RUSSIA - Gazprom Monopoly.

President Putin recently ratified a law passed on July 5 by the State Duma (lower house of parliament) granting exclusive rights to export natural gas to Gazprom. This was a boon for Gazprom, already a company with many perquisites bestowed by the state, which in 2005 raised its stake in the firm to 51%. Gazprom's share of EU's gas supply is to grow to about a third over the next 25 years. Gazprom is moving into the Chinese and other Asia/Pacific markets as well.

The 355-to-64 vote in the Duma defied policies encouraged by the EU and US. Western leaders gathering at a summit of the G8 industrialised democracies in St Petersburg on July 15-17 tried but failed to push Russia to liberalise the energy industry in Russia. The move was a sign of the emboldened posture of Russia and other energy-producing nations in the era of $70-75 crude oil.

EU leaders had said liberalising Russia's energy sector was to bring investment, spur production and perhaps dampen prices, particularly in Europe. Supporters of the monopoly law in the Duma countered that lowering prices through competition was not in Russia's interest as a seller. Yuri Lipatov, a member of the pro-Kremlin United Russia party and deputy chairman of the Energy Transport Committee, on July 5 said private sector development would "destabilise" Russia's energy markets.

The International Herald Tribune on July 6 quoted Ferran Tarradellas Espuny, a spokesman on energy matters for the European Commission, as saying: "In any event, we respect the sovereign powers of the Russian Parliament to take their own legal decisions". (The EU had long called on Russia to open up its gas markets to third-party access in order to give foreign and domestic producers the opportunity to sell their gas direct to the consumers. Gazprom, however, has refused to give any domestic or foreign companies access to its pipeline network. Demands for access are part of the EU's Energy Charter with Russia, which the Duma has not ratified. Gazprom has said Russia should not ratify the charter since Gazprom does not agree with the principle of third-party access for its pipelines, even though the company has demanded that it have third-party access to European pipelines).

The new law applies to gas produced from all types of deposits and transported in gaseous and liquid states in Russia. (Independent Russian gas producing firms are unhappy with it. After the first reading they submitted a number of proposals to the Duma. However, in preparing the document for the final reading, the Duma's Committee on Energy, Transport, and communications rejected all the amendments proposed. The MPs were in a hurry to comply with Putin's instruction: pass the bill as soon as possible. MPs said the law will was to avoid competition among Russian natural gas exporters, threatening a considerable reduction in gas export prices. Apart from protecting the exporters' commercial interests, the law served the state's fiscal interests).

The former economic adviser to President Vladimir Putin, Andrei Illarionov, on July 4 said state dominance in the oil and gas sector meant Russia was an energy hazard to its G8 partners rather than a guarantor of secure supplies. Having served as Putin's envoy to previous G8 meetings, he warned that the Kremlin's growing role in the petroleum sector ran counter to the theme of energy security Russia had selected as the focal point of the G8 summit.

"Where you have state companies, security ends and danger arises", Illarionov, who resigned as Putin's adviser in 2005 to protest Moscow's "backtracking on freedoms", told a news conference, adding: "The model of a state monopoly is an energy hazard to the world. It presents the world with the threat that energy supplies can be broken off at any moment for political, not economic reasons". The rise of the state's role in the oil sector began with the transfer of Yukos' biggest oil production unit to state oil firm Rosneft after its auction against a disputed multi-billion-dollar back tax bill in late 2004. In 2005, the state increased its share of Gazprom to a controlling interest of 51%. Soon after that the company bought Russian oil major Sibneft from tycoon Roman Abramovich.

Illarionov said Russia itself underscored the precariousness of energy supplies at the very start of its year as G8 chairman. In an ugly New Year's price dispute with Ukraine, Russia switched off the gas to its ex-Soviet neighbour, temporarily disrupting flows to Europe and leading to panicked calls in the EU to diversify supplies. While Russia cast the dispute as a long-overdue move to market pricing, observers said the price increase had been bulldozed through to undermine Ukraine's Western-leaning government.

As Putin prepared to host world leaders for the July 15-17 summit in St Petersburg, Illarionov and other Kremlin opponents organised an alternative conference on July 11-12 called "Other Russia" aimed at uniting Russia's opposition and NGOs. Earlier in July, Russia's G8 envoy Igor Shuvalov, said the Kremlin would view the attendance of high-ranking foreign officials as "an unfriendly gesture". Illarionov on July 4 said of those comments: "I follow the statements made by Russian officials with amazement".

While Russia's year as chairman of the G8 should have been a "triumph" for Moscow in which it demonstrated its commitment to developing democracy, Illarionov said, it had only served to show how much Russia had fallen behind, adding: "Over the past four years in respect of...political democracy, Russia today is much further from the other members of this club than it was in 2002".