Russia To Introduce New Consumer Tariff Laws

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Russia is poised to introduce a unified tariff legislation, covering specific service commodities such as housing and communal services, electricity, gas supply, communications, and rail transport. A draft has already been approved.

The aim is to create unified principles for the formation of predictable prices for services in the industries – for at least three years, to protect consumer interests and ensure reliable functioning of pertinent infrastructure.

Currently, tariffs are regulated by the state within the limits of inflation – no more than 4%. However, there is inconsistancy across Russia concerning this, creating contradictions between regulators, resource supplying organizations (RSO) and consumers. The imbalances are related to the existing list of exemptions for organizations and industries.

An example is that for water utilities, tariffs in one region differ by 54 different mechanisms, while the gap in prices between water treatment companies, all using similar technologies is a multiple of eight. These discrepancies are in heat energy provisions and make it hard for both households and businesses to both understand and accurately budget for overheads.

Russia’s Antimonopoly Service has stated the proposed laws will become a kind of constitution and will be at the forefront of tariff regulation. They added that it is impossible to fit all the provisions of the concept into one law, therefore, in parallel, amendments to existing government regulations, acts, and industry laws are being prepared.

The concept presupposes a ban on adjusting tariffs and parameters for regulating the activities of organizations for at least three years. The term can be increased at the request of regulatory authorities or companies.

Also among the changes is the preservation of the RNO of all additional profit (savings) for investment activities. Currently, savings are deducted from the tariffs for the next year – companies have no incentive to optimize. To implement these changes, it will be necessary to amend the government regulations based on pricing in each specific region.

The plans also include building a system of measures of state support for regulated sectors of the economy (including through the development of national projects), reducing barriers to access to these markets for new participants, establishing economically justified tariffs, and creating a unified tariff platform.

The FAS added that the concept provides for guarantees of return on investments, incentives for the modernization of communal infrastructure, as well as protection of the population from unjustified increases in tariffs.

The Russian Association of Guaranteed Suppliers and Energy Sales Companies noted that the regulator should provide for a transition period for the introduction of reference tariffs, since the starting conditions for the companies vary. This will help mitigate the risks of a sharp rise in regulated tariffs.

Russia’s Association of Council of Energy Producers expressed concern that the introduction of reference regulation as a priority method in a short time will not allow an analysis of the economic consequences for RNO and consumers. In the long term, this could lead to losses for companies.

The FAS noted that before the introduction of the new regulation, a comprehensive analysis of the issue will be carried out, as well as discussions with the industry community within the framework of expert councils of the antimonopoly service.

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