Natural Monopolies In The Energy Sector Of The Economy: Legal Issues Of Reformation

Publication type Article
Status Published
Occupation: chief researcher
Affiliation: Institute of State and Law of the Russian Academy of Sciences
Address: Russian Federation, Moscow
Journal nameEnergy law forum
EditionIssue 4

The market relations based on competition laws established during the last quarter of the century and the accumulated experience inevitably require the elaboration of new development plans and the adjustment of the existing legal regulation. The introduction of some exceptions in the laws stipulates specific further “recalibration” of the basic as well as special regulation. The Energy Strategy of Russia until 2035 defining the aims, priorities and areas of the development of the power industry of the Russian Federation emphasizes the need for a structural diversification within which the significance of liquefied natural gas will be raised, the carbon-based power industry will be supplemented with the non-carbon-based one, the decentralized power supply will be added to the centralized one. The discussed plans of the competition development in Russia are still not widespread beyond the Strategy. The review of the list of natural monopolies in the power industry makes it obvious that their current essential reformation aiming at demonopolization is highly improbable due to their technical and economic characteristics. Thus, it appears that in the near future, taking into account the established technical and economic conditions in which natural monopolies exist, the adjustment of their operations in terms of securing market conditions can be connected with the adjustment of the regulation of the tariff setting mechanism and the legal “localization” of the non-discrimination principle in relation to the operations of specific natural monopolies.

Keywordsenergy law, legal position of natural monopolies in the power industry, antimonopoly regulation, tariff regulation, gas infrastructure expansion
Publication date05.12.2020
Number of characters13687
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1 The development of the market economy in Russia is constantly facing with the problems of the establishment of new legal regulation institutions, which primarily refers to the digital economy sector and at the same time is facing with the necessity to adjust the basic legal regulation branches created in the early days of the establishment of the market relations. The latter includes the issue of the regulation of operations of natural monopolies in the power industry in terms of competition law. The underlying act on natural monopolies applicable, inter alia, in the energy sector is Federal Law No. 147 of August 17, 1995, On Natural Monopolies . Such a quick adoption of the law on natural monopolies may seem rather strange in the country, where the legal system has been based on non-market relations for almost eighty years, and where the establishment of a new economic model has just started. The adoption of Federal Law No. 147 On Natural Monopolies essentially meant the introduction of specific restrictions and/or a special regime for the application of the law on competition being a fundamental legal ground for building the Russian market economy. At first glance, the law on natural monopolies may seem premature provided that there is no experience of application of basic laws ensuring the existence of a competitive environment. However, the adoption thereof in the Russian Federation is quite understandable. The Russian legislator tried to take into account the existing foreign experience, primarily, the experience of the USA and the European Union. The rules for the regulation of natural monopolies in these countries emerged out of the general antimonopoly regulation based on the Sherman Act of 1890 and the Clayton Act of 1914 in the USA, [1] and Article 82 of the Treaty of Rome. [2] Judging from the comparative law stand-point, one may conclude that the USA and the EU courts, relying on the said acts that have established the general principles of unacceptability of market monopolization, taking into account the differences between the American case law and the European judicial practice, have cultivated the admissibility of the existence and operation of natural monopolies. According to the estimation of foreign experts, the modern approach to the determination of natural monopolies was worded by William J. Baumol in the second half of the 1970s. According to the general rule, a natural monopoly is the sole company in a branch where one company can manufacture goods to satisfy the market demand at a lower cost per unit than two or more companies, or is a particular branch is avoided by or impossible to survive for other players. [3]
2 Based on the approaches tested by the foreign practice, there are grounds to word the national principles of acknowledgment of admissibility of natural monopolies considering the obvious economic, political, and legal peculiarities of Russia. They are rooted in the Soviet period when a number of branches of the economy including the power industry were initially built with a focus on centralization in terms of management and attraction of financing. This primarily refers to the power supply industry. The idea of the utmost centralization of production is manifested in the nuclear industry. Later on, the pipeline transport has become a program development vector for the hydrocarbon sector.
3 Referring of the mentioned activity sectors to the special regulation fitted quite nicely into the economic and ideological system of the Soviet state and satisfied the demands of the economy from the technical standpoint. Thus, various monopolies have naturally formed in Russia by the time of shift to the new economy. The establishment of competition based market relations has shown that some monopolies could be reformed technically and institutionally based on the competition laws, but a number of structures including the ones in the power industry could not be reformed for technical and institutional reasons without a considerable loss in the economic efficiency. Such circumstances required special regulation. In these conditions, the legislator has opted for legalization of their status by declaring them “natural monopolies”. By 1995, this legal institution and term have become universally accepted in the majority of countries and adequately translated into different languages. However, the difference of the situation in Russia from the position of the legal regulation tasks was the fact that the legislator rather willfully defined the list of natural monopolies, where the energy ones included the entities and operations of oil and petroleum product transportation using main pipelines, gas transportation using pipelines, electric energy transfer services and heat energy transfer services, than determined the admissible grounds for legalization of particular monopolies.
4 The market relations based on competition laws established during the last quarter of the century and the accumulated experience inevitably require the elaboration of new development plans and the adjustment of the existing legal regulation. The introduction of some exceptions in the laws provides for a specific further “recalibration” of both the underlying and special regulation. It is no coincidence that peculiarities of the legal position of natural monopoly subjects in the power industry are reviewed as a separate course within the energy law study, while the challenging aspects of the legal regulation of relationships involving natural monopolies become a subject of legal research. [4]

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1. Sherman Anti-Trust Act 1980. URL: ; Clayton Antitrust Act 1914. URL:

2. Article 82 of the EC Treaty (ex Article 86). URL: ec/art82_en.html.

3. Depoorter Ben W.F. Regulation of Natural Monopoly / Ben W.F. Depoorter // Encyclopedia of Law and Economics. Vol. III. The Regulation of Contracts. Cheltenham : Edward Elgar, 2000. P. 498–532.

4. Romanova V.V. The Legal Status of Natural Monopolies in the Power Industry. Work Program for an Academic Discipline / V.V. Romanova. Moscow : Publishing center of the Kutafin Moscow State Law University (MSAL). 2018 ; Romanova V.V. Energy Law Order: Current State and Tasks / V.V. Romanova. Moscow : Yurist, 2016. 255 p.

5. Novak Described Russian Prospects in the LNG Market // RIA Novosti. 2020. October 11.

6. Romanova V.V. Challenging Aspects of the Legal Regulation of the Gas Infrastructure Expansion as a Basis of the National Gas Market / V.V. Romanova // Energy Markets: Problems and Tasks of Legal Regulation : monograph / edited by V.V. Romanova. Moscow : Yurist, 2018. P. 122–138.

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