REPORT OF HEAD OF FAS IGOR ARTEMIEV ON THE STATE OF COMPETITION IN THE RUSSIAN FEDERATION

02-09-2019 | 16:36

From the transcript:

Igor Artemiev: In accord with the Federal Act “On Protection of Competition”, let me present the 13th Annual Report of the Federal Antimonopoly Service on the state of competition in Russia.

As already mentioned by Dmitry Anatolyevich [Medvedev], passing the President’s Order that approved the National Competition Development Plan, and the Government decision to approve the large-scale Road Map comprising 18 sectoral Road Maps, and the decision of the State Council, which changed the Competition Development Standard in Russian regions,  was essential. It formed the legal foundation for developing competition in Russia.

At this stage, one of the main objectives for executing the National Plan is to integrate Russian National Projects, in which enormous funds are invested, with the National Competition Development Plan. Dmitry Anatolyevich, you have already instructed to ensure absolute fulfillment of the National Competition Development Plan, integrating it in the National Projects.

We assume than the National Projects, where big money are invested, must be competitive, open and transparent. They should create not only new workplaces but also new competitive companies and form conditions for developing competition in the sectors where the National Projects are implemented. Otherwise is can become simply drawdown of funds, and nothing more.

How the Road Maps approved by the Government are executed? In my opinion, the average level of execution reflects the attitude, first of all, of sectoral regulators to competition in general. 41.5% is the level of meeting the deadlines set by the Government, sometimes even lower. High level of execution is shown by the Ministries of Finances, Energy and Labour; poorer execution – the Ministries of Healthcare, Construction, Agriculture.

I understand that it can be measures of different caliber, and the tasks that have not been solved for years. Still, Dmitry Anatolyevich, we would very much wish that the today’s draft decision highlights the request to execute and overall assist FAS with control over achieving the Plans. These Plans are hard won, well-coordinated, we have been working on them for dozens of years, so failure to execute them hampers developing of competition, the entire economy of Russia and its efficiency.

Regarding regions. I and my Deputies, we flew around all Russian  regions twice, absolutely all Governors not just had meetings with us … 100% subjects approved the key competition targets, they could choose 33 out of 43 targets that suit them. They made changes to the relevant Regulations on the executive bodies; they passed relevant acts to prevent violations of the antimonopoly law within the system of power in the regions.

As a result, violations of the law on competition and the related laws – on public procurement, etc., by the authorities at both the federal and regional levels decreased by 14%. Overall, in the past 3-4 years the reduction is more than 40%. I’d like to remind that the President approved the target for us to reduce them by 1.5 times, i.e., 50%, by 2020. We are close to it. We are close to the figure that indicates how much should small business be engage in public procurement under the No. 44 Law. The target set by the President was 31%, now the figure is 29.7%. And under No.223 Law, where the target is 18%, currently we have 12% – the companies are not much willing to work with small business; this can be the conclusion.

Things are not very good with legislative acts adopted under the National Plan. Dmitry Anatolyevich, I would like to once again express the big gratitude to you and the President of Russia since the Law on restricting use of such organizational form as unitary enterprise, undoubtedly, will be passed during this session of the parliament, but it required titanic efforts.

All other (7) laws, the key laws – the fifth antimonopoly package, the law on the foundations of tariff regulation, reforming and legal regulation of natural monopolies – are not adopted. All these laws are painstakingly coordinated with the Government, approved by Vice-Premiers, but all got negative opinions from the State Legal Department.

We continue working with the State Legal Department of the President’s Office; we try, but we are moving very slow due to the disagreements between us.

Next. The Rules for non-discriminatory access are approved. It is a fundamental document regulating not simply the economy in our field but its efficiency.  The Rules for non-discriminatory access to the markets of postal communications and heating supply are very important. We submitted some reviewed acts with a similar content on gas and gas storages to the Government. They have not been adopted so far. It’s already 20 years that they are not adopted and for 20 years what continues on this market, keeps continuing.

Tariff regulation. For the first time, we reviewed all normative acts and the regulatory framework together with our colleagues from sectoral regulators. We shifted to long-term tariffs for formulae pricing. We are already setting 7- and 10-year tariffs, which dramatically improve the investment attractiveness of such companies as “Russian Railways”. Secondly, all means obtained as a result of cost reduction are kept by companies. At the same time, in the next two years the tariff system, especially, after adopting the law on the basics of tariff regulation with a transition to benchmarking, should be reformed radically and modernized like in some countries.

More regarding competitive bidding and trading. I’d like to give an example not from the law on procurement, but the practice of the Ministry of Communications.

At the first and second stages of e-treading for connecting socially important facilities to the internet, everything was done not simply in line with the law, but it was done right. As a result, savings at already the first trading sessions reached 53%, or 3 billion RUB, and overall it can reach up to 90 billion RUB across the entire system all over Russia. Here are the budgetary resources, and this is against bid-rigging violations that account in total… The laws on public procurement and competition are breached in approximately one third of trading, the saving is 0.5%.

On-exchange trade is a tool for competition development. We have been actively developing on-exchange trade not only with gas and oil products but also a lot of other materials: timber, mineral resources, agricultural products, wagons, coals, ferrous-metal scrap, etc.

I’d like to explain that the point here is not simply fair prices and an indicator. The essence is not that. The main thing is demonopolisation. Earlier a company that wished to supply innovative equipment but needed gas supply for a long period had to go cap in hand to a “Gazprom” executive and и beg a 5-year contract. Now it (perhaps it still begs but has a second window) can always, every day (there are daily trading sessions) buy it on-exchange without any issues, and gas must be supplied.

This is demonopolization of the gas sector, decrease of dominance on the oil products supply market. It is huge work undertaken by the whole Government, first of all, the Ministry of Energy, the Ministry of Economics and FAS to achieve the set goals. The goals are achieved.

After adopting the forth antimonopoly package we had to watch more carefully global deals that take place in the world, that restrict competition in Russia. Coordinating these efforts together with BRICS countries, namely China, India, Brazil and South Africa, and putting forward coordinated positions, for instance, in such mergers as “Bayer – Monsanto”, to restore competition we managed to set compensation for up to US$ 500 million gratuitously so that they transfer us the relevant seeds, and unique genetic lines.

In fact it means that we have saved five years of our time. The same should be done for other mergers. We do this work under the supervision of Vice-Premiers.

Regarding international cooperation. We will speak out on countering international cartels even at the UN. The so-called F-Appendix is put on the UN agenda, it is regarding bad practices of transnational corporations. We know from which countries they originate, these transnational corporations, which discriminate entire countries and nations, including Russia. And the UN should admit it, adopting the relevant provisions. We have been doing it jointly with the Ministry of Foreign Affairs.

Small business. Things are bad here. On the one hand, we can say that public procurement, that fall into the hands of small and medium business under Nos. 223 and 44 Laws have already reached 2.7 trillion RUB, which is an enormous success (I’d like to remind that 6, 7, 8 years ago it was 200 billion and even less), but at the same time they are going down. Small business decreases by 4–5% annually. It means that the reason is not in public procurement but in something else, and we need to find out these factors.

Cartels. Construction, pharmacology are the most cartelized markets. We have talked many times about it.

And now very briefly about the goals and problems.

First, we simply need to pass the National Plan and the laws that we talked about, particularly, on tariffs. A special plan and amendments to the law are made with regard to cartelization of the economy.

Low privatization rates should be pointed out; bid-rigging violations are massive, particularly, in the course of the National Projects. Absence of the Rules for non-discriminatory access to gas, obsolete Rules for non-discriminatory access at “Russian Railways”; slow employment of electronic control systems for price comparison (pharmaceuticals, construction, public procurement); statism in the financial sector, even if due to objective reasons; non-competitive supply of natural resources to economic entities, i.e., without competitive bidding and “under the table”; absence of common property sale procedures.

We have talked a lot about public procurement but today you cannot hear anything at all about property sale. I’d like to reiterate, perhaps, in the eight time, in the 8th Report: you cannot find public announcements on sale of confiscated goods anywhere, physical evidence used by investigators. Not to mention natural resources distributed freely, without competitive procedures in many cases, and somebody is profiteering, a non-competitive environment is created.

Finally, I’d like to state another thing before moving to the strategy for the next year. I’d like to point that the salaries of the Central Office of the Federal Antimonopoly Service (and its regional Offices) are half than what our friends from the Tax Service are given. This is simply to show what our provision today is.

The main objective is to execute the Presidential Order “On the National Plan” and Governmental acts and start preparation… Dear Dmitry Anatolyevich, I prefer if this also is included in the decision: draft and adopt a new, 2021–2025 National Competition Development Plan, which will ensure competition development in Russia at the federal, regional and municipal levels, i.e., at all levels of power.

 



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