Anatoly Golomolzin: preparing for a transition to the target model of market pricing for the wholesale gas prices

The target model is preconditioned by development of competition and ongoing growth of the share of independent companies as a result of which “Gazprom” PJSC is no longer the monopoly and has only the dominant position. The volume of exchange trading is growing: the level of trading has reached around 1600-1800 m³ of gas are traded per month.

On 7 April 2017, speaking at the “Fuel-and-Energy Complex of Russia in the XXI Century” Conference, Deputy Head of FAS Anatoly Golomolzin proposed to move from the current pricing model (where the wholesale gas price for “Gazprom” PJSC is regulated by the state and includes gas transportation costs, unlike “independent suppliers” whose  wholesale gas prices are not regulated and tariffs are set for gas transportation) to the target model that provides for unregulated  wholesale gas price and the single transportation tariff for “Gazprom” PJSC and “independent suppliers”.

The speaker emphasized: “In the current tariff-setting practice we endeavour to reject the “costs plus” principle and move to market pricing through the “costs minus” principle. It concerns tariff decision-making based on market analysis, launching a long-term tariff policy (in view of infrastructure life cycles, prospective changes on the markets, and a sustainable economic growth) and tariff rebalancing. Efficiency of FAS tariff policy is enhanced with the competence synergy and experience in tariff regulation, antimonopoly control and procurement supervision”.

He discussed the issues of technological connection to gas networks, replacing a business model from “Making money on construction” to cheap and fast connection with making money on gas supply services. To illustrate, Deputy Head of FAS used the example of Tyumen experience, which is already formalized in the Tyumen Regional Competition Road Map and extrapolated to other regions in the Russian Federation.

Finally, Anatoly Golomolzin outlined the main FAS objectives in tariff regulation and developing gas markets, including:

• Accounting long-term tariffs, competition support measures in forecasting social-and-economic development on the Russian Federation for a mid-term period  and the Main directions of the common state monetary policy in the Russian Federation
• State-by-stage reduction of cross subsidizing in the regulated sectors
• Factoring in demand, reliability, quality, efficiency trends and implementing the tools for commercial balancing of resources supply and consumption
• Eliminating tariff discrimination (unreasonable differences in comparable conditions) in the electric power supply, heat supply, water supply and drainage and gas supply
• Stimulatory regulation of commercial and technological infrastructure entities (ATS, SO,GP MRG Postavka, etc.) aimed a at enhancing efficiency of their operations and the relevant markets
• Adding the status of goods supply operator to the status of regulated infrastructure organizations under the conditions of organized trading in the relevant markets
• Devising Stage II for gas market pricing, including deregulation of wholesale gas prices in view of exchange quotations and off-exchange prices as well as setting unified gas transportation tariffs.

The Forum participants showed a considerable interest to the presentation. The current situation on the gas markets and the prospects of its development were reviewed. A more detailed discussion of the issues will continue at St Petersburg Gas Forum.  The gas agenda should be included in FAS regional meetings as one of the most pressing topics. Attendees demonstrated that companies are interested in more active involvement in the Working Group on further liberalization of the gas markets and under the frame of the relevant pilot projects.

In the Q&A part Anatoly Golomolzin explained how modern approaches to tariff regulation allow not only encouraging market relations development but also solving the current issues including cross subsidizing and discriminatory pricing.

Questions focused also on the practice of investigating antimonopoly cases and specifics of qualifying the dominant position of gas companies at the federal and regional gas markets.