Putin Calls for Tax Reform in Energy Sector and Asks Gazprom to Share Pipelines

Sources:
Putin Reviews Performance of Fuel, Energy Complex 2010, Gives Orders
Bloomberg: Putin Seeks Fast Decision on Oil Tax Breaks, to Maintain Output
UPI: Putin Points to Russia's Energy Future
Bloomberg: Russia May Raise Oil Export Tax 5.1% in March on Urals Price
AFP: Putin Tells Gazprom to Share its Pipelines

Russian Prime Minister Vladimir Putin met with Cabinet officials from the energy sector this week to discuss the past year's successes in energy production and the government's goals for 2011. In 2010, Russian oil production was about 3.7 billion barrels and its total gas production increased by 12 percent. Russia’s goal for 2011 is to double the existing power generating facilities and to continue the current oil production level of 3.7 billion barrels a year.

Putin called for several improvements to the energy sector, including tax reform, better monitoring of problem areas in the domestic power supply network, and the creation of an exchange committee to monitor and predict changes in the domestic oil market. Most of the recommendations announced this week did not come as a surprise. Putin has repeatedly called for domestic reform of the tax provisions for the oil industry, specifically targeting lowering taxes on new fields and low-flow rate. Tax relief for the oil and gas sector would help Russia continue to meet its ambitious energy-production goals and encourage Russian oil producers to increase domestic exploration instead of investing abroad. Putin attributes last year's increase in energy production to the development of new fields and stresses that Russia must "keep up this level of production for the coming years."

Putin also advocated an overhaul of Gazprom’s monopoly status, which would bring competition to the natural gas market. Russia has allowed state-controlled Gazprom to hold a monopoly in natural gas export, which is ten percent of the nation’s GDP and, thus, a vital part of the nation’s economy. However, Putin sharply criticized Gazprom's poor performance in 2010. The company's exports dropped 1.5 percent last year, calling into question whether Gazprom should keep its monopoly on access to pipelines and transportation routes. Putin demanded his Energy Ministry and Gazprom to work together on granting independent gas producers priority access to the infrastructure. Opening access to pipelines and transportation routes would encourage competition in the gas industry and could spark a surge in gas production.

Discussion Questions:
1) Does Putin’s demand to open the pipelines to independent gas producers signal a broader willingness to increase privatization of Russia’s energy sector?
2) Russia supplies one quarter of Europe’s natural gas needs. What benefits will Europe gain from increased competition in the gas sector?