Address: 26/55, Bldg. 7, Kosmodamianskaya Emb., Moscow, 115035
(495) 953-91-08, 617-18-88.



Development trends of energy legislation regarding specifics of state regulation of main pipeline transportation tariffs for crude oil and petroleum products

Izotova Anna Vladimirovna, Head of the Legal Department of the Federal Tariff Service (FTS of Russia), Lecturer of the Energy Law Sub-Department of O.E. Kutafi n Moscow State Law University

In this article the author presents a legal analysis of energy legislation on state regulation of main pipeline transportation tariffs for crude oil, reveals contradictions in the applicable regulatory legal instruments, and turns attention to the applicable law trends.

First of all, it should be noted that pursuant to Art. 4 of Federal Law dd. August 17, 1995 No. 147-ФЗ “On Natural Monopolies”[1] (hereinafter referred to as the Natural Monopolies Law) main pipeline transportation of crude oil and petroleum products is referred to natural monopoly entities’ activities. The procedure for state regulation of main pipeline transportation prices (tariffs) for  oil and petroleum products is approved by the Government of the Russian Federation pursuant to Art. 6 of Federal Law “On Natural Monopolies”.

Resolution of the Government of the Russian Federation dd. December 29, 2007 No. 980 “On State Regulation of Natural Monopoly Entities’ Transportation Tariffs for Oil and Petroleum Products”[2] approved: the Rules for State Regulation of Tariffs or Their Ceilings for Natural Monopoly Entities’ Main Pipeline Transportation of Oil and Petroleum Products and the List of Services for Main Pipeline Transportation of Oil and Petroleum Products.

According to the List of Services for Main Pipeline Transportation of Oil and Petroleum Products[3], services for main pipeline transportation of crude oil include:

— transportation of crude oil through main pipelines;

— execution of orders and scheduling of crude oil supplies;

— transfer of crude oil;

— acceptance and unloading of crude oil to the main pipeline system;

— loading and delivery of crude oil from the main pipeline system;

Services for main pipeline transportation of petroleum products include:

— transportation of petroleum products through main pipelines, including bends, branches and connections;

— execution of orders and scheduling of petroleum product supplies;

— transfer of petroleum products;

— delivery of petroleum products to the main pipeline system;

— loading of petroleum products from the main pipeline system.

The Federal Tariff Service decides to implement (change) or terminate regulation for every business entity based on the results of its analysis conducted according to the procedure for consideration of documents submitted for making decisions on implementation, change or termination of regulation of natural monopoly entities’ activities and the list of such documents approved by Order of the Federal Tariff Service dd. October 13, 2010 No. 481-э[4].

Decisions to implement regulation constitute grounds for decisions to include a business entity in the Register of Natural Monopoly Entities[5].

The procedure for maintaining the register of natural monopoly entities is regulated by Order of the Federal Tariff Service dd. August 30, 2010 No. 417-э “On Approval of the Administrative Regulations for Execution by the Federal Tariff Service of the State Function on Opening and Maintenance of the Register of Natural Monopoly Entities Subject to State Regulation and Control”[6].

Nowadays, Section III of the Register of Natural Monopoly Entities in the fuel and energy complex “Main Pipeline Transportation of Crude Oil and (or) Petroleum Products” includes 30 entities engaged in main pipeline transportation of crude oil and petroleum products[7].

State regulation of tariffs for natural monopoly entities’ main pipeline transportation of crude oil and petroleum products is ensured by setting tariffs or their ceilings, and by state control activities in relation to setting (changing, abolishing) and applying tariffs. If the regulating authority (Federal Tariff Service) sets tariff ceilings, the natural monopoly entity shall independently determine tariffs within their ceilings.

When setting tariffs, the following methods of state regulation shall be applied:

a) method of economically feasible expenses;

b) method of economically feasible return on invested capital;

c) method of marginal maximum tariffs or marginal correlation with the cost of transportation of crude oil and petroleum products along an alternative route by alternative means of transport;

d) method of tariff indexation.

The Federal Tariff Service calculates tariffs pursuant to regulatory legal instruments that define specifics of tariff calculation for transportation of crude oil and petroleum products. Currently, the following regulatory legal instruments are valid: the Methods of Determining Tariffs for Transportation of Petroleum Products through Russian Main Pipelines approved by Resolution of the Federal Economic Commission of Russia dd. October 16, 2002 No. 70-э/5[8], and the Regulations on Determining Main Pipeline Transportation Tariffs for Crude Oil approved by Order of the Federal Tariff Service dd. August 17, 2005 No. 380-э/2[9].

It should be noted that the methodical documents guiding tariff calculation were approved prior to adoption of the Russian Government’s resolution, whereby the rules of state regulation of main pipeline transportation tariffs for crude oil and petroleum products were approved[10].

The Regulations on Determining Main Pipeline Transportation Tariffs for Crude Oil stipulate setting basic double-rate tariffs (for crude oil transportation and for execution of orders and scheduling of supplies), tariffs for transfer, loading/unloading, acceptance/delivery of crude oil, and setting approved, long-term, competitive and network tariffs. However, the Basics of Pricing have no provisions for such a differentiation of tariffs. In view of these circumstances, the Federal Tariff Service prepared amendments to resolution of the Government of the Russian Federation dd. December 29, 2007 No. 980 “On State Regulation of Natural Monopoly Entities’ Transportation Tariffs for Crude Oil and Petroleum Products”[11], which particularly stipulate that the regulating authority shall approve guidelines that based on the terms of rendering services set one or more tariff price rates, which list, amount, cases and specifics of application shall be also determined by the guidelines.

As stated in the explanatory note to the resolution draft, the said addition will help to adjust the regulatory framework for tariff regulation to the current regulatory practice and presupposes further development of the Guidelines on Regulation of Main Pipeline Transportation Tariffs for Crude Oil instead of the current Regulations on Determining Main Pipeline Transportation Tariffs for Crude Oil approved by order of the Federal Tariff Service dd. August 17, 2005 No. 380-э/2, and updating of the current Methods of Determining Tariffs for Transportation of Petroleum Products through Russian Main Pipelines approved by resolution of the Federal Energy Commission of Russia dd. October 16, 2002 No. 70-э/5. Pursuant to the developed draft, tariffs may be set (changed, abolished) as follows:

1) at the regulating authority’s initiative, inter alia, based on the results of state control (supervision) activities;

2) based on proposals (addresses) of federal executive authorities, executive authorities of constituent entities of the Russian Federation, local governments, public organizations of consumers, their associations and unions, business entities;

3) based on proposals (addresses) of natural monopoly entities.

The Federal Tariff Service of Russia shall decide to set (change, abolish) tariffs within maximum 6 months from the date of receipt of proposals to set (change, abolish) tariffs or their ceilings. Once the relevant decision is made[12], the Federal Tariff Service notifies in writing the natural monopoly entity of this decision within a week.

The draft also stipulates that the Federal Tariff Service can decide to change regulation, which means changing regulatory measures applied to the natural monopoly entity. Depending on the economic assessment, the Federal Tariff Service can decide not to apply (to apply) price regulation to the natural monopoly entity by means of price (tariff) setting.

Price deregulation does not imply that the natural monopoly entity will not be subject to any other regulation. In relation to this entity, the Federal Tariff Service can establish rules of price application, provide certain forms and measures of control over the natural monopoly entity, for which the regulatory change is introduced.

The foregoing leads to the conclusion that the draft prepared by the Federal Tariff Service is topical and well-timed, since it primarily helps to eliminate contradictions between the applicable regulatory legal instruments.



[1] Federal Law dd. August 17, 1995 No. 147-ФЗ “On Natural Monopolies” // Collection of the Legislative Acts of the Russian Federation, 1995, No. 34, Art. 3426 (in Russian).

[2] Resolution of the Government of the Russian Federation dd. December 29, 2007 No. 980 “On State Regulation of Natural Monopoly Entities’ Transportation Tariffs for Crude Oil and Petroleum Products” // Collection of the Legislative Acts of the Russian Federation, 2008, No. 2, Art. 104 (in Russian).

[3] This list is approved by Resolution of the Government of the Russian Federation dd. December 29, 2007 No. 980 “On State Regulation of Natural Monopoly Entities’ Transportation Tariffs for Crude Oil and Petroleum Products” // Collection of the Legislative Acts of the Russian Federation, 2008, No. 2, Art. 104 (in Russian).

[4] Order of the Federal Tariff Service dd. October 13, 2010 No. 481-э “On Approval of the Procedure for Consideration of Documents Submitted for Making Decisions on Implementation, Change or Termination of Regulation of Natural Monopoly Entities’ Activities, and the List of such Documents” // Rossiyskaya Gazeta, December 29, 2010 (in Russian).

[5] Decisions to terminate regulation constitute grounds for exclusion of a business entity from the Register of Natural Monopoly Entities in case if regulation of a natural monopoly entity’s activities is terminated for all types of its services rendered as a natural monopoly.

[6] Order of the Federal Tariff Service dd. August 30, 2010 No. 417-э “On Approval of the Administrative Regulations for Execution by the Federal Tariff Service of the State Function on Opening and Maintenance of the Register of Natural Monopoly Entities Subject to State Regulation and Control” // Bulletin of Normative Acts of Federal Executive Authorities, 2010, No. 51 (in Russian).

[7] Available at the Federal Tariff Service’s official website. URL: http://www .fstrf.ru/about/activity/reestr/5

[8] Resolution of the Federal Tariff Service dd. October 16, 2002 No. 70-э/5 “On Approval of the “Methods of Determining Tariffs for Transportation of Petroleum Products through Russian Main Pipelines” // Information Bulletin of the Federal Energy Commission of the Russian Federation, 2002, No. 23 (in Russian).

[9] Order of the Federal Tariff Service dd. August 17, 2005 No. 380-э/2 “On Approval of the “Regulations on Determining Main Pipeline Transportation Tariffs for Crude Oil” // Bulletin of Normative Acts of Federal Executive Authorities, 2005, No. 35 (in Russian).

[10] Resolution of the Government of the Russian Federation dd. December 29, 2007 No. 980 “On State Regulation of Natural Monopoly Entities’ Transportation Tariffs for Crude Oil and Petroleum Products” // Collection of the Legislative Acts of the Russian Federation, 2008, No. 2, Art. 104 (in Russian).

[11] The Resolution draft is available at: URL: http://regulation.gov.ru/project/16285.html?point=view_project&stage=3&stage_id=11147

[12] The decision shall be made at the meeting of the Federal Tariff Service’s Board established pursuant to Resolution of the Government of the Russian Federation dd. June 30, 2004 No. 332 “On Adoption of the Regulations on the Federal Tariff Service”.