Do We Need to Liberalize Pipeline Oil Transport Rates?

1 june 2017

"The goal of today's event is to try and figure out if transport of oil over trunk pipelines is a naturally monopolistic service and thus needs rate regulation," said Analytical Center expert Alexander Kurdin as he opened the round-table titled Is Transport of Oil over a Pipeline a Natural Monopoly?

The experts discussed the current state of the market, the level of competition on it, the transport of petroleum products through pipelines as well as the pros and cons of rate regulation and free market pricing. They concluded that the main companies competing in the petroleum products transport market in the domestic and export segments were Transneft PJSC and Russian Railways PJSC.

"Having analyzed the market volume we have found that the domestic market has for the past 3 years been dominated by rail transport, which has a share of about 72% in it, with pipelines accounting for about 12% of total amount of petroleum products carried," said the deputy head of the Department for the Regulation of the Fuel and Energy Sector of the Federal Anti-monopoly Service of Russia Konkov. “Assessing the state of competition in the domestic market we found that the rates of Transneft are very much competitive compared with how much Russian Railways is charging and cannot be raised by a lot." According to the expert, the FAS proposes changing the method of state price regulation for Transneft, specifically, the idea is that instead of setting the prices for the company, FAS should simply monitor the prices the company sets itself. Transneft would still be regarded as a natural monopoly with regard to the transport of petroleum products through the system of trunk pipelines, Mr. Konkov pointed out.

Deputy CEO of ANO Institute for Natural Monopoly Issues Alexander Grigoriev does not think there is currently much need for the liberalization of pipeline oil transport rates. "The rates could be liberalized, but there are some risks there," the expert said." For example, both Transneft and railroad car operators can go ahead and raise their rates simultaneously. And it is not at all clear if FAS would be able to respond to that in a timely manner." According to Mr. Grigoriev, any price liberalization carries bears the risk of a sharp increase in prices for end consumers, so FAS must monitor the situation with prices here in the long term. The expert also believes that steps must be taken to ensure equal conditions both for the transport of various kinds of petroleum products and for the liberalized infrastructure sector in the rail transport itself.

The results of the discussion will be used by Analytical Center experts to prepare a special report.