BOFIT Viikkokatsaus / BOFIT Weekly Review 2019/38

As part of the release of the 13th annual report of Russia’s competition agency, the Federal Anti-Monopoly Service (FAS), agency head Igor Artemyev briefed the government on the report’s contents. It covers a range of topics, including government and state-owned enterprise procurements, access to services provided by natural monopolies, agreements that limit competition, commodity exchanges, administratively regulated prices, national projects, 18 sectors as well as a state of the art review of the FAS 2018−2020 plan to promote competition. The plan has further been processed into goals and measures for Russia’s regions and municipalities.

Artemyev said that all major competition laws currently in process and agreed in the government are being reviewed further because they have received negative appraisals from the state-legal directorate of the Presidential Administration. A draft law, which prohibits the establishment of state unitary enterprises in competitive markets, was eventually submitted to the Duma despite resisting lobbying efforts of several regional leaders and only via consent of the prime minister and the president. Another proposed law submitted to the government would prohibit federal, regional and municipal government entities from acquiring shares in firms doing business in markets deemed subject to competition.

The FAS report finds that the target in government procurements with regards to the share of small firms has already been nearly achieved, but the targeted share of small and medium-sized firms in state-owned enterprise procurements has a way to go. Work continues in order to tackle discriminatory practices with regards to user access especially to gas and heating grids, as well as rail and port services. The non-discrimination policy approach also applies to rights to extract natural resources and sales of property confiscated by the state, for which Artemyev characterised the current practices as closed or half-closed.

Development of commodity exchanges continues, making trade of basic commodities such as natural gas, coal, oil products, grain, and various primary chemical products easier and less discriminatory. Besides the exchanges, various databases are providing more open price information also for medicines, construction and government contracts.

For administratively regulated prices such as electricity, water, gas and rail transport, the FAS legislative draft seeks to establish clear and more unified criteria in the setting of tariffs and to prevent regions from implementing rate hikes that vastly exceed federal limits. It also seeks to eliminate huge rate variations that have appeared even within regions. A further goal is to shift to 5−10 year plans in which rate hikes are held slightly below the inflation rate.

Regarding cartels and other agreements to restrict competition, the FAS has pursued numerous cases especially in road construction and pharmaceuticals. Reported competition violations by state agencies have overall declined steeply in recent years whereas their participation in agreements to limit competition rose sharply last year.

The FAS notes that implementation of national projects requires greater government budget spending, yet they contain no prerequisites for applying competition practices. The FAS sees that this may lead to limitations on competition. The same assessment also applies to promoting investments through special investment agreements between individual industrial firms and state authorities.

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