Russia and Price
The time has come once again to consider the reason behind the current increase in fuel deficit in Mongolia and think over the measures that our government should take to avoid this crisis so as to depend less on the accompanied price inflation. For Mongolia, which imports its entire fuel supply from the Russian Federation, slightest fluctuations in the latter’s market, particularly changes involving the oil industry, have a major impact on our economy.
Because the smallest drop in the economic pool there becomes a large wave by the time it reaches us here, it is crucial to examine, grasp and take actions in sync with political and economic changes in Russia.
It is also important to recognize that this chronic fuel deficiency that shocks Mongolia time and again is not intentional from the Russian side. That the largest oil producer in the world (10 mln barrels or 1.43 mln Tonns per day) followed by Saudi Arabia, has ceased to supply its oil demand has political causes.
Russia consumes half of its oil production and up to the present has artificially restricted the price on the domestic market. The founder and owner of “Lukoil” V. Alekperov says, “As of today, Russia’s domestic gas prices cannot cover the cost of production and delivery.” By mid April of this year the increase in gas price on the international market rose to double by comparison to Russian domestic price.
As a result, oil suppliers started to focus on export. Another reason for the increase in oil price on the international arena is that, since its recent natural catastrophe, Japan has intensively stocked up on its oil reserves by buying a sizeable amount of gas supplies from Russia.
While in Russia, domestic shortage in gas supply was a beneficial strategy for resisters to president A.
Medvedev’s policy: to withdraw the government from setting ceiling prices in gas trade, opponents to the president also expressed their discontent with his decision, announced in February of this year, to resign senior public officials from the posts at the board of directors of companies that have substantial government stakes.
Furthermore, since the four petroleum companies that entirely dominate Russia’s market – the three state owned “Gazprom”, “Rosneft”, “TNK-BP” and the single independent “Lukoil” – began to export most of the products to the international market, Russia had begun to experience a gasoline shortage starting from mid April in Siberian cities and spreading throughout the whole country so that by May 1st oil export had halted altogether.
As Russian presidential elections approach, A. Medvedev’s program to cutback government involvement in the national economy is exposing the discrepancy in political views between the president and V. Putin who advocates stronger government role in the economy.
The fault of market supply and demand, however, is not the reason behind Russia’s gas shortage. Rather the blame falls on the government’s intervention into prices of goods, which reveals that Russia still has not learned its lesson from the fall of the Soviet Union. Liberating oil prices is not a good decision for those who wish to soon be re-elected because it would mean that inflations in other sectors are sure to follow.
That is why both Mongolia and Russia will have to continue to face shortage of supplies for at least a year, until the elections.
If Russia, the largest producer cannot regulate its gas prices then it is useless to even bother trying for a country such as Mongolia because price control for any product set by government never succeeds anywhere but only turns instead into a special type of discount for select group of individuals.
Out of all the options, though it is initially all difficult to adapt to, only free-market regulation or the law of supply-and-demand could realistically regulate consumption and production.
Only free market price naturally dictates what to do or not to do for involved parties. Only It allows to predict about supply-and-demand. And only this law protects and assists the user in making choices. It is time for Mongolia to begin to follow cost-cutting-principles.
To present day, the Mongolian government applies restrictions on gas prices by way of levelling to import excise tax rates. Our five oil-importing companies have become too accustomed to them, which is clearly visible in the racing of soaring prices and restricting excise tax tariffs.
If Russia were to liberate its domestic market prices, Mongolia too would have more options to choose from besides “Rosneft.” That one not well-known company recently declared to have started supplying gas from “Gazprom” is good news.
These few Mongolian large suppliers confuse users by explaining their parallel price rates as are they all supply from one source. Instead of competing by reducing operation costs and lowering their prices, they conspire with each other and the government is incapable of taking any action.
Long time has past since Mongolian government authorities including the President, the Prime Minister as well as Ministers of certain sectors have been serving as directors in charge of supply in the above-mentioned companies.
Finally, if foreign and domestic private sectors do not compete freely to supply cheaper, faster and uninterruptedly gas to Mongolia, the time has long come to realize from top and bottom, from Mongolia and Russian side that such “monkey business” will never end.
In the long run, it is far more beneficial if the market minded its business and the government governed. After all citizens choose not individuals but competent stable and transparent governance.
Because the smallest drop in the economic pool there becomes a large wave by the time it reaches us here, it is crucial to examine, grasp and take actions in sync with political and economic changes in Russia.
It is also important to recognize that this chronic fuel deficiency that shocks Mongolia time and again is not intentional from the Russian side. That the largest oil producer in the world (10 mln barrels or 1.43 mln Tonns per day) followed by Saudi Arabia, has ceased to supply its oil demand has political causes.
Russia consumes half of its oil production and up to the present has artificially restricted the price on the domestic market. The founder and owner of “Lukoil” V. Alekperov says, “As of today, Russia’s domestic gas prices cannot cover the cost of production and delivery.” By mid April of this year the increase in gas price on the international market rose to double by comparison to Russian domestic price.
As a result, oil suppliers started to focus on export. Another reason for the increase in oil price on the international arena is that, since its recent natural catastrophe, Japan has intensively stocked up on its oil reserves by buying a sizeable amount of gas supplies from Russia.
While in Russia, domestic shortage in gas supply was a beneficial strategy for resisters to president A.
Medvedev’s policy: to withdraw the government from setting ceiling prices in gas trade, opponents to the president also expressed their discontent with his decision, announced in February of this year, to resign senior public officials from the posts at the board of directors of companies that have substantial government stakes.
Furthermore, since the four petroleum companies that entirely dominate Russia’s market – the three state owned “Gazprom”, “Rosneft”, “TNK-BP” and the single independent “Lukoil” – began to export most of the products to the international market, Russia had begun to experience a gasoline shortage starting from mid April in Siberian cities and spreading throughout the whole country so that by May 1st oil export had halted altogether.
As Russian presidential elections approach, A. Medvedev’s program to cutback government involvement in the national economy is exposing the discrepancy in political views between the president and V. Putin who advocates stronger government role in the economy.
The fault of market supply and demand, however, is not the reason behind Russia’s gas shortage. Rather the blame falls on the government’s intervention into prices of goods, which reveals that Russia still has not learned its lesson from the fall of the Soviet Union. Liberating oil prices is not a good decision for those who wish to soon be re-elected because it would mean that inflations in other sectors are sure to follow.
That is why both Mongolia and Russia will have to continue to face shortage of supplies for at least a year, until the elections.
If Russia, the largest producer cannot regulate its gas prices then it is useless to even bother trying for a country such as Mongolia because price control for any product set by government never succeeds anywhere but only turns instead into a special type of discount for select group of individuals.
Out of all the options, though it is initially all difficult to adapt to, only free-market regulation or the law of supply-and-demand could realistically regulate consumption and production.
Only free market price naturally dictates what to do or not to do for involved parties. Only It allows to predict about supply-and-demand. And only this law protects and assists the user in making choices. It is time for Mongolia to begin to follow cost-cutting-principles.
To present day, the Mongolian government applies restrictions on gas prices by way of levelling to import excise tax rates. Our five oil-importing companies have become too accustomed to them, which is clearly visible in the racing of soaring prices and restricting excise tax tariffs.
If Russia were to liberate its domestic market prices, Mongolia too would have more options to choose from besides “Rosneft.” That one not well-known company recently declared to have started supplying gas from “Gazprom” is good news.
These few Mongolian large suppliers confuse users by explaining their parallel price rates as are they all supply from one source. Instead of competing by reducing operation costs and lowering their prices, they conspire with each other and the government is incapable of taking any action.
Long time has past since Mongolian government authorities including the President, the Prime Minister as well as Ministers of certain sectors have been serving as directors in charge of supply in the above-mentioned companies.
Finally, if foreign and domestic private sectors do not compete freely to supply cheaper, faster and uninterruptedly gas to Mongolia, the time has long come to realize from top and bottom, from Mongolia and Russian side that such “monkey business” will never end.
In the long run, it is far more beneficial if the market minded its business and the government governed. After all citizens choose not individuals but competent stable and transparent governance.
Comments
Post a Comment