25% Gas Price Hike Approved

The government on Tuesday approved a planned 25 percent rise in state-capped gas prices for 2008 and a higher-than-planned gas transportation fee, in a move that will create extra inflationary pressures.

The 25 percent rise in local gas prices was approved in 2006 as part of a broader plan to fully liberalize gas and power prices by 2011, and it is set to boost the revenues of gas export monopoly Gazprom.

On Tuesday, it was cleared by the Federal Tariffs Service only two days after parliamentary elections and despite suggestions by several analysts that the increase should be trimmed after the government lost its grip on inflation in 2007.

Under the 2006 plan, the price increase was approved at 15 percent for 2007, in line with previous years. Analysts said the government did not want to upset the population with high prices and inflation ahead of the parliamentary elections and the presidential election in March.

The price rise from 2008 and beyond was approved at 25 percent.

Inflation is expected to exceed 11 percent this year, well above the initial forecast of 8 percent.

On Tuesday, Finance Minister Alexei Kudrin revised his inflation forecast for 2008 to 7.5 percent to 8.5 percent from an initial forecast of 6 percent to 7 percent.

Additional inflationary pressure is likely to be reinforced by the approval Tuesday of a 19 percent rise in gas transportation tariffs for 2008, which Gazprom will charge when shipping gas from independent producers via trunk pipelines. The tariff increase had been planned at 15 percent to 21 percent.

Gazprom has said the plan for a gas price rise should encourage consumers to stop wasting gas, saving Russia billions of dollars worth of fuel for exports.

President Vladimir Putin and his government must step down after the March election, when his second term expires in May. Analysts have suggested that the next government could revise the gas price plan should it create too much discontent among voters.