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. Last Updated: 07/27/2016

Cabinet Caps 2002 Tariff Hikes at 35%

The Cabinet on Thursday capped price hikes for so-called natural monopolies at 35 percent in 2002, but said it needed more time to decide how much gas, electricity and railroad firms can charge.

"The government, taking into account [inflation, gross domestic product growth and the investment needs of monopolies], has set a 35 percent maximum level of raising tariffs for all natural monopolies," Economic Development and Trade Minister German Gref said after a Cabinet meeting Thursday, Prime-Tass reported. "The range of hikes might be from zero to 35 percent," he said.

Prime Minister Mikhail Kasyanov, who called the current system "imbalanced," said the government wanted to wait until it approves next year's investment plans for the natural monopolies before it decided on specific price rises, expected next month.

Kasyanov began the meeting by saying that tariffs must increase gradually to support stable economic growth and favorable macroeconomic conditions, Interfax reported.

The artificially low prices paid for products and services from natural monopolies like Unified Energy Systems, the Railways Ministry and Gazprom act as a de facto subsidy to the industry as a whole. On average, these prices are five to six times lower than prices in Europe.

Gazprom, UES and the Railways Ministry had asked the government to let them raise prices by 37.6 percent, 44 percent and 66 percent, respectively -- requests that would lead, according to the Economic Development and Trade Ministry, to overall inflation of 19 percent to 21 percent as opposed to the government's target of 13 percent.

The domestic price for gas from Gazprom, for example, covers just half the cost of extraction and delivery to consumers, Kasyanov said. "And UES today is scrambling to make both ends meet," he added.

The nation's most influential business lobby, the Union of Industrialists and Entrepreneurs, had urged the government not to adopt the hikes the natural monopolies requested, arguing it would hamper economic growth.

Andrei Kosarev, an economist at the Bureau of Economic Analysis, said the government's decision to cap hikes was "balanced."

He said the argument that hiking natural monopoly tariffs fuels inflation was misguided.

"Figures show just the opposite," he said. "This year's inflation [figure of 18 percent] was fueled mostly by the growth of personal incomes, not tariffs."