Streetwise Professor

December 9, 2008


Filed under: Commodities,Energy,Politics,Russia — The Professor @ 8:32 pm

This is getting confusing.   First, there were reports that Russia would delay its implementation of electricity tariff reform (specifically, increasing rates to reflect economic realities).   This caused considerable anxiety among investors who had committed capital to build badly needed generation in anticipation of the tariff reform.   Second, a few days later, Putin and the government denied that the reform would be delayed.   Third, today’s Bloomberg reports that Putin’s assurances may no longer be operative:

OAO Gazprom, the world’s biggest natural-gas producer, declined the most in a week in London on concern that possible cutbacks in the Russia’s planned electricity price increases will be extended to gas prices.

Russia may scale back electricity price increases to 5 percent next year from an earlier proposed 19 percent increase, Interfax reported late yesterday.

Cuts in gas prices will probably follow so that thermal power generators, which rely on natural gas, won’t lose money in the first half of the year, according to Matvey Taits, utilities analyst at UralSib Financial Corp. in Moscow.

“If they review the tariffs for the generators, then I suppose they also have to revise them for Gazprom, because gas is the primary fuel for electricity generation in Russia,” Taits said by telephone. Concerns over gas prices are “one of the reasons” the shares are under pressure, he said.

Such policy uncertainty is hardly the way to create (I wouldn’t dare say “restore”) confidence among investors about the security of their investments.   It is particularly dangerous for Prime Ministers to weigh in on such issues, provide assurances, and then have these assurances given the lie within days.

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