State Duma lifts energy price caps for industrial consumers in Russian Far East and Arctic regions
© RIA Novosti. Alexander Kryazhev

State Duma lifts energy price caps for industrial consumers in Russian Far East and Arctic regions

The State Duma adopted a law that regulates electricity rates in the Far East and the Arctic for certain industrial users. The law, adopted in the third reading, amends the federal law On the Electric Power Industry. The bill, sponsored by the Russian government, is aimed at stimulating entrepreneurial activity.

The new legislation was drafted by the Ministry of Energy with a view to building long-term relations between energy companies and industrial consumers, to prevent a decrease in their financial and economic stability, to improve the investment climate and stimulate business activity in Russian Far East and Arctic regions in the context of the sanctions. The amendment will liberalize pricing for bilateral wholesale contracts for facilities that open after July 1, 2017, and that are located in regions of Russia that are not included in competitive or regulated price zones.

“An analysis of law enforcement practice has shown that the key issue affecting the possibility of implementing major investment projects is the availability of loans from Russian commercial banks and financial institutions, which require borrowers to provide guarantees for their project’s planned revenue over the entire implementation period,” the explanatory note says.

This amendment abolishes the price cap, which will give the respective parties the opportunity to reach preliminary agreements on electricity (capacity) prices as well as the period for which they can be set. It also clarified the regulation of long-term take-or-pay bilateral contracts in retail electricity markets. These changes are aimed at stimulating economic activity and promoting stable contractual relations between electricity producers and consumers of electricity, the explanatory note says.

The consumers, that is, the producers of precious metals and stones in the region, will be entitled to use a three-year mechanism of gradual bringing the phased-in “preferential” (reduced) electricity rates to an economically justified level. To increase the efficiency of investment and business activity, the bill provides for a price reduction mechanism until 2028 for consumers engaged in the mining of precious metals and stones and implementing investment projects in the Arctic zone of the Russian Federation.

The law will come into force on January 1, 2024.