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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”:

State regulation of the oil and gas sector in 2018, prospects for 2019
Gazprom on Path to New Reality
Looking for Best Tax Treatment of Oil and Gas: Fiscal Experiments Continued
The subject of taxation became the absolute hit of 2018. The government once again decided to rewrite the rules of the game. President Putin’s new inauguration decree served as the main pretext. It turned out that about 8 trillion roubles extra was necessary for the new national projects announced. The Cabinet did not take long to decide where the funds should be taken. The result was acceleration of the so-called tax manoeuvre started as far back as 1 January 2015. It suggested shifting the tax burden to the wellhead: the effect on the state budget of gradual abandonment of the export duty will be more than compensated for by quicker growth in mineral resources extraction tax (MRET). The laws on tax reform have already gone through the parliament and will take effect as of next year. This means nothing good for companies.
Results of Pivot to the East in Oil and Gas Sector
New government structure and FES: Reformatting the state system administrating the sector

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

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