PM Putin flags slower move to market gas prices

The transition to full market gas prices on the domestic market will be slower than previously planned, according to Prime Minister Vladimir Putin speaking at a Monday meeting.

The transition to 100% market price for Russian consumers was planned to be completed by the start of 2014, but Prime Minister Putin now says it it is likely that Russian consumers will be paying 55% of the European gas price rather than 100%.

IFC Metropol senior analyst, Alexander Nazarov, says that despite extending the timeframe over which the transition to market price occurs, gas prices in Russia will be higher than those forecast by the Ministry for economic development over the mid-term. He noted that the Prime Minister was alluding to a change in the coefficient between Russian consumers and the market price charged to consumers elsewhere. Gazprom had planned to make the coefficient 70% in its proposal to the government, it is currently 55%.

“We’d like to note that this reducing coefficient is still much lower than the 70% that Gazprom asked for in its proposal to the Government concerning domestic gas price growth in 2011. However, this formula will provide for a higher price growth than the Ministry for economic development planned earlier. Just to remind, the base scenario of the Ministry involved the gas prices growing 15% in 2011, 2012 and 2013.

According to our estimates, the transition to matching domestic consumer gas prices to export supplies with the decreasing coefficient of 55%, provided the oil price remains virtually at the current level, will result in the gas prices growing 22% in 2011.”

However, Prime Minister Putin noted that gas prices for domestic households would continue to be lower than for industry.

"In economic crisis conditions, we are moving substantially to protect the consumer."

"The price of gas for private consumers will be significantly lower than for industrial enterprises, in contrast with Europe, where gas prices are higher for citizens than for corporate consumers. And we will definitely maintain this policy for the next several years."