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Putin Weighs Slower Growth in Utility Fees to Fight Inflation

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April 25 (Bloomberg) -- Russia, which is struggling to rein in inflation and revive the economy, may slow fee increases for regulated industries such as electricity and natural gas, President Vladimir Putin said.

Proposals at an economic-policy meeting in the Black Sea resort of Sochi this week would lower the planned rate of tariff growth for companies such as OAO Gazprom, according to Putin. Tariff increases fan inflation expectations, he said today during a live televised call-in show.

The government may suggest freezing tariffs, an official who participated in the Sochi meeting said on condition of anonymity because the information isn’t public. Still, companies must nevertheless fulfill investment pledges or risk management changes, according to the official.

Russia became the largest emerging economy to raise interest rates last year as the central bank prioritized inflation over the flagging economy, resisting government calls to lower borrowing costs. While Putin demanded April 22 that the Cabinet draw up proposals to stem “alarming signals” of economic deceleration, consumer-price growth remains above policy makers’ 5 percent to 6 percent target range.

The ruble has lost 2 percent against the dollar this year because of a decline in the price of oil, Russia’s main export earner. The Micex Index of stocks has lost 7 percent.

Investment Cash

The government usually sets annual tariff increases above inflation so state-run monopolies such as Gazprom, OAO Russian Railways and OAO Russian Grids can fulfill their investment programs. It’s already delayed by more than two years a plan raising regulated gas prices for industrial consumers to make domestic sales for Gazprom, the world’s biggest gas producer, as profitable as exports. The government had previously targeted parity in 2011.

Gazprom’s board approved 705.4 billion rubles of investments for 2013 in December and may revise the plan up in the second half of the year, Chairman Viktor Zubkov said April 19. Russian Railways plans to invest about 1.1 trillion rubles in 2013-2015 to upgrade infrastructure, while Russian Grids, formerly MRSK Holding, has allocated 835 billion rubles through 2017 for reconstruction, new capacity and distribution.

Railway-cargo tariffs rose 7 percent Jan. 1, while electricity and gas prices for industrial customers will increase 10 percent and 15 percent on July 1, according to the Economy Ministry. Putin delayed some tariff increases by six months last year to hold inflation back before presidential elections in March.

Inflation Role

Non-monetary factors including tariffs and food prices account for half of the inflation rate, according to Elvira Nabiullina, Putin’s economic aide who’ll take over as central bank chairman in June. Government and monetary-policy makers should coordinate on utility tariff issues, she told lawmakers April 9.

Consumer-price growth reached 7 percent from a year earlier in March compared with a 6.6 percent advance in 2012. Russians rank inflation as their second-biggest concern behind housing and access to utilities, according to a March 15 poll by the state-run All-Russian Center for the Study of Public Opinion.

Gross domestic product will expand 2.4 percent this year, according to the Economy Ministry, which has cut an earlier forecast for 3.6 percent growth and said high interest rates are partly to blame for the slowdown.

The principles of economic policy will remain unchanged, Putin said today.

“We will primarily pay attention in the future to macroeconomic indicators and guide the real economy to meet the population’s social needs,” he said.

To contact the reporters on this story: Olga Tanas in Moscow at otanas@bloomberg.net; Irina Reznik in Moscow at ireznik@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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