Black mark to monopolies

Inefficient tariff regulation in the sectors of natural monopolies can threaten competition

Emphasizes the Federal Antimonopoly Service (FAS Russia) in 2016 Report on the State of Competition in the Russian Federation.

FAS has arrived to a conclusion that in the past decade monopolies put a negative impact on the economy, particularly, due to an un successful regulatory model in this area. Consumers incurred costs trough the growing tariffs while the infrastructure was not modernized.

All this led to wide-spread cases when in the absence of competition price regulation does not apply, and vice versa.

Turning to the historic background, FAS points out that in the 1990s a need emerged for a transition from the cost methods of tariff regulation to the methods oriented towards market analysis. The tariff regulation functions were assigned to the Ministry on Antimonopoly Policy and Support of Entrepreneurship, formed in 1998. The reforms conducted by the Ministry were of pro-competitive nature: a flexible tariff scale for passenger railway transportation in reserved-seat cars depending on demand was introduced and a number of decisions were made to deregulate some sectors of the economy.

In 2004 the management system changed and the powers were given to the Federal Tariff Service.

In 2015 the Federal Tariff Service was abolished and its functions were transferred to the antimonopoly body.

FAS underlines the following issues in the Report that require immediate solutions.

First, the state and the prospects of the current legislation should be studied. The law on natural monopolies already does not meet the standards, for the sake of which it was adopted. Moreover, it contradicts the antimonopoly law that has proved to be efficient.

Second, there are no systemic and consistent normative legal acts on tariff regulation. It generates enforcement problems and has an adverse impact upon operations of economic entities and development of the economy in general.

Third, in the past ten years the tariffs of natural monopolies have been growing continuously, which traditionally is one of the most serious obstacles for business development. “This is a direct blow against competitive ability”, emphasized the Antimonopoly Service.

Another issue is absence of a unified procedure for approving investment programmes. It concerns both the federal and the regional levels. The investment costs are piled up in tariffs paid for by consumers. The Antimonopoly Service proposes that such programmes must be approved by FAS Board.

In the past year, however, FAS made several revolutionary steps to build up a new regulatory model. The “below inflation tariff growth” approach was implemented. It allows the state to use tariff policy in order to create favourable conditions for consumers and enable development of small and medium companies.

Also, the “investments in exchange for tariff” principle is put in action. Some investment programmes of natural monopolies and projects were analyzed. An important example of following this principle is setting the tariffs for the services of “Rostelecom” PJSC when the company invested in equipment modernization.

The comparable markets method has got rolling. It is based on analyzing and generalizing information about the prices on the goods with similar properties, formed under competitive conditions.

The Antimonopoly Service plans to form mechanisms stimulating efficiency of regulated organizations.

Summing up the results of FAS efforts in this area, one can make a conclusion that the new tariff policy is oriented towards consumers rather than the interests of natural monopolies.