ABSTRACT
Energy subsidies to household consumers of gas, electricity and district heat remain a serious economic problem in Russia. District heat, which plays a large role in the Russian energy sector, is heavily subsidised. Direct subsidies to heat suppliers and benefits and welfare allowances to low-income families amount to roughly $2 billion per year and the government also offers interest-free loans to supply fuel to district heating companies in remote locations.
District heat is generally used very inefficiently in Russia, but only partly because it is under-priced. In the residential sector, end-users are often not billed for the actual amount of heat they use because supplies to individual dwellings are not metered. As a result, when heat is adequately supplied, households have little incentive to use heat efficiently or conserve it. In addition, in large housing blocks it is often not possible to adjust the amount of heat supplied to each apartment. Raising prices would not reduce subsidies if end-users respond by refusing to pay. This has been a major problem in recent years. For technical and social reasons, it is often difficult to cut supplies to households that do not pay their bills. Reducing costs through energy-efficiency improvements in supply and use may be a more effective approach to eliminating heat subsidies. But achieving these improvements will require a major restructuring of the district heat sector.
