A working meeting with the President of Russia Vladimir Putin

The Head of the Federal Antimonopoly Service Igor Artemiev informed the President about FAS efforts in the field of tariff regulation

On 21 July 2015, the President of Russia signed an Order to eliminate the Federal Tariff Service and assign its functions to the Federal Antimonopoly Service.

Short-hand notes of the meeting published on the web-site of the President of Russia:

Vladimir Putin: Mr. Artemiev, how does the tariff part of your work go?

Igor Artemiev: Thank you very much for this question, Mr. President.

Six months ago you made an order to assign the tariff regulation powers to the Federal Antimonopoly Service. I would like to report on concluding the 2015–2016 tariff campaign. I find it very important for the Government in general and for the Federal Antimonopoly Service that we have not lost the tariff calendar: all tariffs were set timely and in full.

The most important, however, are system-wide changes in the tariff policy that I would like to outline briefly. In rather complex conditions that Russia is now, the tariffs are set in such a way that they are significantly lower that the inflation rate, effectively based on the outcome of 2015. It means that as a result of indexing only a part of inflation, tariffs became oriented towards members of the public, consumers and Russian economy in general, Russian business, rather than to the benefits of the national champions – state-run infrastructure companies that have not felt bad at all in recent years.

Some particular figures, for instance, the gas element in transportation – only by 2% at 12.7% inflation. Effectively, it means inflation by only 15%. The electric power industry – by 7.5%, approximately only half of the inflation rate.

Vladimir Putin: The highest contribution is “Russian Railways”, isn’t it?

Igor Artemiev: “Russian Railways” – 9%, it is base indexing. We made arrangements that “Russian Railways” will be entitled to give 25% discounts to particular sectors, for instance, such a discount is granted to the metallurgy sector. Their objective is to reach 7.5% at year-end as the effective rate. Also approximately only half of the inflation will be indexed.

We think that the infrastructure companies will not be in difficult conditions, they will have enough money for investments, just need to cut coats according to the cloth. FAS will watch, at what price they purchase fuel, electric power, and construction materials using the comparative analysis method: for instance, at what price “Gazprom” buys construction materials for the investment programmes, for its own needs.

It seems that a cost-cutting policy is necessary today, and we must form a special programme for such infrastructure monopolies. For instance, we have devised a particular programme with “Russian Railways”.

First of all, it is undoubtedly an anti-inflation measure. Second, for the first time in very many years the tariff growth rates have a decelerating decrement against inflation, and such tariff policy, Mr. President, should be a long-term one.

In principle we are ready to move to the so-called formula tariff-setting with our methods, to give, for instance, a 5–7- year planning horizon.  

Vladimir Putin: It is very important.

Igor Artemiev: Yes, it is essential for development of the economy in general.

For instance, it is possible to suggest a formula with 75% inflation indexation, and everybody will understand that cost-cutting is necessary. On the other hand, everyone will also understand both revenues and investment possibilities for each company, and it will be possible to attract private capital through concessions and so on. Just in six months this situation transformed the tariff policy to its opposite. We believe that long-term, transparent and clear policy should be formalized in a great number of government acts, and the Government is working on it. Naturally, FAS is also working on it with other regulators.

Overall, all this was done timely, the “inflation minus” principle is implemented, so everything was estimated, checked and verified by FAS for the mentioned investment programmes where the costs were inflated, and FAS said that in reality it is cheaper.

Now the Government is going to adjust investment programmes which also will give resources for companies. It depends, however, on the level of companies; FAS alone will not be able to achieve anything.

It is important for the heads of infrastructure companies to understand that now the economy is not only for them: in the past ten years they had perfect opportunities for development, and they must share their resources with others, with small and medium companies.

We would appreciate it if you support this policy, first of all, before our infrastructure monopolies, large companies. They must understand that as time goes on, things are changing, and they also must become different.

Vladimir Putin: They should know that we have made a choice, and should be ready, as you said rightly, behave more modestly, naturally without compromising the quality, adequate, timely repair, etc. I believe if we intend to suppress inflation we should work that way.

Igor Artemiev: Thank you Mr. President.