The FAS Russia was instructed to prepare the National competition development plan for 2017-2018

1. The Ministry of Industry and Trade (D.Manturiv), the Ministry of Transport (М.Sokolov), the Ministry of Communications (N. Nukiforov), the Ministry of Construction (М.Men’), the Ministry of Energy (А.Novak), the Ministry of Agriculture (А.Tkachyov), the Ministry for the Environment (S. Donskoi), the Ministry of Labour (М.Topilin), the Ministry of Education and Science (О.Vasilieva), the Ministry of Health Care (V, Skvortsova)

Government session

29 September 2016

The agenda: the state of competition; seven federal draft laws.

Introductory remarks by Dmitry Medvedev

Dear colleagues,

Tomorrow Sochi investment Forum starts and many members of the Government, including myself, are taking part in it. We are going to discuss public administration, first of all, a project approach, that a being talked about a lot. New projects are being implemented under the frame of the adopted projects. We will discuss how it should be done, engaging business circles and Russian regions. Although it is an investment forum, it has always being positioned mainly as a regional forum where all regions of our big country participate.

Now let’s move to the agenda. Let’s start with a report of the Federal Antimonopoly Service on the state of competition. It is not the first report on the issue, and I guess, not the last one. Members of the Expert Council and reputable business NGOs were involved in drafting it.

The modern economy is built up on an adequate business climate, at least is aiming at it. This is one of its key elements – healthy competition. This is the best, natural mechanism for selecting the most efficient models of doing business. We wish that Russia has as many as possible efficient companies that are able to be successful not only within the country but outside it. So far, in the opinion of Russian businessmen the state of competitive environment in general, to put it lightly, leaves a lot to be desired.

The report names several major obstacles for improving the state of competitive environment: a significant state sector, flawed tariff regulation, insufficient development of small and medium business that leads to dominance of big corporations. The problems are not new, we endeavour finding the solutions.

In the past ten years antimonopoly regulation has been reformed. Everybody acknowledges that it is improving and it is guided by the best world practices.  The systems of public and municipal procurement are getting better; the main institutions of the federal contractual system are practically established. The Competition Development Standard is adopted in the regions. So far the results varied and the report of the Antimonopoly Services gives a ranking of the regions in terms of the state of competitive environment. The leaders are regions with different potential: the Novosibirsk region and the Samara region, Moscow, St Petersburg and the Smolensk region. It can be discussed whether the ranking positions are justified and what FAS was guided by summing up the results. In any case this is an indicator that deserves attention.

Obviously a lot must be done still to develop competition – at the Government level as well as the levels of particular branches, regional authorities and municipal bodies. The analytical estimates made by the Federal Antimonopoly Service should be helpful in such work. These efforts must be continued.

A briefing of the Head of the Federal Antimonopoly Service Igor Artemiev after the Government session

An extract from the short-hand notes:

Igor Artemiev: Today the Government of the Russian Federation heard a report of the Federal Antimonopoly Service on the state of competition in Russia. It has already been the tenths report that we submit to the Government every year under the Federal Law “On Protection of Competition”. It is very valuable because we talk not only about good things, but also about the issues with competition in many industries. All these reports are honest and the Government is prepared to listen to such reports and draw certain conclusions from them.

Undoubtedly, the Russian Federation has formed a legislative framework for protection and encouraging competition.

Several packages of antimonopoly laws are adopted: the first, the second, the third and the forth; the work with international organizations is in progress; the Government passed an enormous number of acts, primarily the Rules for non-discriminatory access in such areas as the electric power industry and other natural monopolies, when antimonopoly norms were added to more than 200 federal acts – particularly, such fundamental laws as the law on biological resources, the subsoil law, the law on land (in each case there are chapters on antimonopoly regulation when stabilizing, antimonopoly norms are included in the branch law). At the same time in recent years our Supreme Courts have passed the rulings on relevant enforcement and judicial practice. All this means that the fundamental principles are laid down. In general it is the main result of the work in very difficult conditions, first of all, the work of the Government, the President and parliament of the of the Russian Federation. This is the first factor.

Positive changes have taken place at the regional level recently. I mean first of all approving the competition development standard that specifies particular parameters: what should be the percentage, say, to 2018 of private pre-school establishments, private schools, private companies that exercise passenger social transportation in our cities. These parameters are being implemented differently in different regions, but governors become responsible for them. They are guided by these parameters and now are undertaking particular efforts – this is also a positive outcome. It is perhaps the most important one that we have reached at the system-wide level.

Discussing the industries’ trends, lately the situation with competition in general has only been deteriorating. Perhaps, it is possible to talk about some positive trends only regarding the telecommunications industry. In particular, the Ministry has taken on board such things as network neutrality and much more.

As for other industries, there are some positive moments, but in general the situation is alarming. Certainly, the world economic crisis caused serious competition restrictions and economic sanctions also affected us. As the President said in one of the addresses to the parliament, we ourselves created a significant part of the negative trend. Still, in many cases the Soviet management style is maintained: primitive redistribution of resources “under the table” - without tenders and competitive procedures. Frequently, when they do not know how to resolve an issue, a state-run enterprise or a single company that would monopolize the entire industry are formed. For many our economic managers it is more convenient to command a particular company, thus, preventing competition. They think that they will be able to achieve efficient results, but very soon monopolies get corrupted, they start acting inefficiently, and they always have the highest costs per unit. It is very inconvenient to consumers.

We formed state corporations in various industries, which monopolized markets. I give an example with the road industry: in 1.5 years monopolizing contracts in road construction increased threefold – by 300%. It means that the same companies always win in road construction as if there are no others.

Applying No. 223 Federal Law on Public Procurement, when state-run corporations procure, and their turnover reaches dozens of trillion Rubles, the saving – the difference between the starting price and the contract price – is less than 1%. What does it mean? It means that corporations imitate heavy activity; in reality they do nothing to cut down the costs per unit, and triple the price to purchase fuel, electric power and other goods. In some cases FAS sees a tariff bid, that consumers must pay for, when a tariff combines 500 bottles of wine and ladies’ diamond jewellery. Many situations are simply absurd.

Certainly it is not everywhere. “Rosatom” is a positive example. They have built up an excellent procurement system. The only legal entity that the Federal Antimonopoly Service awarded a merit certificate was “Rosatom” – for success in the public procurement system and developing transparency and openness procedures.  In other corporations the situation remains dramatic, and relevant new packages of amendments should be adopted, etc.

As for private education, private medicine, private companies in the transportation sector – here the situation has been deteriorating in recent years due to objective as well as subjective factors.

Today [29 September 2016] the Chairman of the RF Government has instructed that by March all industries should coordinate with the Ministry for Economic Development and the Federal Antimonopoly Service their competition development programmes. And we will take care of including particular parameters to make sure they are achievable, measurable and controllable. Earlier the programmes were rather general and could simply be ignored. Following the instructions from the Chairman of the RF Government, we will try to create such programmes that it would not be possible to ignore them.

Second. The Chairman of the RF Government agreed with proposals put forward by FAS and some ministries to draft and submit a national competition development plan to the President of the Russian Federation in the near future. It will be drafted similarly to the anti-corruption plan. Today the relevant draft decrees are been elaborated for the Government. The Chairman of the RF Government asked to submit the relevant documents in the next two months. This way we will get a systemic plan that will play a very important role in enhancing efficiency of the Russian economy.

Question: What measures would FAS like to see in the national plan?

Igor Artemiev: It is a very big and serious document. To put it simply, we must reduce the state-sector in the economy to develop competition. We must get back to the situation so private banks can work normally, private initiative is encouraged, support to small business is developed, privatization goes on normally, the investment climate is appropriate. To achieve this, bureaucratic, criminal barriers must be removed. The first draft is already available. We discussed it with the Ministry of Economy; we take into account their criticism and the criticism from the President’s Office. We have been working on the issue for already two months because the President of Russia agreed on considering the issue. Today Dmitry Medvedev made a decision, a public decision which is exceptionally important for us, to support the idea. Developing such a national plan marks the economy becoming more mature in terms of the market reforms.

Question: Regarding petrol prices. If excise duties are increased in 2017, are you concerned that prices will be higher and how are you going to deter them?

Igor Artemiev: As for excise duties, the Government is discussing the issue. Recently the excise duties have increased several times and they were directly translated into prices. But since there is competition on the market, the absolute growth of prices was within inflation and below the increase of excise duties approximately more than twofold.  It means that through competition and natural deterring competition factors, the market environment did not allow to fully, 100% shift excise duties to the price; so it was a positive factor. But we understand why excise duties are introduced. This way road funds are replenished so car drivers, who buy petrol can drive on good roads.  So there is a direct logical connection here.

It’s hard for me to forecast whether excise duties will increase and for how much, but I can say that competition will limit the price growth. It will certainly happen due to the market capacity and developed competition.

Second. For already five-six years we have not experienced any “feverish” petrol price. This is because we have oil indicators and the exchange. We were developing it for nearly ten years; this is what President Putin demanded to do as far back as in his 2005 Address to the parliament. So we do not see any issues here.

Question: You talked about possibility to abolish domestic roaming in Russia. Is there any particular leverage upon cellular operators or they can refuse?

Igor Artemiev: There is a technical definition of reaming as switching from one relay to another, one operator to another. For us, as consumers, the word “roaming” also means something different: increased prices, high rates for the population when we cross a border of a foreign state.

It should be corrected. There must be no intra-network roaming in the Russian Federation – this is the first stage. The second stage – roaming must disappear within the Customs Union because our five countries signed a relevant agreement. The Minister for Communications agrees with us. We see the efforts of the Ministry for Communications aimed at achieving this. The same country, the same multi-national state cannot have twenty roaming modes, 30 strange switching and tariff increases. To get this, we have yet to reach arrangements with the operators because they used to make money on roaming.

Question:  Are you going to adopt any measures concerning import regulation?

Igor Artemiev: We certainly support import substitution. We understand that we need it – it’s our independence and security. At the same time it is essential not to go too far, it should be done in moderation. If, for instance a foreign manufacturer is prepared to supply some drug (I give you a real example) a billion RUB cheaper than two Russian producers, and we throw such a manufacturer out from competitive bidding... Why do we do it? Perhaps we should simply give our manufacturers 30% preference to the price, and let them compete while we’ll save this billion?

A reasonable balance should be found. It’s not us who started all this. Sanctions against us were launched rather unexpectedly, and we had to quickly think over a programme for import substitution. Changes in this field are quite positive – in the agriculture, in the industry.