Access for the incumbent monopolist to divest itself of

Access to oil and gas transit pipelines should be allocated in a transparent and nondiscriminatory manner. International experience suggests that it may ultimately be necessary for the incumbent monopolist to divest itself of the pipeline as a means of enforcing genuine nondiscriminatory access, although this would need to be carefully sequenced with other reforms. All CIS countries should ratify the Energy Charter Treaty and implement measures sufficient to ensure that the treaty’s provisions regarding nondiscriminatory, free access to regional transit facilities are observed.Expansion of the transport network driven by private investment would help alleviate capacity constraints, reduce transport costs, and enhance competition. Large investments will be required to expand transport capacity further, and foreign capital is likely to be an important source in this regard. Absent such investments, continuing significant transit difficulties will tend to lower thc attractiveness of investment in exploration and field development A stable and market friendly investment environment is clearly needed to attract the large sums required from foreign investors. Close policy coordination within the region will also be needed to ensure maximum efficiency in the provision of transport services.Countries should refrain from introducing trade barriers in response to excess supply conditions in neighboring countries. Production subsidies should be eliminated and uneconomic energy production facilities should be closed. Improved access to transit pipelines will help alleviate excess supply and thereby ease trade tensions.Countries should take steps to move away from barter and other non-cash payments arrangements since these decrease transparency, reduce allocative efficiency, and promote corruption. The governments should take the lead by avoiding noncash transactions. Where cash constraints are the reason for the barter deal, countries should seek to sign export and import contracts based on arm’s length, market prices simultaneously.To ensure the variety and the development competitive routes of energy supply, new transit routes must be developed. The Russian-Ukrainian and Russian-Belarusian disputes over gas demonstrate energy interdependence between the energy producer and transit countries. It is important to satisfy common interests in energy plans through multinational cooperation.Better regulation of firms with market power will improve energy sector performance, whether or not the firms are state-owned. Just as privatization is not a panacea far good corporate governance, continued state ownership is not a panacea for good government regulation of a monopoly,.Firms that remain in state hands could be subject to more rigorous and arm’s length trust management arrangements. Examples could be the Ukrainian gas transit pipelines or the Russian government’s residual asset stake in Gazprom

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