[Description of Source: Moscow ITAR-TASS in English -- main government information agency]
1207 171202 MSK
[Description of Source: Moscow Interfax in English -- non-government information agency known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's regions]
Russia: Electricity, gas tariffs to go up by 14-20 per cent in 2003
CEP20021216000116 Moscow ITAR-TASS in English 1213 GMT 16 Dec 02
[FBIS Transcribed Text]
MOSCOW, December 16 (Itar-Tass) -- Electricity and gas tariffs for the population will go up in 2003 by 14 and 20 per cent respectively, Georgy Kutovoy, head of the Federal Energy commission, said at a press conference in Itar-Tass on Monday.
According to his information, the tariffs will be increased in equal measure both for the population and for industrial enterprises. "The government adopted a resolution several days ago, which does not allow Gazprom to increase gas tariffs by more than 20 per cent," he added. Kutovoy believes that the idea to introduce different tariffs for the population and the enterprises, which was put forward by Gazprom, "may create the situation, which we now have in the sphere of electricity supply and which we are trying to change."
Responding to the question of Itar-Tass on the increase of electricity tariffs for the population, Kutovoy said that "the growth will range from 14 to 19 per cent in various regions, depending to their energy situation."
Commenting on the transformations in the energy sector of Russia, Kutovoy stressed that "if the reform develops along the way outlined by the laws, things will go smoothly." "We convinced the government that regulation on the regional level should be preserved. In this case the governors and the local government bodies become our partners, instead of opponents," he added.
[Description of Source: Moscow ITAR-TASS in English -- main government information agency]
Gref Assesses Russia's Growth, Reform Prospects in Interview
CEP20021212000215 Moscow Ekspert in Russian 09 Dec 02
[Interview with German Gref by Aleksandr Ivanter: "The Most Difficult Problem is Reforming Ourselves --German Gref, the head of the Ministry of Economic Development, Doesn't See Qualitative Changesin the Mechanism of Economic Growth, Considers the Reform of the State Apparatus To Be the Hardest and Is Ready for a Further Reduction of the Tax Burden" -- taken from HTML version of source provided by ISP provider]
[FBIS Translated Text]
[Ivanter] The Ministry of Economic Development declared 2001 to be a year of growth oriented toward the domestic market. What is your qualitative assessment of the economic growth this year?
[Gref] I must say that there was no fundamental change in the quality of growth either last year or this year. The growth is based mostly on favorable foreign economic market conditions, which are a generator of domestic investments. Growth in the export industries brings orders in metallurgy and on along the chain in other industries. That is also where most of the growth in revenues is centered. For example, the average wage in oil production today is 22,000 rubles -- those are already very high numbers.
Strictly speaking, we didn't even expect qualitative changes. It is impossible to make qualitative changes in the structure of growth in one or two years or even in five years -- this takes a much longer time frame. The reforms we are now working on àre in fact aimed at changing the structure of the economy, tentatively speaking, by 2007.
Now about the growth rate. The GDP growth rate this year will be about 4 percent -- that is somewhat higher than our baseline forecast. The higher rate came, again, from the favorable foreign economic market conditions, and also from a sharp decrease in capital outflow. It is gratifying that the downward trend in capital outflow is continuing and is even intensifying.
There is a potential for economic growth to reach 6-10 percent a year. The trouble with the Russian economy is primarily its monopolization. More than 50 percent of GDP is produced in the state sector. So we must make every effort today to destroy the monopolies, which is being done, for example, in the reform of RAO YeES Rossii or the housing and utilities economy.
[Ivanter] What is your vision of the reform of the housing and utilities economy?
[Gref] It is extremely important to get this reform off the ground. It is the only way to introduce competition between state and private companies in the service market. The key to the reform is to change the model of the housing and utilities economy by turning grants into subsidies. It is time to stop nourishing the monopolies, which feel very are comfortable in the utilities sector, and to open this highly profitable part of the economy to small business. Grants should be given to people rather than businesses. As for the public paying for 100 percent of housing, I firmly state that this idea is wrong and pernicious in every respect.
[Ivanter] Which reforms are having the greatest difficulty and running into the most resistance? Where are there major breakthroughs, and where are there problems and adjustments to the original reform plan?
[Gref] The most difficult problem is still reforming ourselves. Administrative reform and the reform of the state are most difficult in terms of technology, psychology, the amount that needs changing and the readiness of officials for these changes.
The administrative reform has three components. The first is to demarcate powers between the levels of government, which the Kozak commission is working on. The second is to reform the civil service and define the status of a civil servant. And third is the actual reform of the structure of the executive branch.
So far we still have a Soviet-type state: an executive hierarchy that, on the one hand, is missing in the traditionally regulated sectors of the economy, and on the other, is extremely bloated, unwieldy and awkward in the industries and areas where the state is not supposed to be present at all. Hence there is an excessive burden on the economy, a supplemental tax on the economy in the form of an inefficient bureaucracy and a lack of qualitative institutions for normal operation of the market economy. Here's an example. The system of dual accounting -- bookkeeping and tax accounting -- by our estimates results in expenditures by economic agents of 1 to 1.5 percent of GDP. This is an indirect tax burden that business is forced to bear because of poor administration.
There is a similar need for radical restructuring of the system of licensing, business registration and all the procedures involving standardization and certification. The inefficient law-enforcement system and the judicial system require major transformation, and so forth. We must sharply improve the quality of state institutions. Otherwise we will never achieve stable acceleration of the economic growth rate.
As for where we have made headway, major steps have been made in tax reform, although it's only, one might say, a good start, which still has to be developed in a very serious way.
There have been major breakthroughs in the foreign economic area -- everything that was done to get market-economy status. A few days ago, following the lead of the US and the EU, South Africa recognized Russia's market-economy status, and a parade of recognition of Russia's market-economy status has started. This is one of the most significant events in recent decades in foreign economic policy.
[Ivanter] How are the talking regarding Russia's entry into the WTO going?
[Gref] Things are going pretty well with the WTO today, although it's impossible to talk yet about a specific time frame for joining that organization.
A lot of disputed issues have already been removed as of today, including the evening out of energy tariffs and the level of state support for agriculture. We can safely say today that we will be able to reach agreement with Europe and America. That cannot be said of China. The Chinese are not ready for open communication, and so far we don't know what their demands are regarding our entry.
Another problem is Ukraine. There is a likelihood that Ukraine very shortly will join the WTO on terms that are absolutely not to its benefit. The WTO is viewed in Ukraine as a stepping stone to entry into the EU. As a result Ukraine will sharply lower prices and duties on all of its goods, including those its exports to Russia; in that case we will have to completely shield the market from Ukrainian products.
[Ivanter] A couple of months ago Finance Minister Aleksey Kudrin and President Vladimir Putin implied that we should not expect a further decrease in tax rates anytime soon. Yet businessmen are extremely skeptical about the results of the steps already taken under the tax reform. For many businesses, especially those that actively invest, the tax burden hasn't diminished, but has grown. What is your assessment of the effectiveness of the tax changes?
[Gref] My position is that we cannot ensure a high economic growth rate without reducing the tax burden -- this is an obvious task. The total amount of tax collections and all other state levies is estimated in 2003 at 40 percent of GDP. And if we add in the indirect levies stemming from the ineffective work of state institutions such as what I mentioned before, we will reach 50 to 55 percent of GDP. This is unacceptably high. You won't find a single country that shows a high growth rate with such a burden on the economy. By our estimates, a more or less stable growth rate requires an annual decrease in the tax burden of at least 1 percentage point of GDP a year.
[Ivanter] How is the process going right now? Are we adhering to this timetable?
[Gref] We have to distinguish between the nominal and the real tax burden. The nominal burden has fallen in recent years, while the real one, paradoxical as it may sound, has grown until recently. It is all a matter of escaping from the shadow of substantial layers of business and revenues. So the trend in the real tax burden has been as follows: in 1999, 31.5 percent of GDP; in 2000, 33.5 percent; in 2001, 33.9; and in the first nine months of 2002, 33 percent of GDP. The expected total for the year is 32.9 percent of GDP. In other words, based on this year's results the tax burden will drop by the precious percentage point of GDP. Next year we plan to reach approximately 31 percent of GDP in tax levies, and the total proportion of levies will be, as I said, 40 percent of GDP.
One of the top priorities is to repeal the sales tax, which today is simply destroying the service sector. It is also essential to create a good climate for production-sharing agreements. Then we will be able to attract foreign capital into the country's economy, above all to develop the economy of the regions.
I disagree with you that the president supports the view that taxes should not be lowered. On the contrary, both the president and the prime minister are following a policy of cutting taxes. The only question is about feasibility, the pace and the need to carry out an entire array of reforms. I repeat once again: we will continue work to reduce the tax burden.
But we will not be able to do this without working at the same time to restructure the whole system of budgeting and budgetary institutions, reorganizing the operation of the social sector and state services. If we look at the level of the costs the state incurs to maintain this absolutely inefficient social system, it cannot be compared to that of developed countries. For example, we have 20 percent more physicians per 10,000 population than the EU, and 2.7 times more hospital beds, but the state's total expenditures on health care in our country are far lower. What does this say? That we are underfunding the health-care system and squandering money to boot. As a result, doctors do not receive a normal wage. As a result, necessary types of medical care are not being funded. We are funding surplus beds that no one needs and we are funding institutions, whereas we need to fund the end services. And again we need to implement a simple principle: give money to patients rather than fund the upkeep of institutions. And we need to practice this principle everywhere when we use the budget, including officials. We must stop funding ministries for them to exist. We must fund the result, the performance of the ministry's functions. Only this kind of system provides an incentive to lower costs and gives society real control of the government, without which we cannot build an efficient state and an efficient economic system.
[Ivanter] Another thorny issue is the reform of the power industry. What mechanisms that can eliminate the risks from the sharp rise in energy tariffs and from the reduced reliability of the country's heating and power supply are built into the plan to commercialize this extremely important sector of the infrastructure?
[Gref] This is a global question. I will try very briefly to formulate our basic approaches. First, the package of laws that is now in the State Duma puts off the liberalization of the market. It will take at least two years from the time the law is enacted until a market is introduced. If, let's suppose, the package of laws is enacted early next year, then realistically it will take until mid-2005 to prepare a huge number of statutes and to create a new market infrastructure in order to put the law into effect. It will take these two years to create and set up a workable market mechanism for the sector, including the built-in risk regulators you refer to. I wouldn't dramatize the situation regarding a sharp rise in tariffs. The price of electricity for industrial customers in a whole host of regions is already pretty high right now. For example, in the Central Region it is about 70 kopeks, or more than 2 cents. In the European countries, with their costs, it is more than 4 cents. Even after the reform of the industry the price in our country should be lower. After all, Russia has a fairly high proportion of relatively cheap nuclear and hydraulic energy. I believe the tariffs should drop in a number of regions after the transition to market pricing. I don't think the reform of the industry will entail any shocking consequences for business and the public. No one has a stake in this, regardless of whether our government carries out the reform of the power industry or another government does.
But we must start the reform right now, when there is a surplus supply of generating capacities. If the market is introduced at a time of scarce capacities, then a price jump is inevitable.
[Description of Source: Moscow Ekspert in Russian -- Weekly business magazine known for its reporting and analysis of financial-industrial groups and their political interests, partly owned by Vladimir Potanin.]