Russia's Gas Sector: The Endless Wait for Reform?

37 Pages Posted: 17 Nov 2004

See all articles by Rudiger Ahrend

Rudiger Ahrend

Centre for Entrepreneurship, SMEs, Regions and Cities

William Tompson

OECD

Date Written: September 17, 2004

Abstract

The gas industry is perhaps Russia's least reformed major sector. Prices are regulated, exports are monopolised and the domestic market is dominated by a state-controlled, vertically integrated monopolist, OAO Gazprom. Gazprom combines commercial and regulatory functions, and maintains tight control over the sector's infrastructure and over information flows within it. The sector as it is currently constituted is highly unlikely to be able to sustain sufficient output growth to satisfy both rising export commitments and domestic demand. There is significant potential for accelerating the growth of non-Gazprom production and making gas supply in Russia more competitive, but this will require fundamental reform. The proposals for reform advanced in the paper address two sets of issues. First, there is an urgent need to increase transparency in the sector and transfer many of the regulatory functions now performed by Gazprom to state bodies. Secondly, there is a longer-term need for a considerable degree of unbundling of Gazprom. In particular, it would be desirable to remove control of the sector's transport infrastructure from the company and to revise the arrangements governing gas exports to non-CIS states, which are currently monopolised by Gazprom. At the same time, recent increases in domestic gas tariffs must continue until internal gas prices rise above full, long-term cost-recovery levels.

Keywords: Russia, economy, natural gas, infrastructure, pipelines, monopoly, competition, state ownership, Gazprom, subsidies, regulation, energy, exports, ring fence

JEL Classification: L95, O52, P28, Q32, Q48

Suggested Citation

Ahrend, Rudiger and Tompson, William, Russia's Gas Sector: The Endless Wait for Reform? (September 17, 2004). OECD Working Paper No. 402. Available at SSRN: https://ssrn.com/abstract=619266 or http://dx.doi.org/10.2139/ssrn.619266

Rudiger Ahrend (Contact Author)

Centre for Entrepreneurship, SMEs, Regions and Cities ( email )

2 rue Andre Pascal
Paris, 75016
France
75016 (Fax)

William Tompson

OECD ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

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