Liberalized Gas Prices Face Delay

The Economic Development and Trade Ministry will propose a delay in the government's plan to deregulate gas prices for industrial consumers, a senior ministry official said Monday.

Under the current plan, corporate consumers will in 2011 start paying a price that makes it equally attractive for Gazprom to sell domestically or on the European market, known as netback parity. "We don't reject this [netback parity condition] but are planning a smoother transition to this principle," said Andrei Klepach, a deputy minister, RIA-Novosti reported.

The Cabinet will consider the ministry's proposal on Tuesday, when it will review pricing caps on monopolized services for the period running from next year through 2011.

Adopted in November 2006, the government plan envisioned a liberalized gas price of $125 for 1,000 cubic meters, but energy prices have soared since then. The Economic Development and Trade Ministry has voiced doubts in recent weeks that the economy would endure a steeper increase. Moscow's industrial consumers currently pay $76 for 1,000 cubic meters, whereas the netback parity price would amount to $173, according to calculations posted on the Federal Tariff Service's web site.

Klepach said the transition to the liberalized price would run for several more years. He did not say how much the regulated price could increase in 2011, although a summary of the ministry's proposal on the Cabinet web site said it would grow by "40 percent at most for all types of consumers in 2011."

Spokespeople for Gazprom and the Industry and Energy Ministry, which co-sponsored the initial plan, could not be reached Monday afternoon.

Konstantin Cherepanov, an analyst at KIT Finance, said the news was "not the most pleasant" for Gazprom but that it was expected. Gazprom's long-term contracts with industrial consumers, which stipulate a premium to the regulated price, will partially offset losses caused by a delay, he said.

A delay will not affect Gazprom's shares as it will not be a surprise, Alfa Bank analyst Konstantin Batunin said.