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The Merger of Gazprom and RAO UES and the New Gas and Electricity Pricing Patterns

The Merger of Gazprom and RAO UES and the New Gas and Electricity Pricing Patterns

Power industry reform is drawing towards completion. Despite the initial plans of its authors, we see that what’s coming is not as much reformation of the competitive market but rather emergence of a new gas&electricity giant that packs the strength of the gas monopoly and the vital importance of electrical power. Gazprom is already aggressively acquiring power generating units, following Aleksey Miller’s declared strategy to turn the gas company into a major energy corporation.

The main producer of energy feedstock is beginning to take over power producers and thus reshaping the fuel & energy industry of Russia. For Gazprom, this means new opportunities , for energy consumers – new risks. In the conditions of gas shortages in the domestic market Gazprom intends to pull off further reduction of gas consumption. During election wars and consequent political instability, the need to solve structure-related problems pales into insignificance and making competition for the country’s most important assets the only priority.

The new study by the National Energy Security Fund analyzes 
Gazprom’s expansion in the power segment:

  • Gazprom’s energy strategy

    • «The quest for assets»
    • Fighting for control of power business inside Gazprom
  • The problem of fuel supplies to power stations

    • Power units placement program
    • Long-term contracts
    • New pricing pattern
    • Risks for the economy of Russia
  • Acquisition of RAO UES’s assets

    • Gazprom’s financial difficulties
    • The patterns of cooperation with foreign companies
    • Gazprom’s struggle with other contenders for power generating units
    • Problems associated with the plans to take over SUEK
  • Forecast of further developments

    • The outlook on vertical monopolization of the power industry
    • The new gas and electricity pricing patterns

The content of the report:

Chapter 1. Gazprom's Strategy in the Power Industry. The Whys and Wherefores. Struggle for Control 2
1.1. Causes of Gazprom’s Expansion in the Power Industry 2
1.2. Gazprom’s Strategy in the Power Industry 6
1.3. Competition for Control of Electricity inside Gazprom 8
Chapter 2. Investments in Power Industry and Guarantees for Investors. Catering Fuel to Power Stations and New Pricing Pattern 11
2.1. Power Industry Development Stagnation. Where Do You Find Fuel and Money? 11
2.2. Gas Shortages and Increasing Domestic Demand: Obstacles to the Gas Scheme and to Construction of New Power Plants 15
2.3. New Gas Prices: Future Economic Growth 17
2.4. Long-Term Contracts in the Conditions of Monopolized Market 20
2.5. Difficulties in Synchronization of Gas Scheme and Commissioning of New Power Stations 22
Chapter 3. Acquisition of Assets and Gazprom’s Financial Hardships. Methods of Cooperation with Foreign Companies. JV with SUEK 25
3.1. What and How was Gazprom Buying in the Power Industry 25
3.2. Competition for Assets against Other Market Players: Chubais’s Small Victories 34
3.3. Acquisition of SUEK: Making Fuel Monopoly Stronger 39
3.4. Gazprom’s Financial Hardships 42
3.5. Power Industry Ambitions of the Gas Monopoly outside Russia 44
Chapter 4. Vertical Monopolization in the Power Industry: Benefits and Implications. Future Contour 45
Issue date November 12, 2007

If you are interested to obtain please contact » Elena Kim

Other issues:
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Analytical series “The Fuel and Energy Complex of Russia”:

New OPEC+ Deal and Future of Oil Business in Russia
Gazprom on the background of external and internal challenges
Regulation of Oil and Gas Sector in 2019 and Prospects for 2020
Fiscal Policy on Oil and Gas Sector: Revised as Often as Wikipedia
The tax system in the oil and gas sector continues to undergo radical changes. The beginning of 2019 saw the introduction of a new tax regime: additional income tax. That experiment was supposed to start migration of the oil industry to an innovative principle of taxation: on profit, not revenue. It seemed that a new main road was found. In the same year, however, the Finance Ministry launched an overt offensive against AIT. The fear of loss of government revenue now is more powerful than the threat of causing oil production to collapse in the medium term because of a tax system that does not stimulate investment. The Finance Ministry would strongly prefer to speed up the tax manoeuvre completion that earns the state budget additional money. Oil and gas companies respond to this with individual lobbying, attempting to wangle special treatment for their projects.
Ukrainian Gas Hub: Climax at Hand
The “zero hour” comes in less than a month: the contracts for gas transit through Ukraine and for supplying Russian gas to the country terminate at 10 am on 1 January. Meanwhile, Gazprom and Naftogaz are very far from looking for a mutually acceptable solution. The entire European gas business is watching intently the negotiations between Russia and Ukraine. Everyone is waiting for a new “gas war”: the January 2009 events proved to be a serious test both to European consumers and to Gazprom as a supplier. Is there still a chance of agreement? If there is not, will Gazprom cope with its obligations to deliver gas to Europe? Is Russia bluffing as it assures that the new infrastructure and gas in underground storage facilities will enable it to get by without Ukrainian transit even as soon as this winter? What will happen to Ukraine itself at the beginning of 2020?

All reports for: 2015 , 14 , 13 , 12 , 11 , 10 , 09 , 08 , 07

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