President of Russia Dmitry Medvedev: Let me welcome you once again to the Forum and say how pleased I am that you are taking part in this event. These are difficult days, especially for the energy sector. That said, what we have done today is a good thing in and of itself. By this I mean not only the award of the Global Energy International Prize: of course that was an enjoyable event, and once again I congratulate all those who received this award. But I am also referring to fixing the price of oil. [During interactive voting on what would be a fair price for oil today, conducted during the discussion The Price of Oil, most voters set the price at 70–80 dollars a barrel.] It seems that the markets have already reacted to this, because on the basis of today’s trading, oil is up a little. As you all know, it fell a few days ago, but today slowly but surely oil did move towards the target that you collectively voted for. So maybe we can expect 70 dollars a barrel quite soon.
Joking aside, of course there are a lot of problems. And what we discussed in this session and at the plenary session will help us take a serious and attentive look at what is happening in energy markets. They are quite different one from the other. It’s obvious that there are varying assessments of the overall situation and in some states the situation is more difficult than in others, particularly when the state depends on energy as the leading source of budgetary revenue. A lot depends on what prices were targeted in budget projections. In our country today the figure is 41 dollars a barrel. Now oil prices are somewhat different, but there are states that based their projections on 70, 80, 90 dollars a barrel. Of course they now have very serious problems, not to mention other macroeconomic hardships caused by the global financial crisis.
Apart from those practicalities, it is very important for us to know the rules that will apply in the energy sector. As you are aware, after a period of relative tranquillity, a few peaceful decades, the energy sector has been shaken by a number of conflicts that unfortunately show how unjust the current system for regulating it actually is.
In our view, we can only respond to such conflicts by working together, coordinating and adopting regulations that reflect the views of all participants in the energy sector. By the way, by this I mean not only issues related to the transportation of gas and oil but energy in the broadest sense of the word: nuclear power, electric power, and the future sources of power generation such as new green technologies and alternative energy.
Now it is time for us to create a special legal framework for business in this area. I am absolutely convinced that the conditions for this are right, and there is a widespread desire to do it. Not so long ago we had a meeting in Khabarovsk with the EU leadership. I once again raised the issue of energy security. We talked with my colleagues about what to do about regulation. They agreed that changes are needed, that things need to be modified. Just how this will be carried out in the final analysis is a matter of choice. For example, we could adopt a new version of the Energy Charter, if we can agree on one, or we can work out some sort of new agreement. As you know, our approach and our principles have been made public.
I am pleased that, at least in discussions and later during the news conference, our European partners did not reject out of hand the Russian Federation’s suggestions. On the contrary, they said that, yes, something certainly needs to be done, because at least some participants involved in energy procedures are not completely satisfied with way these relationships are administered, the ones between producing countries, transit countries and consumer countries.
There are many very different problems, ranging from the actual problems of exploration, development and the mining of fossil fuels to problems of litigation, on which it is very important that we consolidate our positions. I would like to see this Forum and this encounter make at least a small contribution to advancing the process of creating a modern energy regulation system.
Once again I would like to welcome you and thank you for participating in our Forum. Of course I am keen to touch base on the issues that you think are important.
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Let me respond immediately to some of the things that our colleagues have raised.
First, the question of fiscal measures relating to the current situation, support for energy companies and for long-term and expensive projects. You know, this question is something every country will have to decide for itself.
On the one hand, these days almost every country is afraid to lower taxes. On the contrary, they are more likely inclined to raising certain charges, including mineral resources royalties, as well as customs duties and certain types of tax, because they are afraid that their tax base will collapse. There is actually a real risk of this, because if you consider our situation, the situation in Russia, our tax base has contracted sharply. Unfortunately this is a fact.
On the other hand, there is the danger of driving business into a corner. And if they make decisions that result in a tax increase — and in some situations simply not lowering taxes would be tantamount to an increase, especially when large or important upscale projects are at stake – then we will in effect be suspending business development for the next decade.
This is a very difficult balancing act, one of the most difficult things a state has to do, to determine with total accuracy how to act in such circumstances. We in Russia have avoided lurching from one position to another: we have not made any major decisions about raising taxes or decided to reduce them, although we have had requests from both the general public and business to do so. I meet on a regular basis with our Russian businesspeople, and the issue of taxation is always on the agenda.
In all likelihood, once we are all convinced that the most acute phase of the crisis has passed, talk of fiscal support, including support for energy companies and the energy business generally, will still be on the agenda.
Now, with regard to our cooperation with the European Union. I would certainly be grateful to our partners if they in turn would take a more proactive approach by encouraging our partners in the European Commission and other EU institutions to pay more attention to our proposals on improving energy security. When it comes to generalities, everyone is in agreement, but we know how bureaucracy always gets its own way in the end. I do not want to idealise Russian bureaucracy, but European bureaucracy is no better, as you all know perfectly well. In this sense we very much hope that you will encourage European institutions to pay more attention to these issues, including the security of gas supplies to Europe and financial responsibility of certain participants in the transit process.
In the break between our two plenary sessions I watched the news. Our Ukrainian partners are offended that Russia is accusing them of not being credit worthy, of failing to pay for their gas. What is there to be offended about? Just pay the money and everything will be fine – being offended doesn’t come into it. If you pay, you’re credit worthy; if you don’t pay, then you’re not. By all means they should be offended at themselves and the economic environment, but they should be looking at every possibility for procuring money and knocking on every door of the financial community so that they can meet their liabilities. For me, nothing could be clearer.
The reason for focusing on these problems today is obvious: if in the nearest future, on the due date, our partners do not meet their obligations under the terms of payment, we will have to have mechanisms built into the contract we signed, to address this.
That is why in the future we will need a special institution to deal with this kind of dispute and not to merely adjudge on it, but to enforce the verdict.
I have already used this example but I will mention it once again. Everybody thinks highly of the Energy Charter to which Ukraine is a party along with some other countries. Well, was the Energy Charter in any way helpful in the much discussed gas conflict earlier this year? Absolutely not. The procedures stipulated in the Charter failed, and the incentives outlined there failed, while the Energy Charter Treaty did not apply to the case.
Therefore, we need some other legal means to resolve such conflicts, not to mention the fact that the good will of nations themselves and of their political institutions is also a factor in such situations.
For these reasons I believe that ensuring energy security in Europe requires our concerted efforts. And the sort of regulatory institution we create will depend on how firm governments and businesses are prepared to be. Russia is ready to make such efforts, as we have repeatedly manifested.