Head of the Federal Antimonopoly Service Igor
Artemyev proposes to divide the giant oil companies so that
to lower gasoline prices.
Interview by Pavel Arabov
Fuel prices have been rising because of monopolism of giant
oil companies, that are engaged in oil extraction, procession
and sales. They need to be divided, says head of the Federal
Anti-Monopoly Service Igor Artemyev. He spoke about this with
Izvestia’s correspondent, as well as about the new ways of
fighting with agencies purchasing golden beds and luxurious
cars for their officials.
Izvestia: Our antimonopoly laws are much softer than, say,
those in the United States. Why so?
Igor Artemyev: When we have been in transition from complete
monopolisation as we had in the Soviet Union to the market
economy, we should not punish everyone at once [for not quickly
transferring to the new rules]. Of course, intimidation is
not a method here. Market must be civilised gradually. Today,
tough measures against monopolies are available to us today,
but they are not overly tough. For our country, consistent
and steady movement is more important than the size of, say,
fines. If formation of cartels can be punishable by 20 years
of imprisonment, this does not mean that cartels will cease
to exist.
Izvestia: So, in this case will the managers of our monopolies
may be jailed?
Artemyev: No one will be jailed for nothing. It is a well-known
phenomenon that severity of punishment does not affect the
country's crime rate. I think that this rule would not work
in our country, or all the monopolists would have moved out
of the country long ago and led their businesses from abroad.
Thus the country would have lost investments.
Izvestia: You have collected an enormous fine of RUR 1.1
billion from TNK-BP, and immediately stated that you did not
intend to ruin the oil companies...
Artemyev: It is not our desire to bankrupt companies, but
punishment for violation of antimonopoly laws must be unavoidable.
Therefore, we have fined, are fining, and will continue fining.
The TNK-BP case became a precedent. And, we are planning to
take advantage of the Supreme Arbitration Court's decision
which is favourable for us and apply it to other companies.
Izvestia: Do you receive a certain percentage from the collected
fines?
Artemyev: Nothing everything goes to the federal budget.
Izvestia: Are you at least praised by the government for
budgetary recharge?
Artemyev: The government normally does not praise anyone.
If one performs his job well, then he won't be criticized.
Izvestia: The law allows issuing fines in the amount of up
to 15% of the monopoly's turnover. Why does the FAS always
take less?
Artemyev: Our goal is to deliver punishment that is tangible,
to show that such behavior is condemned by society, the government
and the law but not to destroy the company. That will not
benefit the country or the state employees. But, we do want
to ensure that the recidivating monopolies understand that
punishment will be tougher for every subsequent violation.
Therefore, we start from the reverse fine of 2%. If the violation
is corrected voluntarily then it could even be as little
as 1%. For a second violation they will be fined at the
rate of 4.5%. Third time already as much as 8%. And so forth,
until the maximum 15% of turnover. This will continue until
the company's management decides that it is cheaper to comply
with the law.
Izvestia: In Russia, cartel agreements (when competitors
agree to share spheres of influence) are punished under criminal
law. Why aren't monopolists jailed?
Artemyev: We aren't a law enforcement agency, and cannot
jail anyone. There are two ways we can act. Let's call them
a "good" and a "bad" way. If we follow
the "bad" path we could submit a request to the
Interior Ministry to initiate a criminal case. The Ministry
will then detain the company's owner. Later, however, the
court could possibly decide that FAS made a mistake and, six
months later, the businessman is released from jail though
by that time he is already handicapped. I don't want to carry
this responsibility, and want to avoid making tragic mistakes.
Therefore, we are following the "good" approach.
If we identify a violation, the companies appeal our decision
in the arbitrary court. And, only after going through all
the instances, after hearing the court's order that confirms
our decision, are we ready to transfer documents for initiation
of a criminal case.
Izvestia: Are there such cases already?
Artemyev: For now, they are at the stage of judicial review.
We are not accusing oil industry officials of organising cartel
agreements, but in abuse of their dominant position. There
is practically no criminal liability for this. They need to
be extremely gifted in order to go to jail for a repeated
abuse of dominance.
Izvestia: Do cartels exist in Russia today?
Artemyev: They do. I cannot say with certainty, because I
need to have a solid proof. But, practice shows that our factory
directors, like back in the Soviet times, enjoy going to the
Russian sauna together, gather at birthday dinner tables,
and discuss prices of their production there. However, this
is prohibited by law. In the West, as well as in some large
corporations here, managers take lawyers with them to industrial
meetings and sit as far away as possible from their competitors.
And, as soon as prices are mentioned, lawyers stand up and
say, "Excuse me, we cannot discuss this, this makes a
criminal offense".
Izvestia: You promised to introduce a cost-price formula
for petroleum products as a way to address the rising prices
on gasoline in December 2009. How did this work out?
Artemyev: My experience shows that dialogue with the oil
companies is useless until they lose their cases in court.
We are giving them three options. The first they can set
the prices as high as they like, but as soon as we discover
that their performance is monopolistic, we fine a significant
portion of their earnings. The second, when setting prices,
they can use our formula (the price on Russian petroleum products
on the universally accepted marketplaces such as in Rotterdam
for example, minus the cost of shipping and export tariffs
Izvestia). And the third option, which is in my opinion
the most convenient selling produced fuel via an exchange
market.
Izvestia: Why have you yet failed here?
Artemyev: Oil companies do not want to do this. They are
waiting until they are forced by courts and the Criminal Code.
We are monitoring their transfer prices from Russian oil refineries
and see that they exceed the "formula prices" by
15-20 per cent.
You know what interesting explanations the oil companies
produce? They even have special institutions that work to
develop justification for this. As it turns out, we are supposed
to consider that, somewhere in the world, say, for example,
in England, prices are higher than at the Omsk Refinery. And,
as if not to offend the oil companies, our consumers are supposed
to buy fuel from Russian refineries with a 15-20% markup,
as if the fuel was actually transported from England. Metallurgists
try to use the same reasoning. Although, it is absolutely
illogical from an economic stance point: the fuel that is
sold inside the country has not crossed any borders. Although,
today, they are trying not to resort to these arguments, after
Putin told them his thoughts on this matter in the government’s
meeting.
Izvestia: Why is market trading ineffecient?
Artemyev: We cannot yet accept their prices as a market price,
because not all the necessary conditions are met at stock
exchanges. For example, there must be at least four sellers
at a stock exchange, and at least ten buyers. And at least
10 transactions must be carried out on a single trading day.
Such transactions should be anonymous and made via the trading
system automatically as soon as the seller's and the buyer's
price coincide. Otherwise, we will get the same monopolistic
price, only presented from a different angle.
Izvestia: Consumer inflation rate promises to be below 7.6%
this year. If it is subtracted from the 15% decline rate you
promised to us after we have fair gasoline prices, then it
turns out that the price of gasoline will fall by about 7%?
Artemyev: That is what we are going to demand. But, I am
not sure if oil prices in the world will stay still. If the
current price of USD 75 per barrel rises to USD 85 or USD
100, then the price of gasoline will also rise here.
Izvestia: When will Russia see a competitive gasoline market?
Artemyev: It will not appear as long as vertically-integrated
oil companies continue to exist. Let's just say, it will be
revived after being artificially regulated by instruments
of antitrust policies. The monopolistic component in prices
will become minimal. In order for the market to be competitive,
vertically-integrated companies need to be brought down
production, refinery, and sales and distribution must be transferred
to independent companies.
Izvestia: Has this been done anywhere in the world?
Artemyev: Yes, in the United States. There are 2,000 active
oil production, refining, and trading companies. Vertically-integrated
companies, just as here, also exist in Europe. In Italy, they
are currently trying to separate them. But, so far it is unclear
what the result will be. In fact, this is outside of FAS's
competence. These decisions must be made by the government
and the parliament.
Izvestia: The Ministry of Transport has recently announced
its plans to unite three of Moscow's airports. Could this
result in creation of a new monopoly?
Artemyev: No, because airline companies fly all over the
world, and in this industry we consider the entire globe to
be their marketplace. So, from the point of view of antitrust
laws, joining of airports is possible. Another question is
how useful this can be. But, at the end of the day, that is
not a question to be addressed to FAS.
Izvestia: Do you think that competitors are at a disadvantage
due to the renovations of the Leningrad Highway, which leads
to the Sheremetyevo Airport?
Artemyev: We are still in the process of gathering all the
evidence and interviewing witnesses. Yet we have not got any
information indicating this was a collusion in favour of the
Vnukovo Airport.
Izvestia: Recently, FAS has proposed to lower the volume
of sound during broadcasting of TV commercials. Did television
channels comply?
Artemyev: The situation has been changing. Previously, we
were for a long time told tales that, for films, sound was
recorded at a low volume level, and for commercials at a
standard level. Or, we were told that the human ear is not
perfect, and therefore, the volume level of advertising could
only be changed by special devices, which require special
technical regulations. I have been listening to the stories
about how television companies were bringing their proposals
on these new technical regulations to the Ministry of Industry
and Trade for four years; meanwhile, commercials continued
waking up my children in the middle of the night. It is clear
that advertisers want to simply get maximum returns for their
money, and our television is helping them.
So, we gathered network managers and advised that, while
the "special devices" are unavailable, they should
regulate the volume manually. And, if they continue to wake
our children, then we will find ways to resolve this problem.
For example, another federal law could be introduced. Remember
that we have, for a very long time, been asking alcohol and
tobacco companies not to advertise their products so brazenly.
As a result, they were presented draconian laws in return
for their discourtesy.
Izvestia: Here, various agencies like to buy golden beds,
or cars costing USD 100,000. Has it been possible to somehow
control these purchases?
Artemyev: These "wish lists" became public only
because together with the Ministry of Economic Development,
we created the website zakupki.gov.ru. And now, a bid is considered
invalid if its conditions were not published at the website.
Meanwhile, an official who commits a violation is fined RUR
20,000 to 50,000. Daily, we issue about 250 of such fines
to officials. But, most important is the emergence of public
control. Believe me, after bidding terms and conditions were
made known to the broad public, the organizers of golden bed
or diamond watch purchases found themselves in hot water.
The issue was discussed by the President and Prime Minister,
and all those involved were facing many problems.
Next, we are planning to launch a single information-retrieval
database for all the tender conditions, published by the state
agencies. It will be launched on January 1. I think that after
this, diamonds and gold will disappear from the officials'
wish lists.
We have been preparing amendments to the law “On State Purchases”.
They should resolve two problems. First, the agencies' acquisition
of outright junk for kickbacks. For this, the Ministry of
Economic Development is preparing a list of all the necessary
technical parameters, something similar to an indication of
the required number of pixels in a camera, when purchasing
photo equipment. Second, there are premium class items that
are too immodest for officials to buy. A price limit on cars
could be set, for example. However, that will be more difficult
to do for other items. It is important here not to overdo
it beginning purchasing calculators instead of computers.
It is also impossible to make a comprehensive list, because
the government purchases a total of about 10 million various
types of goods and services.
Izvestia: Perhaps it would make sense to simply introduce
a ban on purchasing of imported goods?
Artemyev: We did something even wiser. Domestic goods and
services have a 15% price advantage. This does not stifle
competitors, but in tenders, often guarantees victory to Russian
manufacturers.
Izvestia: Airline ticket prices continue to be markedly higher
here than in many other countries. Is this due to monopolism
in the industry?
Artemyev: Indeed, there are many monopolistic manifestations,
but we are gradually eliminating them. Only a year ago, the
fuel component in the price of a ticket amounted to 36%. Due
to provision of free access to refueling operators to airports,
and competition between them, we managed to lower it to 24%.
And, we are continuing to work on this issue.
First, we obliged the companies to provide detailed information
on their ticket rates in two languages, one of which is Russian,
thus informing passengers of their rights and responsibilities.
Second, in accordance with Article 108 of the Air Code, any
ticket may be returned. This is different in the world, but
in Russia, there is no such thing as a non-refundable ticket.
It may be reimbursed at a discounted rate, but a company is
obligated to take back the ticket. We have already issued
warnings to the violators. We will go on with issuing fines.
Third, we are currently studying the systems of airline ticket
sales. The system first sells the first 50 per cent of seats
at the lowest price, thus ensuring that the air trip breaks
even. Then, the prices are automatically raised. After selling
another 10 per cent of seats, they are once again raised.
In the end, the final ticket price is many times higher than
the initial tariff. And, that is normal. But, the price is
not reduced, even if unsold seats remain before takeoff
there are no discounts. If we were to look at this from a
purely academic stance, then the remaining seats ought to
be sold at the last moment at discounted prices. Otherwise,
it turns out that they are losing customers. We are currently
resolving this issue.
Izvestia: Could FAS do anything to ensure that high quality
and inexpensive roads are constructed in the country?
Artemyev: If we are talking about the road construction industry,
there is tough competition there. Electronic bids when the
participants' names are encrypted have been introduced so
that to ensure that officials do not give orders to their
own firms.
Izvestia: When will all the contracts for road construction
and maintenance be issued based on these "encrypted"
tenders?
Artemyev: All the bids have been conducted in this way since
July 1, except high risk construction projects (such as bridges
and tunnels). There was much riot, officials busted into offices
“dancing the Hopak” showing a lot of resistance when transferring
to electronic auctions. But, the government made its decision,
and now all the construction project contracts are concluded
only in such a way. I, personally, think that no exceptions
should have been made even for tunnels and bridges.
Izvestia: Early this year you stated that investigation of
violations in the funeral business is impossible because sending
male or female officials there is dangerous and is a threat
to their lives. Have you managed to find a solution to the
problem?
Artemyev: There is some progress. We were able to conduct
investigations in 60 regions. They had only one company each,
and now there are two to three companies. We simply started
monitoring, together with the local administrations. And,
depending on the results, convinced them to break up the existing
monopoly in accordance with the law on competition. We will
continue to work in this manner.
Izvestia: And, did the local authorities easily agree to
this?
Artemyev: They did, otherwise we would have made things difficult
for them. You always have to think of something, otherwise
you will never make it.
Izvestia: As Russia’s chief antimonopoly watchdog, tell us,
when will our country become a place where fair competition
thrives?
Artemyev: When the state-monopolistic capitalism the highest
stage of imperialism collapses. This is the legacy of socialism,
which was the utmost refined state monopolism. Today, state
officials and business are almost one and the same thing.
Together, they monopolized almost all the spheres of the economy.
Meanwhile, FAS serves as some form of counterweight. But,
the government must eliminate the officials' lawlessness on
its own, and stop micromanaging.
For now, there is no euphoria to speak of. We have not yet
become a macroregulator. That is, we do not have influence
on inflation and prices in the basic economic sectors but,
we are starting to gain control, because in addition to monetary
factors, which influence price increases, there is also monopolistic
pricing. If there are no prerequisites, such as a rise in
supplier prices, and the trade price is doubled, the violators
will be punished. People must understand that there will not
be an opportunity to squeeze everything out of the consumer
down to the last penny. These efforts are holding back our
monopolies from increasing prices and lower the rate of inflation.
Izvestia: Nevertheless, the prices, which the government
sets on gas, electricity, railway transport often rise faster
than those in other sectors, and only boost inflation. Why
are you not taking measures to prevent this?
Artemyev: We are not allowed to control these tariffs by
law. The government always has reasons for this. However FAS
often objects, and we are providing many arguments why this
should not be done. And the tariff policy has been truly weak
in our country.
See also:
The
original
Antimonopoloy
Legislation
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