Russia is struggling to overcome rising prices for gasoline and other petroleum products in domestic markets. The greatest challenge so far, arguably, has been making the case to the general population – people often view rising prices as a ploy by large companies to make more money and are puzzled by the fact that gasoline prices are going up in a country that has so much of it. And in remote areas, as well as in some bigger cities, people often have to suffer through brutal winters without any heat (Russia uses central heating systems). In regards to gasoline, for example, in the past, the government has tried working with the business community to stop rising prices through agreements to ‘voluntarily’ prevent price increases – with limited success. Now, its trying out a more market-based solution:
A commodities exchange for petroleum products was identified last spring as a means of countering rising fuel prices, mainly prices for heating oil for housing and for diesel, on regional markets. Luring state purchasers to the exchange is intended to combat regional monopolization and corruption among local authorities, which are the main factors contributing to rising prices. The draft resolution does not require local administrations and state customers to buy petroleum products on the exchange, although it specifies a target share for state customers by the second quarter of 2007.
The Russian government initiated several criminal cases against mayors and governors who do not take the necessary measures to supply their cities/regions with enough resources to get through the winter. Corruption and cronyism are often the defining elements of murky dealings that lead up to these cases. As you may have guessed, the push for setting up the exchanges, as for many other things in Russia, is linked back to Kremlin:
Russian President Vladimir Putin has given an instruction to establish the exchange. Economics Ministry officials and oil company executives will meet to discuss the exchange on November 21.
Published Date: November 15, 2006