Non-Payments in the Energy Sector

Despite the reduction in arrears and barter observed after the rouble devaluation of the August 1998 crisis the phenomenon of non-payments in Russia is yet to be addressed. Non-payments of all forms remain especially severe in transactions involving the energy sector, defined as an aggregation of the electricity and natural gas industries. The high concentration of overdue receivables and non-monetary forms of settlement in the energy sector provides evidence that power and gas industries subsidise a large share of the economy, including industrial and social consumers. Social and political costs of the closure of large nonviable industrial enterprises unable to pay their operational costs force the governments of all levels to prevent their disconnection from the energy supplies. The authorities effectively encourage EUS and Gazprom to tolerate ‘strategic’ customers's arrears by turning a blind eye to natural monopolies tax obligations. On the other hand, the persistent failure of the federal and regional authorities to comply with the budget laws have prompted the budget-funded organisation to run arrears to the energy suppliers, which, in turn, led to numerous tax offsets involving the electricity and gas companies. In addition to the government's policies there are structural factors specific to the energy sector. Imperfections of the delivery network allow the rent-seeking electricity resellers and regional utilities managers to use nontransparent barter chains. This and the lack of supervision by UES enable them to put up with non-payments by the customeres and divert funds from the power generators. Consolidation of control over UES subsidiaries accompanied by the active debt settlement policy and modernisation of the delivery network are the structural measures that required to reduce the scale of non-payments in the energy sector.