Electricity Prices Seen Rising More Quickly

The government will look again at its planned hikes in domestic electricity prices for business users because the unregulated prices are rising more quickly than anticipated, Federal Tariffs Service chief Sergei Novikov told reporters Monday.

Novikov said regulated prices for electricity could rise from 20 percent to 23 percent next year, compared with the 17 percent originally foreseen by the government.

"We have a different understanding of the speed at which prices have increased on the liberalized market,'' Novikov said.

Electricity prices are expected to go up once the government eliminates fixed tariffs and power generation passes fully from the state into private ownership.

A liberalization program endorsed by the government in 2006 effectively placed caps on gas and electricity prices to maintain a modicum of stability on the market before the December 2007 parliamentary elections and last month's presidential vote.

With both elections firmly behind it, the government seems determined on a gradual removal of the caps by 2011, a year initially planned for complete deregulation of prices.

Finance Minister Alexei Kudrin, who, like Unified Energy System chief Anatoly Chubais, has called for prices to rise more quickly in order to move to a fully deregulated system, on Monday said the quicker price hikes should be carried out alongside anti-inflationary policies in the economy.

Kudrin ruled out any intervention by the government to give financial support or subsidies to the regions to cushion the effect of hiked tariffs.

"The price adjustment is a sort of reality check on skyrocketing energy prices," said Alexander Kornilov, an analyst at Alfa Bank, adding that the authorities were seeking to bring electricity prices in line with those of gas.

"We are talking about regulating the whole spectrum of prices for energy resources," Kornilov said. "Since prices for gas would be increased beyond the basic index agreed upon in 2006, it is just as reasonable to gradually free electricity prices."

About 20 percent of electricity trading is currently unregulated, Kornilov said.

Novikov said planned adjustment would not affect the existing reduced tariff rate on electricity and gas for consumers in rural areas.

The government would confirm the forecast for a limit on price hikes on natural-monopoly supplies for 2009 through 2011 on April 10 to prepare domestic consumers for an inevitable price hike, Novikov said.

"The parameters adopted by the government on gas prices at the end of 2006 would remain largely unchanged, while the price increase for gas in 2011 is expected to be minimal," Novikov said.

The government has projected that gas prices would rise to $130 per 1,000 cubic meters for domestic business users by 2011, but higher price rises -- both international and domestic -- will most likely push them past that level.

Power prices in European Russia soared an average of 34 percent in January even after a comparatively mild winter, the ATS electricity exchange said in February.