…HIGHLIGHTS CONFUSION OVER REFORM OF NATURAL MONOPOLIES.

This increased desire for central control over UES is apparent in a number of respects. The federal government’s appointments to the UES board of directors include, in addition to those mentioned above: Natalya Fonareva, chair of the State Antimonopoly Committee; Andrei Zadernyuk, head of the Federal Energy Commission; Georgi Tal, head of the Federal Bankruptcy Administration; Aleksandr Livshits, deputy head of the Presidential Administration; Deputy Finance Minister Andrei Petrov; Deputy Economy Minister Nikolai Shamraev; Deputy State Property Minister Aleksandr Belousov; and Acting Minister Without Portfolio Yevgeny Yasin. Also, Prime Minister Designate Sergei Kirienko told the Federation Council on April 1 that "the management of natural monopolies requires unambiguous, direct government control". Furthermore, Kirienko described the sale of controlling equity packets in firms like UES, Gazprom and the Transneft oil pipeline company as "impermissible". (Russian agencies, April 1)

Such developments show an important change in the government’s philosophy toward reforming Russia’s natural monopolies. According to measures introduced last year, UES and other large companies are to be restructured and forced by market competition to become more efficient. In order for these firms to act like genuinely commercial entities as opposed to parastatal ones, state regulation is to be indirect: The Federal Energy Commission (which monitors electricity tariffs) and the Finance Ministry (which monitors UES’s tax payments) are to function as independent regulatory bodies. Instead, appointing top regulators to UES’s board of directors — who must therefore act both as regulators and as owners — creates conflicts of interest for both their agencies and for UES. Indeed, by strengthening UES’s parastatal nature, such appointments weaken the company’s incentives to act in a commercial fashion. These appointments can be seen as yet another step away from the reforms of the natural monopoly sectors introduced last year by First Deputy Prime Minister Boris Nemtsov.

Natural Gas Prices for Households Increased April 1