Putin’s Top Aide Says Freeze on Utility Prices May Win Backing

President Vladimir Putin’s top economic aide is looking at backing a proposed freeze on price growth for natural gas, power and rail monopolies next year as the Russian government seeks to control inflation.

The government’s planned moratorium is “much stronger” than what had proposed in June to help rein in inflation and stimulate the economy, Kremlin aide Andrei Belousov said today in a phone interview. The proposals must still be discussed, and some conditions set in place, he said.

Putin, who is hosting a summit of Group of 20 leaders in his hometown of St. Petersburg this week, is seeking measures to jolt Russia’s economy out of the worst economic slowdown since Russia’s 2009 recession. Inflation has outpaced the central bank’s target of 5 percent to 6 percent for 12 months.

“Tariff growth needs to be lowered gradually,” Julia Tsepliaeva, head of research at BNP Paribas SA’s Moscow unit, said by phone. “However, the proposed plan is very radical and may create a shock.”

Gross domestic product expanded 1.2 percent from a year earlier in April through June, according to data today from the Federal Statistics Service. Economic growth has slowed every quarter since the final three months of 2011. In August, the Economy Ministry lowered this year’s forecast to 1.8 percent, compared with a 2.4 percent projection in April.

Gazprom, Railways

Belousov said he’s attaching three conditions to support the plan. The regulated natural gas fees that OAO Gazprom charges pipemakers, cement producers and other “fundamental” industrial consumers should be frozen; the plan for OAO Russian Railways should be coordinated with the monopoly’s financial program to avoid pushing it into a loss; and the government should create a way to control the growth of power tariffs for end users, he said.

The state companies -- Gazprom, Russian Railways and electricity network OAO Russian Grids -- and the Energy Ministry oppose the measures, according to two people involved in the talks, who asked not to be identified as the matter isn’t settled. A moratorium is unlikely to be decided by Sept. 9, when the government is scheduled to present forecasts on the tariff plan to Prime Minister Dmitry Medvedev, they said.

“All the government’s work to create drivers for economic growth would collapse,” Vladimir Yakunin, the head of Russian Railways, said by phone. “The investment program would be cut radically and plans to use infrastructure bonds and oil funds dropped because Russian Railways wouldn’t have funds to service the debt.”

Economic Risk

Lowering utilities’ fees will help remove a driver that distorts inflation, while a moratorium raises the risk that the monopolies will cut investments sharply, hindering economic expansion, BNP’s Tsepliaeva said. Tariff growth accounts for about one-third of inflation, while monetary factors contribute the rest, she said.

In June, Putin called for utilities’ fees to be limited for five years to the level of consumer price growth.

The government’s proposal will affect investment programs in nominal terms, Prime reported, citing Finance Minister Anton Siluanov. Siluanov backed the moratorium, the news service said.

While the proposed measures are “too harsh,” a one-year freeze may help during the current economic slowdown, former Finance Minister Alexei Kudrin said today at the G-20 meeting with Putin in St. Petersburg.

To contact the reporter on this story: Evgenia Pismennaya in Moscow at epismennaya@bloomberg.net

To contact the editor responsible for this story: Torrey Clark at tclark8@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.