Time for some joined-up thinking

Several weeks ago I wrote about the Federal Anti-Monopoly Service, which had accused five of Russia's largest oil companies of price conspiracy on the jet fuel market. Two of Russia's state-controlled giants - Gazprom Neft and Rosneft - as well as Lukoil, TNK-BP and Surgutneftegaz stand accused of abusing their dominating market position and setting excessively high prices on the wholesale markets for jet and diesel fuel in Russia.

Since August 2007 the price of jet fuel in Russia has gone up by 89 percent, irrespective of seasonal changes or any other factors that are going into the price formula. This week the old story surfaced again as the Federal Anti-Monopoly Service accused four out of the five companies - Gazprom Neft, Rosneft, TNK-BP and Lukoil - of failing to provide the necessary documents on their price formation mechanisms and thus hindering the investigation. This has forced the anti-monopoly body to start using the services of the Interior Ministry in the course of examination and to threaten the companies' management and the companies themselves with administrative responsibility.

In the meantime, July figures provided by the Central Dispatch Ad­ministration of the country's fuel and energy complex show that both the production of oil and prices of crude and oil products have started to fall in Russia. The only things that are growing are the oil export tariffs, which are set every three months based on the previous months' prices, and the price of Ai-95 gasoline (this hike being a result of numerous accidents at refineries across Russia). Analysts agree that this downward price trend is a result of political pressure applied by the country's authorities and numerous anti-conspiracy cases filed by the Federal Anti-Monopoly Service against the companies.

But the downward trend may not be long-lived. This week it was an­nounced that the Federal Tariff Service has raised the oil transportation tariffs through the Transneft pipeline system by another 19.5 percent. This follows an earlier hike of 15 percent. The new tariff hike is supposed to help Trans­neft cope with financing of the East Siberia-Pacific Ocean pipeline construction. The increased expenses reflect not only the growing metal prices, which mean higher pipeline prices, but also the growing cost of credits that Transneft is taking out to finance the venture. There is little doubt in anyone's mind that increase in oil transportation tariffs will translate into an increase in oil product prices for the consumers.

What is the connection between these two stories? Well, it seems rather obvious to me. Different extensions of the Russian state behave with full disregard for what the other one is doing. On the one hand it's applying political and administrative pressure to the oil companies, instead of considering lifting the tax yoke, which currently amounts to 56 percent of the end gasoline price. On the other hand it's raising the oil transportation and oil export tariffs, forcing the oil producers to factor those into their decision-making process. It may only be me, but the situation seems counterproductive. Oh, I am not defending the oil companies or calling out to the government to give those companies a giant tax cut. I know all about their super profits and whatnot. But I think it is pure craziness to believe that if you tax the oil companies enough, that will rob them of their exuberant profits. The taxes will simply be passed along to the end consumers - that's the way it works. I understand the need to help Transneft deal with servicing its debts and I understand the desire to stuff the state coffers with as much cash as possible while the high oil price period lasts. But the state has to be honest - it cannot have both: stuffed treasury and low oil product prices/happy population. Raising taxes will lead to higher prices will lead to rising inflation - and that circle will not stop until there is consumer demand for these products. And consumer demand for airplane tickets and gasoline is not going anywhere - adding a new twist to inflation. The government really has to find a different tool to fight the out-of-control oil product prices - political pressure on the one hand and new taxes on the other just don't work as well as some would like to hope.