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Meeting on cross-subsidisation in the electric power industry

May 20, 2013, Sochi

Vladimir Putin held a meeting on cross-subsidisation in the electric power industry.

Energy supply in Kaliningrad Region was also discussed at the meeting.

* * *

President of Russia Vladimir Putin: Good afternoon, colleagues,

We discussed the electric power complex development in March this year, and we agreed then to take a separate look at the changes we should make to the tariff regulation system and also discuss cross-subsidisation in the sector, including the situation with the ‘last mile’.

This issue is of great importance for the energy sector’s development and for our economy’s competitiveness in general. It also has a big social dimension too, of course.

The current cross-subsidisation mechanism means that household consumers pay less for electricity, while companies pay more. Ordinary consumers are able to pay less because the prices are raised for other consumers. This kind of cross-subsidisation increased substantially over recent years and in 2012 came to a figure of 220 billion rubles. 

But this process has a reverse side too. It means added expenses and costs for businesses. This has an impact on industrial output growth, and companies factor the higher electricity costs into the price of their goods, which makes locally-produced goods less competitive and also more expensive for all consumers, and ultimately, for ordinary people too.

We end up in a situation where businesses sometimes find it more profitable to commission their own electricity generating facilities rather than buy electricity on the market. The big companies have more room to manoeuvre of course. They can relocate production to regions with cheaper electricity costs, or they bypass the regional electricity sellers altogether and connect directly to the mainline network, as some businesses are doing.

This ends up shifting the burden onto small and medium-sized businesses, which have enough problems to deal with as it is. These businesses have to pay a lot of money just to get connected to the electricity supply networks, and then they have to pay high costs for the electricity itself.

These are all structural issues and therefore require balanced and carefully planned decisions and the setting of fair and transparent costs for all groups of consumers. I repeat what I said at our last meeting, namely, that we must avoid unjustified price rises for the general public and for small businesses. We also need to put in place real incentives to encourage people to save electricity, be economical, and make wider use of energy-saving technology.

I think it is important that we also take a close look at the sales companies’ and grid companies’ cost structures. Our people and businesses should not have to pay for others’ ineffectiveness. I ask the Government Cabinet to work fast on making the needed decisions on the ‘last mile’ and put forward concrete proposals on reducing the amount of cross-subsidisation.

Let me stress that this is a complicated issue. We need to make a thorough analysis of the social consequences any decisions will have for each region of the country, make sure we take people’s interests into account, and draft a balanced system of targeted support measures for people. This targeted support must be designed in such a way as to be clearly effective.

The second matter that we need to discuss today is electricity supply in Kaliningrad Region. For obvious reasons this region is isolated from the rest of the country’s electricity system, and so we need decisions here that take into account the region’s particular situation and its exclave status.

Let’s start work.


May 20, 2013, Sochi