. Price increases for household consumption of natural gas are perhaps the only part of the program for reforming Russia’s natural monopoly sectors that is being introduced more or less as planned. This was illustrated on April 3, when Gazprom Vice President Petr Rodionov announced that gas retail prices for households would be brought into equality with wholesale prices by the end of 1998. (Russian agencies, April 3) As a result of higher retail prices for natural gas introduced in Moscow on April 1, households there now pay 75 percent of the wholesale price of gas.
Rodionov was quick to point out that the price increase was mandated by the Federal Energy Commission (FEC), which is trying to reduce the subsidization of household gas consumption by industrial users. Prior to April 1, households only paid 65 percent of the price paid by industrial purchases of gas. Rodionov also argued that higher gas prices for consumers do not increase Gazprom’s profits. Instead, they help finance reductions in electricity prices charged by gas-burning utilities that are participating in FEC-sponsored attempts at creating a competitive wholesale market for generating electric power.
Both reformers and their opponents believe that energy prices for Russian industry must be reduced in order to promote economic recovery. Both groups are quick to point out that retail gas prices for households are only a small fraction (10-15 percent) of world market levels. On the other hand, price increases for retail consumers could exacerbate their already large arrears for gas (and electricity) payments. As such, it is not clear whether such price hikes will actually increase Gazprom’s revenues.
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