No. 1, 2004
Pyotr Lakhno, Cand. Sc. (Law),
Moscow State University
ADJUSTING THE COURSE
One crucial goal of the new Energy Strategy of the Russian Federation for the Period
until 2020 is to provide a sound legal framework for the energy complex aimed primarily at giving legislative support to the current reforms.
A need long overdue
Approved by the RF Government on August 28, 2003, Russia's new Energy Strategy for the period until 2020 specifies primarily the goals, objectives and main lines of the long-term government energy policy for that period.
It is one in a series of policy-making documents defining the country's main development trends, such as the Concept of the National Security of the Russian Federation, the Government Strategy for the Economic Security of the Russian Federation, the Energy-saving Economy Federal Target Program for 2002-2005 and for the period until 2010, the Doctrine of the Energy Security of the Russian Federation, the Raw Material Security of Russia in the 21st Century, and others.
The Russian oil community view as increasingly obvious the main factor impeding the dynamic development of the national fuel and energy complex (FEC): the current algorithm of government economic regulation is out of touch with the present-day realities.
That is why the new Strategy names “the absence of developed and sound laws fully providing for the specifics of the operation of FEC companies” as a main factor holding back the development of Russia's FEC.
It is no secret that the Russian Federation provides for the functioning of all sectors of the national economy and is thus the main integrator of the Russian Federation and its constituent entities. It also determines its main financial and business performance indicators in many respects.
This is why the main energy policy aim is to use with the maximum effect natural fuel and energy resources and the energy sector potential to promote economic growth and improve the quality of life nationwide.
Given the FEC's role in and importance for the national economy, the government should focus on processes unfolding within the FEC and on providing a legal framework (an integrated system of laws and regulations) to govern business relations in the energy sector, including subsoil use, taxation and pricing, as well as investment activities and FEC infrastructure development.
A steadily developing regulatory and legal framework is the basis for government energy policy implementation. The laws and regulations governing the energy sector should be sustainable, complete and noncontradictory.
Hence the enhanced role and importance of the laws, enactments and other instruments adopted by the government to regulate the setup and operation of the national fuel and energy complex. The latter circumstance possibly explains why it took the RF State Duma so long to discuss the draft federal laws On the Federal Energy Systems, On the Trunk Pipelines, On Nontraditional Renewable Energy Sources, and some others; moreover, Federal Energy Systems draft law was recalled by the RF Government altogether.
The new landmarks
Currently, a two-pronged process is in progress in the area of legal regulation of the energy sector. On the one hand, the government is restricting its functions as an economic entity, curtailing regulation by fiat, and expanding the freedom of action enjoyed by energy market participants. On the other hand, however, it is assuming a greater role in forming a market infrastructure as a regulator of market relations. The process is expected to bring about the creation and development of highly competitive transparent energy markets based on fair trade principles.
One of the chief means to achieve the goals of and deal with the tasks set by the Energy Strategy of the Russian Federation for the Period Ending in 2020 is to shape a legal framework for a civilized energy market, and nondiscriminatory business relations of its participants among themselves and with the government and foreign partners.
The problems faced by emergent market economies justify certain government intervention. The Energy Strategy's principal government regulation mechanisms in the fuel and energy complex envisage:
• creating a sound market environment (including coordinated tariff, tax, customs and antimonopoly regulation of and institutional transformations within the FEC);
• enhancing the efficiency of public property management;
• introducing a system of prospective technical regulations, national standards and rules enhancing security and controllability of the process of development of the energy sector and stimulating energy saving;
• promoting and supporting strategic initiatives advanced by business entities in the investment, innovation and energy-saving spheres.
Basically, five generic categories of government regulation instruments are in use there.
First, price regulation. Under certain circumstances the government will regulate the prices of goods and services provided by oil, gas and other energy companies. Price regulation will also be used to control the high profits some companies receive for scarce goods and services.
Second, entry and exit regulation. The government will determine which companies can enter new markets and the time of such entry, and when they can exit from the old markets. Other types of regulation involve control of the entry and exit of certain products and services.
Third, imposition of technical regulations. This implies the spread of technical codes or rules endowed with equal legal force as laws or other regulatory and legal acts. Certain individuals or legal entities are bound by law to meet definite technical regulations. Failure to conform to these technical regulations involves fines or other legal liabilities.
Fourth, government allocation of certain benefits and rights. For example, in the event of an energy crisis, the government will impose priorities indicating the ways and amounts in which the consumers should get energy resources, if scarce.
Fifth, taxes and other economic stimuli. Instead of using technical regulations impelling individuals or companies to undertake definite actions, the government may sometimes achieve an identical result with the help of its tax policy or other economic stimuli.
The main tasks of the government in the energy sector are improving the business environment and making clear and solid rules for corporate economic activities, primarily on the basis of a predictable and balanced taxation regime and a regulatory and legal framework which protects and guarantees the investor rights; assisting the reduction of business and noncommercial investment risks, and supporting integrated insurance programs; upgrading the regulatory and legal framework as regards investor (foreign investor included) participation in creating facilities for the recovery, production, and transportation of fuel and energy resources.
Adjustment for federalism
The federal nature of the state system existing in the Russian Federation calls for the unity of aims and methods of government energy policy at the federal and regional levels.
The RF Constitution defines the spheres of jurisdiction of the Russian Federation, joint jurisdiction of the Russian Fede-ration and its constituent entities, and the exclusive jurisdiction of the latter.
Under the Constitution, the federal executive agencies shall draw up the regulatory and legal framework for the functioning of the FEC and relationships in the fuel and energy sphere; exercise directive coordination and supervision of the operation of the federal energy systems and the atomic power industry; control strategic reserves of energy resources; impose technical regulations, standards and rules of safe and effective operation of the energy plants and units, organize government supervision of compliance; issue licenses for mineral deposits and operations of FEC entities; regulate the activities of the natural monopolies on the basis of the legislative and regulatory framework and corporate shareholding.
It is within the joint jurisdiction of the federal executive agencies and the executive agencies of the constituent entities of the Russian Federation to lay down the terms of licensing of mineral deposits, supervise compliance with the licenses issued, and organize fuel and energy deliveries to consumers in emergencies. The exclusive jurisdiction of the constituent entities of the Russian Federation includes regulation, within the framework of federal legislation, of plants which are not part of the federal energy systems; the issuing of permissions to build new and expand existing fuel and energy facilities and the allocation of lands therefore; the drafting of additional requirements as regards the ecological safety and performance of the energy facilities located in territory under their jurisdiction, with due regard for cost-effectiveness.
Some important legal guarantees of compliance with the RF Energy Strategy provisions and the by-laws passed in connection therewith are as follows:
• supervision of the implementation of measures envisaged by the Strategy exercised by federal executive agencies (the RF Energy Ministry, the RF Ministry of Economic Development and Trade, the RF Atomic Energy Ministry, and the RF Ministry of Natural Resources). This is done within the framework of administrative procedures regulating the Government's work and on the basis of a relevant report submitted to the Government every year in the first quarter;
• inclusion of the measures envisaged by the Energy Strategy in the RF Government's plan of action to implement the socioeconomic development guidelines for a relevant period;
• mandatory accounting for the provisions of the RF Energy Strategy for the Period until 2020 by the federal executive agencies and the executive agencies of the constituent entities of the Russian Federation in the process of drafting and implementing measures of government regulation for the fuel and energy complex, and regional energy programs.
A thing of fundamental importance for the implementation of the Energy Strategy is to create on its basis sectoral (for example, in the oil industry or in engineering), corporate (for example, in JSC LUKOIL), and inter-sectoral (for example, in the licensing area) programs and specific projects based thereon. Work along these lines has just begun.
The Strategy aims to link together the two principal lines of development: socioeconomic processes and the development of Russia's FEC as such.
Measures envisaged by the RF Energy Strategy, including the adoption of regulatory and legal acts at different levels, should result in the emergence of an effectively developing fuel and energy complex and an energy market capable of meeting the energy requirements of the growing economy and of integrating with the world energy markets. Currently, the RF Energy Ministry is drafting, on orders from the RF Government, a number of RF laws, such as the law On Federal Energy Policy, the law On the Federal Energy Systems, the law On the Inventory of Fuel and Energy Resources, and others.
