ANATOLY GOLOMOLZIN ABOUT TRENDS AND DIRECTIONS FOR REGULATING NATURAL GAS MARKETS

Deputy Head of FAS Anatoly Golomolzin discussed the experience and prospects of pro-competitive tariff regulation on the natural gas markets at the Plenary session of the National Tariff Regulation Workshop – 2019 in Crimea

Anatoly Golomolzin started by outlining a new pro-competitive tariff policy, conducted by FAS since it undertook the functions of the tariff regulator(in 2015), the experience and prospects of pro-competitive tariff regulation on the markets of liquefied hydrocarbon gases (LHG), oil and oil products transportation, the best 2018 FAS experience in regulating communications tariffs, and proposals to legislatively formalize the best experience in tariff regulation. (http://fas.gov.ru/news/28605, http://fas.gov.ru/news/28595)

He emphasized that:

“In accord with the Order of the President of Russia, the main directions of the state competition policy include development of tariff regulation based on comparative market analysis, long-term tariff regulation, deregulation in competitive spheres, and exchange trade development”.

Anatoly Golomolzin described FAS practice in regulating natural gas tariffs. He mentioned that every year hundreds of decisions are made on wholesale gas prices, sales mark-ups, tariffs for gas transportation via major and distribution gas pipelines.  The overall level of tariff changes as well as individual regulated services is below the inflation level.

“Wholesale gas prices for “Gazprom” entities are indexed annually at below the inflation rate. For independent gas producers wholesale gas prices are not regulated. Free pricing also takes place for the gas sold by “Gazprom” at the Exchange. In 2019 the Government increased the sales volume of “Gazprom” from 17.5 to 25 billion m3. The Competition Road Map specifies launching a balancing gas market. At the first stage, the project will be fulfilled for the exchange gas, and at the second stage – for off-exchange gas”, explained Deputy Head of FAS.

He clarified that in accord with the Competition Road Map the tariffs for main gas transport will be equally applied to independent service consumers and the companies – members of the “Gazprom” Group. Based on Governmental orders, FAS is drafting proposals regarding the level of the base tariff for main gas transportation services, from which the tariff of “Gazprom” PJSC will be indexed in years ahead.

“The Government has approved FAS approaches and financial-and-economic estimates for defining the optimal operating costs. Together with the Ministry of Energy and the Ministry of Economic Development FAS is also defining the standard profit for “Gazprom” PJSC, which the company can spend, particularly, for its investment programme and dividends. Using a long-term tariff presumes a long-term investment programme and tools enabling its flexibility, depending on the changing internal and external conditions”, added Deputy Head of FAS.

Then Anatoly Golomolzin outlined the progress in changing the current tariff-setting pattern based on combining the “distance” model and the “point - point” to the “entry – exit” model.

Regarding regulation of sales mark-ups and tariffs for the services of gas distributors, Anatoly Golomolzin informed about a large-scale analysis of the costs and tariffs of regulated entities in order to reduce them to a comparable form.

He said: “The tariffs and costs of government-regulated entities will be correlated based on natural environment and climatic conditions in the regions,  the structure and types of fixed assets, the structure of technical, managerial and other corporate personnel, the gasification level, types of settlements (rural / urban), the life cycle of the main equipment and other basic underlying factors. Under the frame of the long-term tariff policy, the survey will help rebalance tariffs, eliminating unreasonable differences and undertake measures to avoid cross-subsidies”.

Anatoly Golomolzin also focused on the establishing practice of agreements (regulatory contracts) between FAS, the regional authorities and regulated entities. The first regulatory contracts were concluded with the Tyumen, Perm and Rostov regions; and around 10 more regions are getting ready to conclude such contracts. It is expected that ultimately the agreements will be signed with all regions where gas supply is developing. The agreements are built on common fundamental principles, while specific provisions are added to account for the characteristics of particular regions.

“Regulatory contracts on the gas supply markets ensure long-term cooperation between the parties, each acting within its competence and obtaining additional reserves due to coherent actions. FAS, for instance, facilitates competitive pricing by expanding the exchange gas markets and deregulating gas prices. It sets long-term tariffs for gas transportation via gas-distribution networks (guided by the trends in “inflation minus” tariffs and comparable analogues to evaluate efficiency of operating costs and tariffs, use of the input method in network construction and approachesв under 223-FZ Federal Law)”, commented Deputy Head of FAS.

The authorized regional bodies devise, approve and control regional gasification programmes (complying with the efficient gasification criteria), undertake measures to makes sure that the tax burden upon regulated entities is not growing, allocate budgetary funds for social support of particular categories of the population, set special mark-up on the gas transportation tariffs and other sources of funding gasification programmes, and “fuel” economic growth in the regions, the level of life of the population and budget revenue growth.

Regional gas companies (RGC) optimize gas balance, particularly, for on- and off-exchange gas deliveries. Gas distributors (GD) build gas supply facilities in view of the efficient gasification criteria (using in-house resources or engaging contractors selected under № 223-FZ Federal Law), target the input prices agreed upon by the authorized body, and enable network connection in line with the “one-stop-shop” principle.”

EGC and GD business-model is aimed at enhancing performance and increasing capitalization.

Anatoly Golomolzin summed up the outcome of collaboration between regulators and regulated entities: “This form of interaction is a breakthrough for finding a set of optimal solutions, it solves the gasification problems in Russia, enhances performance of gas suppliers, shortens the timeline of network connection and makes it cheaper, encourages business development and improves the quality of life of the population”.