Russian Far East: Subsidies or Development

Since 2017 electricity tariffs for business in the Russian Far East have been subsidized at the expense of consumers across the rest of the country through the RusHydro wholesale market uplift. Far Eastern energy companies became the recipients of the targeted subsidies, and the amount of compensations withdrawn from the WECM keeps increasing: in 2018 it amounted to 35 bln rub., and in 2019 it may reach 48 bln rub.

Today, a decision on the extension of the mechanism until 2028 is considered, a special uplift may be introduced to cover the costs of investments in the Far East. However, the current scheme requires revision to make it more focused. Only a small share of the funds (13% in 2017) is used to provide allowances on the high “diesel” tariffs in the isolated areas of the Far Eastern Federal District. The major part of the subsidy is allocated to reduce tariffs in the region below the level of marginal prices in the European part of the Russian Federation.

The study “Russian Far East: Subsidies or Development” provides an overview of the current mechanism of inter-territorial subsidies for the Far Eastern energy companies, analyzes the efficiency of the funds allocation and makes proposals on the optimization of the mechanism in case of its extension.

Employees

Partner, Power Sector Practice
Senior Consultant
Junior analyst