Streetwise Professor

December 19, 2008

Dazed and Confused

Filed under: Economics,Energy,Politics,Russia — The Professor @ 5:06 pm

Today’s title selection was inspired by Led Zeppelin, and Russia’s zig-zag policy on electricity price reform.   First it was reported that Russia would slow the reform.   Then Putin said it wouldn’t be slowed.   Then Kudrin said it would be.   Now?   Well, for what it’s worth:

Russia’s economy minister said on Wednesday the government is sticking to its 2009 plans for the power sector and will not be moved to amend them by the global financial crisis, Russia news agencies reported.

Her statements seemed to conflict with previous comments from top officials, who have said plans to raise electricity prices will have to be corrected.

But the growth in gas prices will be made more gradual, Minister Elvira Nabiullina was quoted as saying. The move would ease the cost for consumers already suffering from desiccated credit markets and falling stocks.

The price of gas will grow 5 percent in the first quarter, 7 percent in both the second and third quarters and 6.2 in the fourth quarter, the agencies reported her as saying.

This compares to earlier plans to raise the prices by around 25 percent as of Jan. 1, part of a plan to gradually bring domestic gas prices to parity with with Europe by 2011.

Nabiullina made the statements while presenting the government’s revised macro-economic forecasts [ID:nLH161149].

“We have factored decisions (into the forecasts) on revising the rate of price growth for natural monopolies,” she said, Interfax reported.

Officials generally use the phrase natural monopolies to refer to electricity, gas and railway service.

“For gas it has been decided that prices will rise at a smoother quarterly rate for all consumers, including households,” she said, the news agency reported.

But her comments on electricity contradicted other top officials, including Finance Minister Alexei Kudrin, who said on Monday that price growth for power, rail and gas services List of stories in basket would be significantly cut due to the crisis [ID:NLF154185].

As Casey Stengel once said: “Does anybody know how to play this game?”   This erratic, contradictory policymaking is hardly conducive to restoring confidence in the Russian economy, the Russian government’s management acumen, or the reliability of its promises and the credibility of its policies.   In a country where the government plays such a dominant economic role, lack of policy credibility is a major impediment to attracting investment, especially in sectors like power.

So what’s the real policy?   Who knows?   I mean literally–who knows?   Putin? Medvedev? Kudrin?   This ongoing to-ing and fro-ing seems to suggest that there is a major fight going on behind the scenes.   The only conclusion that investors can draw is that one can draw no conclusions.   So it is best to stay away.   Very far away.

Given Russia’s pressing needs for infrastructure investment, not just in power but in other sectors, the combination of the bleeding of reserves and the policy chaos mean that these needs will not be met for years to come.   Yet another tragedy.

But look on the bright side.   The glorious Russian Navy is visiting Nicaragua and Cuba!   One needs to keep one’s priorities in order!

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  1. And, this has happened a number of times: Medvedev makes a decision and then backtracks when corrected later by Putin. This two-headed administration will certainly make it difficult for Russia to take the appropriate decisions required by the state to deal with the crisis. So, who do you think will go? What are the odds of Medvedev being pushed out or, the unthinkable, Medvedev canning his prime minister?

    Comment by Michel — December 19, 2008 @ 6:42 pm

  2. Or perhaps this is evidence that there is a healthy economic debate going on in the halls of power.

    Comment by Da Russophile — December 20, 2008 @ 12:36 am

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