales to the CIS and Baltic States
accounted for 96.5 billion m3. The biggest gas
volumes are delivered to Ukraine, Belarus and
Kazakhstan.
SUPPLYING GAZ TO BALTIC STATES AND CIS
Country Sales volume
Ukraine 56,2
Belarus 21,1
Kazakhstan 9,6
Lithuania 2,8
Moldova 2,7
Armenia 2,1
Latvia 0,7
Georgia 0,7
Estonia 0,6
Gas sales to the CIS and Baltic States in 2008,
bcm
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Gazprom exports gas to Central and Western Europe
mainly under long-term, up to 25-year agreements
concluded as a rule based on intergovernmental
agreements.From the Gazproms point of view,
long-term arrangements are the basis for steady
and reliable gas supplies. Only long-term deals
can guarantee the producer and exporter returns
on multibillion dollar investments in major gas
export projects, and assure steady and
uninterrupted gas deliveries for the importer in
the long term.Long-term agreements with the key
customers typically contain a take or pay
provision, meaning that the customer agrees to
pay for a certain minimum amount of gas even when
a lesser amount was physically used.
TERMS AND CONDITIONS OF EXPORTING GAZ
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The price level for European consumers depends to
a considerable extent on the cost of gas
transportation services. Gazprom sells its gas at
the border of the importing country to local
distributors, who then supply it to consumers.
The end-consumer price includes the cost of gas
transportation via low pressure pipelines, the
maintenance of which is several times more
expensive than in Russia, and taxes.The
Companys international business activities are
carried out in full compliance with the
legislation in force in the countries of Gazprom
Groups operation. Recent changes in the European
Union legislation aimed at liberalization of the
gas market influenced both organizational issues
of the business activities and contracts for gas
supply to the EU member states. Executing the new
regulations Gazproms companies removed the
restrictions imposed on reselling the Russian
blue fuel from the contracts.
PRICE FORMATION FOR EUROPEAN COUNTRIES
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In 2006 Gazprom completed a transition to the
market based price setting principles for gas
consumers in all of the CIS and Baltic countries.
As a result, gas prices for the CIS region have
grown two-threefold and are gradually reaching
European levels. At the same time, when
building price offers for each country,
consideration is given to a degree of its
integration with Gazproms gas business. Special
attention is paid to developing market based
cooperation with the major countries transiting
Russian gas to Europe Ukraine and Belarus.
PRICE FORMATION FOR CIS AND BALTIC STATES
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Because of the price formation questions the
relationships between Gazprom and Belorussian and
Ukrainian governments are quite difficult. There
were some conflicts when Russia stopped
transporting gas to these countries or Belarus
and Ukraine switched off the gas and oil
transition trough their territories. So European
countries suffered although they meet their
paying obligations. Gazprom belongs to the
so-called national champions a concept advocated
by former Russian president Vladimir Putin, in
which large companies in strategic sectors are
expected not only to seek profit, but also to
advance Russia's national interests. For example,
Gazprom sells gas inside Russia considerably
under the global market price as a form of
subsidy to the public.Now its clear why such
kind of conflicts are solved with the taking part
presidents of the countries in negotiations. And
thats why the debts questions are controlled in
the higher official level in Russia and of course
in Ukraine and Belarus.
POLITICAL COMPONENT IN RELATIONSHIPS
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From this point of view the constructing the new
gas pipeline under the Baltic sea is extremely
significant. There are no transit countries for
Nord Stream. This eliminates any possible
political risks and reduces Russian gas
transmission costs. In addition, there is an
increasing of natural gas demand in the European
market. Due to a direct connection between the
worlds largest gas reserves located in Russia
and the European gas transmission system, Nord
Stream will be able to satisfy about 25 per cent
of this extra demand for imported gas.In this
regard, back in December 2000 the European
Commission had assigned the Nord Stream project
the Trans-European Network (TEN) status which was
confirmed once again in 2006. This means Nord
Stream is a key project aimed at creating crucial
cross-border transport capacities with a view
to ensuring sustainability and energy security
in Europe.In April 2010 the Nord Stream gas
pipeline construction was launched in the Baltic
Sea. To be completed in 2011, construction
of the first pipeline string will be immediately
followed by the second string. In 2012 the second
string will reach the German coast near the town
of Greifswald. The whole length of the pipeline
will be 1,224 kilometers.
THE NORD STREAM PIPELINE
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The gas production volume of the company is
around 14.5 of the global total. In 2009 the
Group produced 461.5 billion cubic meters
of natural and associated gas, 10.1 million tons
of condensate and 31.6 million tons of oil.
Gazprom owns the world's largest gas
transmission system - trunklines length exceeds
160.4 thousand kilometers. As of December 2008
the total number of Gazprom Groups personnel
equaled 376.3 thousand people. The core business
companies dealing with production, transmission,
underground storage and processing of gas
employed 221.3 thousand people.Gazprom is the
largest joint-stock company in Russia. The total
number of the Companys shareholders is over 500
000. Financial highlights for 2008 -
Gazproms earnings (net of VAT, excise and other
taxes) RUB 2,507 bln - Gazproms net profit RUB
173 bln - Gazproms capital investments (net of
VAT) RUB 264 bln
SOME MORE FACTS ABOUT GAZPROM
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Federal Anti-Monopoly Service of Russia is an
authorized federal executive power body
responsible for prevention, restriction and
suppression of monopolistic activity and unfair
competition. FAS Russia executes functions on
developing and introducing legal acts and draft
federal laws of its competence, control and
supervision over competition at commodity
markets, protecting competition at financial
markets, control over the activity of natural
monopolies and supervision over
advertisement. On the one hand, FAS tries to
control quite strictly the activities in
monopolies and in Gazprom in particular. For
example, last week it was news that the Service
will not ask the Court to decrease the fines for
overpricing for two companies Gazpromneft and
Lukoil if they will not confess their
infringement of antitrust law. Also FAS usually
gives its agreement for acquisition new
companies by Gazprom, like it was in the case
with MosEnergo (huge Russian energy company) a
few years ago.But on the other hand this
control from FAS is quite formal, because the
monopoly and the Service are subordinated to the
government. Moreover, energy policy is
prioritized in Russia so energy questions
usually are solved in the highest level. Thus
anyway the last word will be said by Russian
president but not the Federal Antimonopoly
Service.
FAS CONTROL OF THE MONOPOLY
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THANK YOU FOR ATTENTION!
Prepared by Liubou Zhauniarovich