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19 Dec, 2006 04:52

Gazprom to set universal prices for consumers

Gazprom to set universal prices for consumers

Gas prices for CIS countries are expected to be discussed when Gazprom's board of directors meets on Tuesday. Analysts say the company's goal is to ensure the prices match those paid by Western European customers.

Market prices and mechanisms are what Gazprom says it wants to have in dealing with its CIS clients. At present, on average the countries of the former Soviet Union pay much less than Gazprom's customers in Western Europe. And the energy giant now says it wants to close this gap and charge market prices for all its clients.

Analysts say Gazprom has no other choice as it can no longer sustain a dual price policy.

“Since one of the main strategies of the company is increasing realised prices in Europe and mostly Western Europe, a result of this policy is that they're looking at increasing tariffs as well in some of the traditional markets where for historical reasons there realised prices were significantly below markets prices,” explains Caius Rapanu, a Senior Analyst at Uralsib.

Gazprom has said that next year it wants to ask Western European countries to pay a uniform price of $US 293 – a 30% increase. So it will have to raise tariffs for its clients closer to home, if it's to appear to have a fair and coherent price policy.

Some say Gazprom needs to raise prices to remain profitable, given that its output is set to rise by less than 2% next year. But others say, what Gazprom really wants is to achieve a shift in its sales mix.

“There are other domestic producers independent or oil companies that will come and have a stronger presence in the Russia domestic market and allow Gazprom to increase exports to the EU, even in the condition of flat production going forward of Gazprom itself,” Mr Rapanu says.

Besides slow production growth, critics have also accused Gazprom of becoming a foreign policy tool for the Russian government. Some say the energy giant decided to raise export prices for Ukraine last winter in covert retaliation for its Western leanings.

But others disagree.

“The Russian influence politically nearby is quite strong without this subsidisation and Russia will find other ways of fostering co-operation with these countries, even in the absence of a directly subsidised energy price,” Mr Rapanu suggests.

Whatever the outside world's opinion, Gazprom says it simply wants to become a more efficient energy supplier. And the only way to achieve this, it says, is to play by the universal rules of the market.