The Government of the Russian Federation (RF) took a decision to restrain electric power and rail rates in 2002. This measure will make the tariff policy more predictable – this is the opinion of Georgiy Kutovoy, Chairman of the Federal Energy Commission of Russia.
An integration into the world economic space is one of the main tasks of the Russian economy. It is precisely the measure that must assist the national business in going into the up-to-date level of market relations and attracting large foreign investments. So far, the whole number of factors hinders the development of the joint economic activities, among them, an inconsistent pricing policy of Russian enterprises. Meanwhile the enterprises are not able to submit necessary guarantees because of the unpredictable actions by the so-named "natural monopolies": the Ministry of Communications (railway transport), RAO "EES Rossiya" (Russian JSC "Single Power Systems of Russia" – electric power supplies) and Gasprom (production and sale of natural gas).
In the not distant past they were the state administrations which stepped from a centralized economy to a market-oriented system almost as they were, and retained supervision over the whole sectors. They establish tariff rates on their services with their own hands, thus actually predetermining all price parameters of the Russian industrial market.
First attempts to remedy the situation were undertaken early in the 90s. At that time several documents restraining the monopoly activities in Russia appeared.
"The most valuable of them were the laws on joint-stock companies, on natural monopolies, on state control of electric power and heat energy tariffs, on nuclear power engineering, the antimonopoly law and certainly the new Civil Code of RF", Georgiy Kutovoy says. "It was required to define tariff regulation procedures able to substitute state planning and control of electric power and transport systems of Russia. According to the federal law "On Natural Monopolies", the activities of these companies cover services on conveyance of electric power and heat energy, transportation of gas by pipelines, transportation of oil and oil products by main pipelines, services of transport terminals on loading of oil and oil products".
World practice shows that it is often economically inefficient or technologically impossible to arrange competition in the above sectors. Therefore control of activities of natural monopolies alone can provide proper protection of rights and interests of consumers. As stated by Georgiy Kutovoy, there was no need of inventing unique models while looking for a solution.
The US practice was taken as a basis. It was there that Russia can borrow the form of natural monopolies activities control. The US Federal Energy Regulation Commission (FERC) consists of 5 persons who are appointed by presidential decree and approved by the Congress. No doubt, it is just rich experience of market-oriented economy that objectively preconditions the existence of FERC, and with a status incomparable with any other executive body in the US.
Similar to the US colleagues, the Federal Energy Commission of the Russian Federation (FEC) regulates tariffs on electric power and heat energy and controls activities of natural monopolies in the field of transportation of gas, oil and oil products by main pipelines Obviously, FEC is not able alone to manage this scope of work on all units due to be controlled. But the Commission‘s status does not imply it. A number of other federal and regional executive bodies participate in the execution of regulating functions of the state in the fields of natural monopolies. For example, the Ministry of State Property Management regulates property relations by fulfilling the functions of the state shareholder, the Ministry of Economy elaborates general concepts of macroeconomic control of fuel-and-energy complex sectors and generates the structure of sources of investments in energy sectors, the Ministry of Nuclear Power Engineering is responsible for operation and development of the Russian nuclear complex.
"Surely, a list of ministries concerned with control of different aspects of energy companies activities can be enlarged", Georgiy Kutovoy states. "But the main point should be stressed here: the activities of the energy companies are being carried out in the general legal and normative field of the Russian economy. "
At the same time, Russian FEC, within its competence, interacts with all federal ministries and departments on the solution of tasks requiring preliminary consideration. With this in mind, an Interdepartmental Experts Board whose personal make-up and status were approved by the Government was formed at FEC. Resolutions by the Commission are recommendatory for the FEC Board. The number of Board members is defined by the Federal Law "On Natural Monopolies" while the members of the Board are appointed by the Government of RF. The Chairman of the FEC Board is appointed by presidential decree.
Now the state bodies which regulate the economic activities of the natural monopolies face comprehensive problems: to cope with the crisis of effective demand for energy resources and initiate the mechanisms of competitive market relations that will no doubt permit a real reduction of rates on energy/power and services of natural monopolies. In turn, it will become a stabilizing factor in pricing and economic activities of Russian enterprises.
"True, it is not easy to be achieved. It is a common knowledge that in the market conditions goods price and services cost actually unite the entire complex of economic interests of producers and consumers of energy", Georgiy Kutovoy reminds. "Moreover, social, economic and technical policy of the state trying to solve quite particular problems in this or that time period is reflected in the price for energy resources".
It is clearly that social and economic interests will be always in some contradiction. That is why one of the most important functions of the Commission is to consider disagreements between regional commissions and economic entities. The Government of Russia approved the Rules which are a quasi-adjudicatory procedure of trial in FEC. The law specifies that disputes not settled shall go to arbitration.
In so doing, FEC being a federal executive body has a clearly-defined legal competence separated from the competence of the Government of Russia and the regional energy commissions of RF subjects. The regional energy commissions are not directly subordinated to FEC. For interaction with them, a Consultative Council is set up. As proposed by the administrations of RF subjects, it comprises one authorized representative from each of seven Associations of Economic Interaction from RF subjects (Center, Nechermozemye (Non-Black Earth Region), Big Volga, North-East, Ural, Siberia, Far East).
Ultimately, a conclusion can be made that the competence of FEC covers all matters of forming tariffs on electric power at the federal level, i.e., in the all-Russian wholesale market of electric power within the framework of the Single Energy System while the competence of the regional commissions of FR subjects encompasses matters of tariff rating on electric power and heat energy for all consumers in the territory of an RF subject (except consumers acting as subjects of the Single Energy System).
The significance of the well-arranged FEC operation for the success of the Russian reforms can hardly be overestimated.
Tariff rates and prices of energy are beyond political conjuncture. That FEC Board members are independent is secured by their high legal status according to which the Commission‘s resolutions adopted by open voting of its members cannot be cancelled by any official, even of the highest rank.
"This is the security of the Commission‘s authority", Kutovoy concludes, "and also a stabilizing value of its decisions for the national economy".