Russia's Tariff Adjustments Of Natural Monopolies And Their Economic Impact

Although the development-oriented competition policy and the policy oriented to the limitation of monopolization have been actively carried out in the Russian Federation for the past 20 years, natural monopolies continue to be a significant segment of Russian economy.Russian price level of the whole economic complex and the country's competitiveness level are determined by price changes in services provided by natural monopolies. In addition, natural monopolies fulfill their social functions. Infrastructure stability and maintenance have a direct impact on social standards of living. Segments of natural monopoly in Russian economy are electric energy industry, natural gas industry, rail transportation, pipeline transportation and telecommunications.Analysis of three biggest natural monopolies of Russian Federation (JSC "Gazprom", JSC "Russian Railways (RZD)", JSC "Federal Grid Company of Unified Energy System (FGC UES)"), history and development prospects, reform estimation in these industry sectors, governmental regulation, pricing methods, tariff dependence in these industry sectors on major national measures are performed in this paper.This study is divided into five sections.Section 1 presents the evolution of the natural monopoly term; regulation of natural monopolies; aims, types and methods of tariff policy (Ramsey Pricing, Fully Distributed Cost, Rate of Return Regulation, Two-Part Tariff). Major aspects of the impact of natural monopolies'tariffs on inflation, economic growth and social development are also described in this paper.Section 2 explains the history of monopolism in Russia and its place in the country's economy. The characteristics of three natural monopoly subjects and their activities, the speed and results of structural reforms in natural monopoly industries, main directions of state regulation and the characteristics of basic normative legal documents regulating the activity of natural monopolies' subjects are also given in this section.Section 3 describes the practice of cross subsidization and the mechanism for enterprise tariff policy formation of the following industries:electric energy industry, natural gas industry, rail transportation. Statistics on tariffs of these industries is regarded over a period of 18 years from 1992 to 2009. Dynamics of tariffs have also been analyzed.Section 4 provides analysis of the impact of natural monopoly tariffs on the economy key figures of Russia. So, it is concluded that growth of tariffs and prices of natural monopoly products (services) is one of the most important factors of inflation in all economic sectors, change in GDP and social standard of living.The results of reforming of natural monopoly enterprises and principal directions of their efficiency improvement are described in Section 5.