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30 May, 2008 11:47

Russia dubious over parity in gas prices

Russia will delay bringing domestic gas prices level with export prices for at least four years as the debate about the need to raise prices is still raging on in Russia.

The Economy Ministry’s Andrey Klepach said this week that domestic gas prices will reach parity with export prices by 2015 – not by 2011 as originally planned.

Some within Russia argue the sharp rise in global energy prices in the past months makes it impossible to aim for parity.

If Russians pay more for gas in their homes, it will have a knock-on effect, boosting inflation, which is already topping 15% in May. But analysts say it is not as bad as it seems.

“Relative to how quickly incomes are rising, inflation is still quite low, so the actual standard of living is rising across Russia because incomes are rising more quickly than the cost of living is rising, even if you take into account these increases in domestic gas and electricity prices,” commented Renaissance Capital Head of Research, Roland Nash.

Experts believe higher domestic gas prices are the only way to stimulate production, an absolute must for a growing economy.

“An increase in gas prices is absolutely essential to fulfill their investment programmes and to provide the economy with sufficient volumes of gas, the domestic economy and export obligations, they have to be fulfilled,” said Tatyana Mitrova, the Head of Energy Research Institute.

If Russia fails to level its gas prices, it may have problems joining the World Trade Organisation. Saudi Arabia, the world’s second largest oil producer, said this week it will not sign a bilateral agreement with Russia unless domestic consumers start paying more for gas.