Pipelines, Political Economy and Russian Oil

Abstract: We document that the Russian crude oil pipeline is a potentially massive source of rents. Using a unique data set describing export routes and company characteristics, we find that by 2005 the Russian federal government used cost-based criterion including company-level transport costs, production costs and productivity to determine the allocation of export routes on the crude-oil pipeline. However, between 1999 and 2005 tariff rates increased, and the federal government continued to grant preferential access and the granting of preferential access to companies that have significant state representation on their boards. Thus, throughout the Putin years the federal government used its control over the pipeline for political advantages, despite the efficiency losses. Moreover, federal ownership positions in companies are more important determinants export access at the beginning of the Putin regime in 1999. Thus, by 2005 the Russian federal government appears to be controlling its rent-seeking activities. These results suggest the recent Russian growth may be sustainable.