No. 3, 2004

Vladimir Katrenko,
Deputy Chairman of the RF State Duma, Member of the Committee for Energy, Transport and Communications


The fuel and energy complex (FEC) occupies a special place in the economy of the Russian Federation. This is due to Russia's uncommonly rich natural resources, distinct natural and climatic conditions, and unique economic history.

Energy is not all

For today's Russia energy is life itself: it is the source of heat and light, of budgetary revenues and foreign currency receipts, of employment for millions of common people, and of the wealth of the country's elite. The industry will continue to occupy such a special place for a long time yet, determining, among other things, the country's position in the world economy.

This is explained by two basic factors. First, it is Russia's tremendous resource potential which is the country's most valuable national asset Р while having 2.8% of the world's population and occupying 12.8% of the world's area, Russia possesses: 12-13% of the hypothetical resources and about 12% of the explored reserves of oil; 42% of the hypothetical resources and 34% of the explored reserves of natural gas; and about 20% of the explored reserves of coal.

Second, it is the unique production, scientific, technological and manpower potential of the fuel and energy complex which has been created by the labor of many generations and which has become a most important component of the national economy.

Regrettably, it should be admitted that in the last decade of the 20th century the place occupied by Russia's FEC was changing in a direction completely contrary to the world trends. In the leading countries of the world it is mostly the manufacturing industry (particularly, its modern, science-intensive sectors) and the services sphere that account for the GDP increment. The share of raw materials, including fuel and energy resources, in the structure of the world GDP is constantly going down. This macroeconomic reality should be taken into account in dealing with the problems of and prospects for Russia's FEC and in appraising the role of the energy factor in the country's development. Russia remains a great energy-producing power, but only in terms of second-rate competitive advantages Р its energy resources potential and as a producer of primary energy resources. As for its "superpower status", it is already a thing of the past. Incidentally, this fact is confirmed by the statistics of the per capita consumption of primary energy resources. Besides, in terms of the overall volume of energy consumption the United States and China, for instance, exceed Russia 4.5 and two times, respectively. Furthermore, it should be noted that nearly half of the energy resources in Russia are being used inefficiently, which widens its economic lag behind other countries.

Latter-day challenges

Last year, the share of the FEC sectors in the country's economy topped 20%, reaching 1,185 bln. rubles. Further-more, all kinds of excise and other taxes and customs duties paid by the FEC companies accounted for over 38% of the federal budget revenues, while the export of fuel and energy resources brought in $52 bln.

It does not follow, however, that Russia is a mere raw materials supplier, that it depends completely on the interests of the importers of its natural resources. In fact, its fuel and energy industry is quite self-sufficient. The FEC is by far more than just intrigues around JSC Unified Energy Systems of Russia or JSC Gazprom - as some people purport. Managing the FEC requires efficiency and involves a lot of hard work. There are many outstanding personalities among the industry employees - talented managers, people with a broad outlook, market-oriented capability and statesmanlike thinking. People having such qualities are always in demand and will always play a decisive role in ensuring the country's security with regard to energy.

The challenges, which Russia faces today in the energy sphere, are many and varied. The economic growth now under way is bound to boost demand for energy resources. But increasing their production from year to year will be constrained by worn-out fixed assets, depletion of the old fields and the hard-to-reach location of new ones, the fact that for a long time we have lived on stocks accumulated in the Soviet time while new reserves were not properly explored, a lack of investment, etc.

It is common knowledge that additions to reserves are too small. But few people are aware of the fact that those reserves are systematically being written off to previously discovered and developed fields. Such writing-off became particularly widespread after the privatization of formerly Government-owned oil and gas companies. This is being done by the new owners to maximize profits. And that is quite deplorable, for the written-off reserves do not return to the real owner of mineral wealth Р the Government. All that makes for the plunderous exploitation of this wealth.

With due account of the reserves written off in the period from 1991 to 2000, the deficit in the incremental reserves of liquid hydrocarbons (crude oil and gas condensate) for the period totaled 3,347 mln. tons, or about 4.8 times the official figure.

The strategy of energy security

If I am asked whether these and similar other problems are insoluble, my answer will be: of course, they are soluble. But it is important to understand the complexity of a problem and, on the basis of such an understanding, to tackle the problem in a competent way. It is necessary, above all, to strengthen the Government's role in the formation of a civilized energy market, to address in real earnest the pricing, taxation and customs policies, to better stimulate investment, and to improve the legislative, regulatory and legal frameworks.

As far as investment is concerned, to develop normally Russia's FEC requires over $30 bln. a year. To raise so much money it is necessary to revise the entire internal expenditure structure of the energy companies themselves. I support the view that the primary cost of energy resources should be controlled more carefully both by the producers themselves and by the government supervisory agencies. I think such practice will be introduced sooner or later.

Last year saw the adoption of Russia's Energy Strategy up to the year 2020. This is a basic program for the country's long-term development and the main instrument of government economic policy for the near future. Improvement of the regulatory and legal framework in the energy sphere is aimed at replacing administrative control of the FEC sectors with economic management. The document lays it down that the industry must be governed by direct-action laws, ensuring a Тstable, complete and noncontradictory regulatory and legal environment.У

Energy security is one of the main aspects of the above mentioned strategy. It requires cooperation and a reasonable balance between the sectors of the fuel and energy complex so as to restrain the monopolistic attitude on the part of some of the sectors, which affects most strongly the entire Russian economy and the people's standard of living.

Energy security is also important in the light of the task of doubling the GDP set by RF President Vladimir Putin, because to fulfill such a task it is necessary that the energy sector develops at an accelerated rate with reliance on high technology. It should be borne in mind that today the country's main gas fields are going over to a reduced-production mode and that very soon it will be necessary to find an alternative to gas for electric power production. Added proof is furnished by the fact that expenditures for the further buildup of explored reserves are approaching a critical stage: in five years' time we shall have to spend up to 70% of the total funds on prospecting works. Meanwhile, we have not yet reached the mineral production level of 1991. According to experts of the Russian Academy of Sciences, however, even having solved the production problems, we shall not be able to radically change our "role of supplier" on the world raw materials market. Specialists estimate that Russia will be able to reach the advanced countries' level of per capita energy provision only by the year 2025.

It is the Duma's turn now

The country's security with regard to energy can be achieved only in two ways: first, by reorienting the economic sectors to more economical production methods using the latest, including alternative, sources of energy; and, second, by changing the energy consumption balance in favor of more accessible sources of raw materials. The one and the other have to be effected simultaneously though. Taking priority in the Government's economic policy, both ways help raise the efficiency of the industry. According to the Energy Strategy, in the 21st century Russia should go over to a resource-saving way of development by fostering effective innovation technologies. By the year 2020, it is planned to decrease the energy intensity of Russia's GDP by 26-27% and to ensure up to 50% of expected economic growth at the expense of its restructuring without an increase in energy expenditure. Today, however, it has become apparent that implementing this policy is hampered by the absence of a necessary system of incentives determined by legislation.

Meanwhile, neither the Government, nor the State Duma of the previous convocation, nor any other agency of state power has actually got down to fulfilling the important task of going over to the way of efficient economic management and resource-saving. And that in spite of good prerequisites. The previous parliament approved the federal draft law on amending the federal law on energy-saving, which envisaged relevant regional legislative initiatives. Work was also underway on draft laws concerning a redistribution of powers in regard to energy-saving between the constituent members of the Russian Federation and the federal Government, as well as on determining the mechanisms of financial incentives and introducing quick-recoupment energy-saving projects. It is up to the current Duma to carry on that work.

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Oil of Russia, No. 3, 2004
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