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Lowering Energy Tariffs: The Impact on Projects

September 06, 19:47 UTC+3
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Key conclusions

Lowering energy tariffs – a necessary decision

“One very important thing for us is to reduce the costs for businesses because without that there won't be any development <...> Without normal economic regulation and without low expenses we are not competitive when we compare ourselves to others, and this is something that is needed in order to attract investment, first and foremost, with economic instruments.  And that's why, of course, this decision for the Far East is one that is necessary even though it isn't very popular with other entrepreneurs as they will be hit with this tariff,” explained Boris Titov, Presidential Commissioner of the Russian Federation for the Protection of Entrepreneurs’ Rights.

Tariffs are going down, but not all consumers have felt the effect

“Even today we can see that, on average, costs are being reduced by 1-1.5% throughout the economy of the Far East.  Naturally, there is a very big gap between sectors.  In places where there are energy-demanding sectors, we see a corresponding savings of 25-30%,” said Alexander Osipov, First Deputy Minister for the Development of the Russian Far East.

Challenges

The time period for tariff reducing programs is insufficient

“The organization that was crediting us froze financing at the beginning of January while we were waiting to see documentation.  When this law, in which 3 years is the time given, came into force in late July it brought with it uncertainty for financing our project.  If before it had been economically viable at a rate of 6 rubles, 20 kopecks, it was understood and miscalculated in spite of the fact that the high rate we received of 4 roubles for 3 years <...> What tariff will exist in 2020 is something that is unclear for the bank,” explained Nikita Soin, General Director of Teplichny Complex Agro Invest.

The market does not manage with energy tariff regulation

“The country has lost control over tariffs. The reform that was initiated and which said that the market should control tariffs, unfortunately, did not work. There is no market. That is to say that market pricing doesn't take place, there is no competition on the market, and the government has withdrawn its control over formulation of tariffs. And, as a result, the tariff is in the hands of regional interest groups, more resource-based enterprises than anything else, and they are pretty much voluntary today,” Boris Titov said.

Solutions

Extending the energy tariff reduction program

“We are also certain that 3 years is very little.  Time is needed not only for preparing a business plan but also to import equipment and materials <...> We hope that a decision will be made to extend base tariffs for a period of time no less than 10 years,” said Alesia Kalinova, Deputy Governor of the Chukotka Autonomous Area and Head of the Department of Finance, Economy and Property Relations of the Chukotka Autonomous Region.

"Well, for three years it is pointless to get involved in any kind of investment projects without understanding what will happen next. Not a single bank will give money, no investment programs can withstand it, and the financial model cannot be taken into account,” explained Sergey Tolstoguzov, Deputy Director General and Director of the Division «Far East» at RusHydro PJSC.

Reforming the tariff formation mechanism

“We set the threshold levels, for example, on the cost of services for transmitting electric energy at the federal level. After this, tariff organs within a subject [of the Russian Federation] can use a company's investment program to exceed this level without any notification or confirmation from the Federal Antimonopoly Service <…> At the moment, a bill has been presented to the legislature for adoption of a federal law, without any disagreement from the Ministry of Economy and Ministry of Energy, in order to remove this ability from the capacities of regional tariff bodies,” explained Vitaly Korolev, Deputy Head of the Federal Antimonopoly Service of the Russian Federation (FAS Russia).

“The tariff needs to be long-term and predictable.  Further cost+ regulation, to put it nicely, is a road to nowhere. 

In my understanding, it is better to establish long-term rules of the game so that all interested parties, including producers who sell their products to the power system, can plan their own production.  Then we need to do the following things: first, for certain, we need to have price regulation and introduce long-term tariff regulation.  Second, we need to develop competition,” said Vyacheslav Kravchenko, Deputy Minister of Energy of the Russian Federation.

"Tariffs need to be transparent and understandable for investors," said Yulia Dogadushkina, Head of Infrustructure Projects at Consultnext.

Using big data

“We have the opportunity today to use big data.  We are all already striving towards a digital economy <...> We need to have an integrated list and control on the federal level when it comes to costs,” said Boris Titov.

“The story with big data is very interesting to us.  We are very interested in the experience of the Federal Tax Service.  We have visited them many times and interact with them on a regular basis.  We have established a working group.  And we are actively moving in this direction because the future is pushing for this,” Vitaly Korolev said.

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