revista presei pe energie 13 mai – part II

2011/05/13

Centre for Eastern Studies: The RWE-controlled Czech gas company is in dispute with Gazprom

The gas company RWE Transgas, which has a dominant position on the Czech market, confirmed on 5 May that it had been a party to arbitration proceedings with the Russian gas supplier, Gazprom Export, since last December. RWE Transgas wants to renegotiate the gas price formula because of the increasing difference between the price of gas supplied under the long-term contract and gas prices on the spot market. This dispute is an element of the strategy adopted by RWE’s central office in Germany, which has launched a number of arbitration proceedings with gas suppliers. A possible success for RWE Transgas is likely to encourage other Gazprom contractors to resort to arbitration for the renegotiation of analogous long-term contracts.

Since the end of 2009, growing oil prices on global markets and ever larger supplies of liquefied gas to Europe have caused an increasing difference in the prices of gas on the spot market and those set in long-term contracts. The Czech company RWE Transgas, which is part of the German corporation RWE, made an attempt to renegotiate the contract last year. It is probably demanding that part of the gas supplied under the contract from Russia be sold at spot market prices. In February 2010, Gazprom made such a concession to its largest contractors (E.ON, ENI, GDF Suez and Botas). According to calculations made by the executives of RWE Transgas, as a consequence of the uncompetitive price of the imported gas the net profit of RWE in the Czech Republic fell by 36% in 2010 in comparison to the preceding year. RWE announced its decision to raise gas prices by 9.5% in April this year. As a result, RWE is becoming less competitive than smaller, more flexible gas suppliers, and is thus losing its dominant position on the Czech market.
In 2009, RWE Transgas supplied 7.6 billion m3 of gas to the Czech market. The Czech Republic is more than 90% dependent on gas imports. Approximately 60% of its gas imports come from Russia, and the rest is supplied on the basis of contracts from Norway and purchased from the German natural gas exchange. If the parties do not reach agreement earlier, the arbitration court is expected to announce its verdict at the end of 2012. RWE is engaged in the construction of the Nord Stream gas pipeline’s branch in the Czech Republic (Gazela). However, at the same time, RWE has been consistently supporting the construction of the Nabucco gas pipeline, as it has turned down Gazprom’s proposals of co-operation on the South Stream gas pipeline project.

Centre for Eastern Studies: Nabucco’s problems are adding to the likelihood of a merger as part of the Southern Corridor

The consortium which is to implement the Nabucco project announced on 6 May that the planned start of the gas pipeline’s construction would be postponed by one year and the date of its launch into operation would be postponed by two years. At the same time, it has been hinted that the project’s costs could grow and support could increase (for example from Turkey) for alternative projects (mainly the ITGI interconnector running to Italy). The delays and problems in the implementation of Nabucco are adding to the likelihood of a merger of the projects planned as part of the Southern Corridor, which has already been under discussion for more than a half year.

The Nabucco construction’s start date has been postponed by one year to 2013, and the launch of the pipeline is now planned in 2017. Further delays may entail the postponement of the final investment decision and cause an increase in the project’s costs, of which the Turkish media are among those who have been giving warnings. It has been explained that the consortium’s decision results from changes in the plans of launching exports from the Caspian and Middle East regions, from which gas will be supplied to the pipeline. For example, the exports from the second phase of the Azeri Shah Deniz gas field are expected to start precisely in 2017.
Nabucco is the largest gas pipeline project as part of the EU’s Southern Corridor concept (it is the longest and has the greatest capacity). For this reason, its implementation is also the most expensive and the pipeline is the most difficult to fill. It has been impossible so far to guarantee gas supplies for Nabucco even partly, and the chances of success in the next few months – given the high competition and relatively low volumes of gas available – are quite low. Thus the project is increasingly likely to be modified and will probably be linked for example with the Turkey-Greece-Italy (ITGI) pipeline, the Turkish-Greek section of which has been in operation since 2007, which has been suggested for a few months now.

Institut for Energy Research: Getting a Lot of Mileage From Taxing Drivers

Beleaguered drivers who think electric cars are the solution to high prices at the pump may have been shocked to learn that the Obama Administration is developing strategies for wringing more tax dollars out of them. On May 5 details were leaked of a “VMT” (vehicle miles traveled) tax. The government doesn’t want to give motorists the ability to escape the hefty taxes already imposed on gasoline.

Any time the government proposes a new tax, Americans should be suspicious. But this particular proposal raises unique red flags, at least for those who favor free markets and individual liberty.

Big Brother Is Watching Your Odometer

The creepiest aspect in the new push for tracking vehicle miles is the idea being batted around in Texas to have the government install GPS tracking in cars that would then compute a driver’s bill the next time he or she refueled.

Although the federal proposal doesn’t explicitly mention GPS tracking, The Hill article says:

Among other things, CBO suggested that a vehicle miles traveled (VMT) tax could be tracked by installing electronic equipment on each car to determine how many miles were driven; payment could take place electronically at filling stations.

As in so many other areas, here there is a danger that the government will assume far more new power than is necessary for the ostensible goal—in this case, maintaining adequate funding for highway maintenance.

The Bait and Switch

After the leak, the Obama Administration was quick to distance itself from the proposal. However, as the government becomes increasingly starved for revenue—and assuming electric car sales at some point exceed their currently anemic pace—we can expect a growing drumbeat to get the “freeloaders” who drive on the roads without paying their fair share in gasoline taxes.

We can even expect various economists to favor the VMT tax on grounds of “efficiency.” After all, if the purpose of the current gasoline tax is to raise the revenues needed to pay for road maintenance, then surely it is inefficient to give an implicit subsidy to drivers who buy electric or even hybrid cars, that manage to impose the same wear-and-tear on the roads while consuming far fewer gallons of gasoline.

The problem here is twofold: In general, it would be naïve to expect the government to completely phase out gasoline taxes. Especially at the state level, gasoline taxes may be a significant source of revenue. Even if the introduction of a VMT tax were coupled with reductions in the gasoline tax, the next budget crisis would probably give drivers the worst of both worlds.

A second problem, more specific to this particular tax swap, is that gasoline taxes are supposedly addressing the “negative externality” of carbon dioxide emissions from gasoline-fueled vehicles. In other words, economists who are very concerned with global warming think the tax code should be encouraging motorists to switch to more fuel-efficient (in terms of gasoline consumption) vehicles.

Let’s think for a minute about the implications. If the government then comes along and slaps a tax on drivers for total miles traveled—whether or not their cars use gasoline or electricity—then the advantage of electric cars could be significantly muted, depending on the details of the new tax and motorists’ driving patterns. Rather than agreeing to a reduction or elimination of gasoline taxes, economists worried about global warming might insist that “efficiency” requires a hike in the tax on gasoline, to ensure that new car buyers are still nudged into purchasing electric.

A Genuine Market Solution

As with other thorny issues, the problem here is government involvement. Given that the government at various levels has a virtual monopoly on the highway and road system, it becomes very difficult for policymakers to design a fee structure that is both economically efficient and yet respects the privacy of citizens. In fact, it may be impossible to achieve various goals in this way, because of the nature of government ownership.

In contrast, if the roads were moved into private hands to the extent this were possible, then many of these problems would disappear. We would no longer have a public debate on the best way to finance road repairs, just as we don’t have a public debate on whether software companies should make their money charging for the software or for the service plans.

With free and open competition, different companies can try different pricing strategies, and the most efficient will win out. If a particular company insists on policies that too many people find intrusive of their privacy, that company will go out of business. Most important, in a truly free market it’s not the same organization that would control all the roads, as well as be in charge of the police, fire department, and IRS. It is ironic that so many leftists are wary of “concentrated power” when it comes to media corporations and other big businesses, but not when it comes to the agency that actually controls the army.

Conclusion

As the fiscal situation of the federal and state governments continues to deteriorate, we can expect proposals for a European-style VAT (value added tax) as well as the more recent VMT (vehicle miles traveled) tax. Economists will be able to market the plans as “revenue-neutral” and “efficiency-enhancing,” but those with a sense of history and common sense will know that they should watch their wallet.

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