28 april 2010

Deputy Prime Minister Sergei Ivanov chairs a meeting of the Government Commission on Transport and Communications


Sergei Ivanov's opening address:

Good afternoon, ladies and gentlemen.

Today, we have a meeting of the Government Commission on Transport and Communications, with two items on our agenda.

The first concerns implementing the plan to reform the process for determining aviation fuel prices. I am sure everyone remembers the situation at Russian airports in the summer of 2008, two years ago, when jet fuel prices skyrocketed in Russia while they fell in all European markets, including the London Stock Exchange. As the result, Russia became the most expensive place in the world to refuel. Costs were far lower at Heathrow, in New York, Bishkek and Beijing than in any Russian airport.

The result was to be expected: many Russian airlines reached the verge of bankruptcy, and we had to take emergency measures to deal with this problem, which certainly had no economic logic to it.

An investigation by the Federal Anti-Monopoly Service found that the main causes of these arbitrary fuel prices were the actions of dominant businesses, that is, vertically integrated petroleum companies that supplied wholesale fuel from refineries. Companies with monopolies on fuelling stations at the Russian airports were also to blame.

And that was the economic and financial plight in which we found ourselves in, thanks to big jet fuel manufacturers and fuelling monopolies, which literally set whatever prices they wanted for fuel storage and delivery to wing-side refuelling stations. All of this resulted in a completely uncontrolled, wild increase in prices.

Another summer is approaching. I hope the situation will not repeat itself, but everyone knows that as a rule, fuel prices, including jet fuel, increase in Russia when farm work and air travel reach their peak. I would like to focus on this issue and warn everyone that we will absolutely not allow another increase this year. We have already worked out some practical tools to prevent this.

To this end, the Federal Anti-Monopoly Service has drawn up a plan to reform the process for determining aviation fuel prices. The plan calls for the introduction of a widely known and agreed upon pricing formula for all transactions between oil companies and airlines, which has never been in place before. It also stipulates that stock exchanges, electronic trading platforms and so-called futures, also known as forwards, all play a role in determining prices, and that the government regulates involved aircraft refuelling services, perhaps by establishing alternative airport fuelling stations, or in other words creating a competitive environment where one did not exist before. Incidentally, we also had no system of determining prices for refuelling, fuel storage and delivery to wing-side fuelling stations. Now, such a system has been introduced.

We are also strictly enforcing the division between airport services and airline transport services. We have introduced restrictions on airport fuelling stations that combine storage, refuelling and sales functions. The plan is being implemented already, but even the initial results from last year and the beginning of this year promise that we will keep the situation in check and put an end to the opportunities for outlandish profits and making money out of thin air. These opportunities are gone and, I hope, gone for good.

Jet fuel prices remained roughly 30% below 2008 prices throughout last year. This is the most dramatic breakthrough as of yet.

A representative from the Federal Anti-Monopoly Service will report in greater detail about the progress and results of the plan to reform aviation fuel price-setting.

The other item on today's agenda concerns shipping. We will discuss and assess the results of our efforts to streamline the Russian International Register of Vessels. Let me remind you that we made these changes because we wanted to force as many Russian vessels as possible that are registered in offshore countries or flying so-called flags of convenience to register as Russian, and thus reduce Russia's dependence on the fluctuations in the freight market.

We knew that we would not be successful unless our ship owners saw that the arrangement could bring economic benefit, which is why a new federal law was endorsed on December 20, 2005, stipulating special customs and taxation regulations for vessels on the Russian International Register.

The law was passed more than four years ago, and international experiences shows that a national register of vessels needs four or five years to get firm footing.

So we will discuss the results of these efforts today and, more importantly, we will see what remains to be done to further ensure the steady increase of the number of Russian ships transporting Russian freight to and from Russian ports. Moreover, it is clear that to achieve this we cannot just compel Russian vessels currently flying foreign flags, mostly flags of convenience, to register. It is even more important to register all Russian-built vessels under the Russian flag as soon as they leave Russian shipyards. The Ministry of Transport will speak on this issue.

Let us get down to business.