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Energy Law as a Legal Basis for Russian National Economic Security

Vladimir S. Belykh, Professor, Doctor of Law, Honoured Worker of Science of the RF, Head of the Eurasian Scientifi c and Research Сentre for Comparative and International Entrepreneurial Law, Ural State Law Academy, Yekaterinburg, Russia

The article views security of energy supply as a constituent part of the Russian national economic security. To a large extent, it depends upon the reliability of consumers’ energy supply in all regions of the country. Considering this, the author defi nes security of energy supply as the condition of protection of Russian national energy interests from internal an external threats. In its turn, energy law is a complex legal foundation including rules of both public and private law. Speaking about improving energy-related legislation, the author considers the adoption of the Energy Code to be not only a legislative and political act, but also an act of international law.

1.       Energy law is a complex (inter-branch) legal foundation which combines rules of Public and Private Law. It is also a component of Entrepreneurial (Business) Law. But at the same time, when we define Energy Law as integrated legal foundation, we feel that there is some sort of conditionality and uncertainty in it. In modern conditions, systematizing  law, including energy law, from the position of generally acknowledged criteria as to how to separate branches of law is somewhat difficult,. From our point of view, it is impossible to define energy law as an independent branch of law, even a complex one. On the other hand, energy law is not a legal institution. It occupies the interposition between a branch and a legal institution. Speaking about energy law as a sub-branch law, we understand that the notion “sub-branch” has a terminological defect. It does not  adequately reflect the essence of this formation. At present, representatives of theory of law, branch sciences are interchained by obsolete theoretical views and dogmas on the system of law and its elements. The dogmatic view on characteristics of an independent branch of law (an object of law, methods, principles, etc.) also “glitches”.

2.       The second problem is connected with formation and development of Russian energy legislation. There are hardly any lawyers, even orthodox ones, who would deny the complex character of energy legislation. It harmoniously combines rules of Private and Public Law. Corresponding relations are regulated by rules of Constitutional, Administrative, Civil, Business, Finance, Tax, Criminal and Judicial Law. The system of legal regulation includes elements of general legislation (Civil Code of Russian Federation, Tax Code of Russian Federation, Budget Code of Russian Federation etc.). Along with that, special legislation has been formed. In this sense, it is possible to speak about energy law in the narrow meaning, as including legislation on prime energy sources – mineral energy resources, agreements on division of production, power industry, gas supply, coal, renewable energy, state tariff regulation and so on. There is technical regulation in this sphere as well. It is expressed in the abundance of practical standards (V.F. Yakovlev).

At present, the necessity for drafting the RF Energy Code is often discussed . If we admit this point of view, then there is a need to pass a Currency Code, an Investment Code, a Bankruptcy Code, an Insurance Code, and so on.  Unlike traditional Codes, they encompass not the branches of law but sub-branches (legal institutions), regulating a particular  sphere of business activity.  Here there is a threat to dive into codification, to wash out a habitual scope of the word “code”. Therefore, the draftsmen and legislators should be very scrupulous in their rule-making work. Otherwise, the  necessity passing a Washhouse Code (or Tram and Trolleybus Code or Pipe Code) would come up one day. But the supporters of the RF Energy Law Code are not afraid to get drowned in the code form.

The adoption of the RF Energy Code is not only a legal act, but a political and even international legal act as well. In this case, it is better to put aside discussions on the problem whether  there is energy law or not (as well as business law). Here, pragmatism and reasonability run the show. From this point of view, adoption of the RF Energy Code fits into the concept of drafting and adopting the World Energy Code. This idea was supported by V.A. Yazev, Vice-Chairman of the State Duma, President of the Russian Gas Society, when he attended  the XXIV World Gas Congress – WGC exhibition – in 2009 (Buenos Aires, Argentina).

3. The idea behind  Russian national economic security means that the fundamental public economic interests are protected from internal and external threats.  It reflects the security of a person, state, society and economy. The domestic and economic security is determined by the system of quantitative and qualitative criteria.  

Security of energy supply is the constituent part of the Russian national economic security. To a large extent, it depends upon the reliability of consumers’ energy supply in all regions of the country. But what does the security of energy supply mean? There is no clear definition and no uniform characteristic features either in legislation or in legal literature. For instance, there is a widespread definition, in accordance with which security of energy supply implies such conditions in which  a customer has reliable access to the required energy resources, while  a supplier has a reliable access to their consumers. In this case, not only availability and regularity of energy carrier flows is taken into account, but their stability and reasonable prices as well[1]. More and more often, security of energy supply is  looked upon in two dimensions – geological and political. The first one implies that security is based on energy supply and nonstop production. The second dimension gives the first degree importance to political stability in countries-major suppliers/ transistors of fuel. Being unable to interfere into geology, the European Union is more and more inclined to focus  on the political dimension of security of energy supply[2].

From our point of view, considering that energy security is a component of national economic security, it would be better to define the energy security as the condition of protection of  Russian  national energy interests from internal an external threats. But the definition does not specify what condition it is and what the degree of its security is.

3.1. A group of internal threats connected with parameters of production factors is being formed in the Russian economy. Such threats to national economic security should be regarded as systemic. Here are some of these factors:

Domestic production facilities are  physically and morally depreciated to a considerable degree. According to specialists opinion, more than 70 % of production facilities have had more than 10 years operation life. The state of material and technical basis is rapidly  worsening in aircraft, rocket and space, electronic industries and communication facilities. Special attention should be paid to the fact that depreciation of basic funds in fuel and energy complex reaches 80% in conditions when the major part of resources coming from export remains in this complex[3].

According to scientific forecasts, $500 bln are needed to restore and renew physically and morally depreciated basic capital of domestic industrial enterprises[4]. Also, we should increase this astronomical sum by 10 – 11%  to ensure  the regime of simple reproduction of active part of funds which reached the end of their service life[5]. We can hardly hope for great inflow of foreign investments into the Russian economy. Foreign investments cannot be regarded as a critical means for the development of Russian production factors[6]. The only exception is the Nord Stream gas pipeline. Overall investments in the project will be around €7.4 bln. The shareholders of the consortium will pay 30% of the necessary assets, and 70% will be received from external sources on conditions of project financing.

Thus, Russian economy needs large-scale investments for stable growth and expansion of export potential. “International experience shows that there is an alternative  within certain limits. If a country resorts to excessive import, then the growth of investments is restrained. Investments go where goods cannot go”[7]. So, we need to have an idea where investments go. And why cannot goods go there?

It goes without saying that not only foreign but domestic investments as well are necessary for the Russian economic development. It is well-known that internal funds of enterprises and organizations are still the main source of financial investments in the real economy sector.

3.2. Economy globalization becomes apparent in international division of labor of national economies. Russian industrial production (and the entire economy) is at the very  the beginning of a technological chain. This is especially well seen at present time when industrialized  countries have moved from the concept of “industrial economy” to the theory of information-oriented society. In conditions of information-oriented economy, the importance of global, national and regional networks is growing. Speaking about electronic commerce, Internet-business, about changes in information technologies is wide-spread. Russian economy does not fit into globalization processes. Some academic economists estimate the present position of Russia in integration processes as close to the colonial structure of economy[8]. As a result, Russia is being excluded from world economy processes and is turning into a raw materials exporter and a market for selling import products (services).

3.3. During a regular meeting with representatives of big business, the second President of the Russian Federation paid attention to the need for building new refinery enterprises and other energy resources  to reach a new (higher-quality) level in export of basic types of raw materials. At present, the scheme of export model operation is very simple: export of raw stock, sale, currency revenue. The situation is rather strange: had not Vladimir Putin paid attention to this fact, some representatives of big business would not have guessed what they should have done. Though, in my opinion, the solution was quite simple: it is one thing  ( even as far as expenses are concerned) to drive oil or gas along pipe lines, but it is a different thing to build refinery plants and to export finished product (petrol, fuel oil, oils etc.).

There is another aspect: fuel and energy complex is basically oriented to external market. This is understandable as the Russian budget receives 70% of the total currency revenue through selling mineral and raw products. Moreover, the growing export to Western countries can be regarded as a specific method of Russian economic and political expansion. The dependence of Western countries on Russian gas and oil supply is growing. As the German poet Goethe wrote, “The first [step]is free, the second's slaves are we”.

That is why we share the position of the European Commission. It interprets energy security as a guarantee of the necessary level of energy consumption at acceptable prices, which,  turns into guarantees of reliable and stable hydrocarbons supply at acceptable prices in conditions of extremely high import dependence. At the same time, this position of countries-importers implies that all risks are borne by a supplier, which  is not only unfair but does not favor security of supply. Energy security is a  two-way street; this is a common purpose for a consumer and a supplier. In fact, energy security should be defined as elimination of the threat that the energy factor will become a potential obstacle for economic growth of the country for a long period of time. Countries-importers should have guarantees that energy resources supply will be carried out in the amount and on terms sufficient to maintain their economy growth rates. Countries-suppliers should have guarantees for stable demand and profit earnings sufficient for expanded reproduction of fuel and energy complex. It should be noted that much of these earnings can be taken by the government and redistributed among non-resource industries.  This situation gives rise to the concept of fair distribution of profits and risks .

Conclusions and recommendations: 1. Energy Law is a dynamically developing integrated (inter-branch) legal foundation. In the foreseeable future, it claims to become a complex branch of law. 2. Development and formation of energy legislation should be carried out by consolidation and codification of current normative acts. There is a necessity to adopt the Energy Code of consolidated law in Russia and European countries as it will bring together processes which regulate relationships in the sphere of energy. Along with  energy strategies, we should prepare and adopt the conception of energy legislation development in Russia and Western countries. It will  contain a section devoted to the regulation of Fuel & Energy Complex. 4. It is necessary for legal community to closely cooperate with the representatives of the Chamber of Commerce and Industry of the Russian Federation, the Russian Union of Industrialists and Entrepreneurs (RUIE) on the issues of the Fuel & Energy Complex regulation (including drafting federal laws).



[1] J.Sapir. Energobezopasnost‘ kak vseobshchee blago [Energy Security as a Common Good]// Rossiia v global'noi‘ politike [Russia in Global Affairs]. 2006. No. 6.

[2] Rol' energodialoga Rossiia – YES v obespechenii energeticheskoi‘ bezopasnosti “Bol'shoi‘ Yevropy“ [The Role of the EU-Russia Energy Dialogue in Providing Energy Security of “Greater Europe”]. 2009. No. 5.

[3] Kontseptsiia razvitiia rossiyskogo zakonodatel'stva za period 2008-2011 [The Concept of Russian Legislation Development Over the Period of 2008-2011]. Available at: http://www.tpprf.ru/ru/ activities/lawmaking/development/index.

[4] According to forecasts of Center for Investment and innovations IE RAS, the complete modernization and recovery of basic capital for all real sector of Russian economy branches will require about $1200 – 1500 bln till the end of the current decade, but in the future for the creation of science-intensive innovative economy – about $2500-3000 bln  till 2025 (See: Proekt energeticheskoi‘ strategii Rossii [The Draft of Russian Energy Strategy]. Moscow, 2001). Russia does not possess  such a large supply of resources.

[5] M.S. Ilyin, A.G. Tikhonov. Finansovo-promyshlennaia integratsiia i korporativnye struktury: mirovoi‘ opyt i realii Rossii [Financial and Industrial Integration and Corporate Structures: the Global Experience and the Reality of Russia]. Мoscow, 2002, p. 67.

[6] Nowadays, the share of investments in basic capital of GDP is 21%. Available at: www.uba.ru/news?news=8117.

[7] Ekonomicheskaia bezopasnost' Rossii: Obshchii‘ kurs: uchebnik [Economic Security of Russia: the  Guideline: textbook]// Edited by V.K. Senchagov, p. 199.

[8]M.S. Ilyin, A.G. Tikhonov. Finansovo-promyshlennaia integratsiia i korporativnye struktury: mirovoi‘ opyt i realii Rossii [Financial and Industrial Integration and Corporate Structures: the Global Experience and the Reality of Russia]. Moscow, 2002. p. 70.

 Bibliography:

  1. J. Sapir. Energobezopasnost‘ kak vseobshchee blago [Energy Security as a Common Good] // Rossiia v global'noi‘ politike [Russia in Global Affairs]. 2006. № 6.
  2. M.S. Ilyin, A.G. Tikhonov. Finansovo-promyshlennaia integratsiia i korporativnye struktury: mirovoi‘ opyt i realii Rossii [Financial and Industrial Integration and Corporate Structures: the Global Experience and the Reality of Russia]. Мoscow, 2002. p. 67, 70.