13 june 2012

Prime Minister Dmitry Medvedev meets with experts to discuss the state of competition in Russia

In his opening remarks, the prime minister said that the goal of today’s discussion is to assess the overall state of competition in Russia. The findings will be used to develop a new set of regulations.

Transcript:

Dmitry Medvedev: Good afternoon, colleagues. I apologise for being late: we had much to discuss with the oil and gas people.

This is our regular Open Government meeting. I have already said that I believe that key government decisions should be made with the involvement of experts and civil society. I propose using these meetings to discuss socially important issues related to individual industries and the social sphere. Of late, we have discussed very important issues and ways to address them. The entrepreneur advocacy group will become operational shortly as we discussed at a previous meeting. I hope that its work will be beneficial for our purposes.

We agreed that we will go ahead and implement a number of ideas. These are seven important ideas of the new government that need to be implemented within the next six months. They have to do with paring back the government’s role in the economy, the road map for the national entrepreneurial initiative with regard to the customs service, obtaining construction permits and connecting to utilities infrastructure – we have discussed all of that on many occasions.

Today, we will focus on a separate issue that has to do with tomorrow’s discussion of the report on competition by the Federal Antimonopoly Service at the government meeting. I would like to hear what you think about this as well. The point is not in holding a discussion, but in using our findings to come up with a new set of regulations and assess the general situation in the sphere of competition in Russia. This is what I suggest that we focus on. Let’s get to work. First, I will give the floor to Mikhail Abyzov, who coordinates the Open Government’s work, and then I would like the rest of you share your views with us.  Please go ahead.

Mikhail Abyzov: Mr Medvedev and colleagues, under the Open Government arrangements we asked experts to review the report on competition in Russia in the past year prepared by the Federal Antimonopoly Service. The report is a policy document that includes all competition-related issues and the affordability of goods and services for everybody in Russia, including economic agents and retail consumers. Since this issue was to be considered by the government, we asked experts to review the report and conducted a survey covering eight major issues outlined in this report. The survey results are now available. The point of our meeting today is not to listen to what experts have to say, but also to generalise their proposals and opinions on the report’s contents and on the report as a tool of the government and federal executive agencies, generalise the proposals providing for an optimisation and improvement of the report in order to use it in future government’s work. All these proposals will be generalised with consideration for today’s discussion and submitted tomorrow for government consideration. Thank you.

Dmitry Medvedev: Thank you very much. Now, friends, please go ahead. Who will speak? Go ahead.

Dmitry Yanin (Chairman of the Board of the Union of Voluntary Associations International Confederation of Consumer Societies): Mr Medvedev, government members! Dmitry Yanin, the International Confederation of Consumer Societies!  

We appreciate that the issue of competition is being discussed, in fact following a very short period, this issue is being discussed with voluntary organisations and experts. Competition is the most important variable for a consumer because a consumer gains the most advantages in a competitive market. Let’s just say the Federal Antimonopoly Service is a friend of a consumer. We are happy to see competitive policy develop. We want to note also that the April discussion on the problems of competition was quickly translated into instructions, and we are even more gratified that some of these instructions have been already implemented. In particular, the problem of mobile slavery that we discussed at the Open Government meeting, mobile slavery preventing a subscriber from changing a cell operator while maintaining his cell phone number has already made it to the decision process. The Ministry of Communications and Mass Media has at last prepared a draft law after three years. And I think that an example of this dialogue, with the participation of all parties, is very important and the experts highly assess the situation when the advice and recommendations that are good for foreign countries finally begin to be implemented in this country.     

We have a general remark on the report. It fails to highlight the importance of competition for the public, for an individual. Meanwhile the markets are rather sensitive for people. Should the report include the Federal Antimonopoly Service explanation to the Russian people on what has been done and what is planned in order to reduce prices, improve the quality of services in various sectors for consumers, this would be more important and would gain more support from the public. 

This report is meant to be comprehensive, but meanwhile some statutes are well-detailed, and some statutes have been omitted and the criteria for selecting priorities are beyond understanding: some sectors are analysed in detail and some sectors have not been thoroughly considered. I think it is important to understand the criteria for selecting proposals to change the situation in a specific market, I think it is important to understand why a specific proposal is being selected.

The issues that in my view need a more detailed discussion with the experts and the state agencies are issues on financial services, and in this respect the Federal Antimonopoly Service has done a lot. Some of the proposals are rather interesting; in particular, the Federal Antimonopoly Service proposes introducing  modifications to the procedure for calculating the mandatory third party insurance coverage in order to make this service competitive, so that companies compete with prices and the state sets the highest level, this is very important in our view. Meanwhile the report proposes deregulating the state in a rather sensitive sector, the stationary communications services. The report proposes lifting state regulation altogether or lifting state regulation on local communications. I think the extent of consideration for this issue is rather weak and needs further discussion. 

It is necessary to discuss in detail the oil products market, in my view. Currently this market is under a manual control, and the report makes no proposals for global solutions on the power distribution market in a situation where the public has no right to choose a power supplier, - the Federal Antimonopoly Service has made no proposals to improve competition so that people can choose a power supplier. 

We will have another opportunity to discuss this report. I hope that if target indicators for each branch department are established to improve competition and if Open Government creates monitoring procedures for each ministry branch office to protect and implement the indicators seeking competition growth and establishing possible criteria for price reduction, this would be very important. I think it’s also important to discuss one more issue on trade that we raised at the Open Government working group meeting that decided to submit this issue for discussion; we should weigh all the pluses and minuses of this draft law and take some decisions. Thank you very much.

Dmitry Medvedev: Thank you. Go ahead please.

Natalya Volchkova (Professor of the Macroeconomics Department at the New Economic School): Good afternoon, Mr Medvedev, government members! I’m Professor Natalya Volchkova, New Economic School. I will speak about the report from the standpoint of an economist because competition is a very important principle not only for the consumer but it is one of the foundations of the economy. From the economic standpoint, competition has a major economic function – it distinguishes the most efficient producers leaving less efficient producers to abandon the market, something that will happen only under conditions of honest competition, non-discriminatory conditions for all of a market’s players. This report considers various sides of competition both from the economic and legal standpoints because for a lawyer the competition has its specific meaning which is no less important. However from the economist’s standpoint, this report creates a disharmony in presenting the materials. From the economic standpoint, a branch structure for the report would be more logical. Such report in the beginning would describe the overall situation with competition in Russia, it would highlight the priority markets, branches with problems in competition, and then describe the competition structure on each specific problematic market, define the problems of competition on a specific market, the measures that could tackle these problems, and finally offer an assessment of expected changes resulting from these measures from the standpoint of production, competition and employment. I wish that this report was laid out better, then it would become more readable. Currently it is difficult to read it, it blurs the existing problems.  

 As for the contents, again from the economic standpoint. The first problem is the data supporting the assessment of the situation with competition in Russia. And in this sense it is very explicit that the relevant part of the report is entitled “Assessment Criteria of Competition in the Russian Federation”. This is, indeed, about opinionated appraisal. Unfortunately, the data used by the Federal Anti-Monopoly Service (FAS) don’t allow us to get a good idea of competition-related issues on particular markets as well as in the country at large. But, of course, the problem doesn’t lie with the FAS as such. It’s the Russian Statistics Committee that is largely to blame here. Russian statisticians tend to rely on historical approaches and aren’t oriented toward providing government agencies with information that could raise the efficiency of measures and strategies.

 Data currently available from the Statistics Committee on the number of companies cannot be used for assessing changes in the state of competition, obviously. Surveying the inflow and outflow of companies is part of competition studies, and this is well developed globally as a research area. Unfortunately, there isn’t a single work in Russia that analyses the inflow and outflow [of businesses]. We’ve developed no tools to enable that kind of analysis in the past two decades. This is a big problem. And there isn’t a single work that addresses the issue and explains why the inflow and outflow of companies are such and such. We don’t have any notion of how many companies go bust every year in each particular sector in Russia. Whereas in the outside world, such country-specific data are well known, because the gathering of this data is part of the statistical agencies’ aims and goals, and appropriate instruments are developed to facilitate them. In Russia, this isn’t the case, and there are no signs the situation will change any time soon. The assessments made on competition [in Russia] are largely superficial and opinionated, suggesting that the issues raised don’t necessarily exist in reality.

This is true of surveys as well. Surveys are part of competition assessments, but small and medium-sized businesses should be surveyed as broadly [as large businesses], or even more so, because they are the ones most sensitive to competition. The findings cited in the report don’t allow us to trace changes in the state of competition, because to be able to assess such changes, one has to survey companies on a regular basis, using representative panel sampling.

Firms responding to competition today, tomorrow and the next day are those that can show us the actual importance of this or that change. It’s something to be monitored. But the figure cited in the report doesn’t reflect it in any way, so even the increase of one percentage point to 8% in the number of companies that believe competition has changed for the better doesn’t prove such changes have really occurred. This should be monitored, and there are methods to do that. There are no data to which those methods could be applied, though. It’s highly important to distinguish between the problems of competition that prevent businesses from advancing and those that companies can realistically overcome. Sure this would raise costs. If there’s no electricity, we can use a generator instead. But if there’s no road, the business community won’t be able to build one. The distinction between critical problems and not-so-critical ones will make it possible to prioritise measures, whether infrastructural or regulatory.

The way problems of competition are formulated today is largely about assessment, unfortunately. In a few cases, the markets I’ve seen mentioned in the report are assessed in a wrong way because the conclusion made on the basis of the cited data is that the high share of exports makes it hard to enter the market. But clearly, this isn’t the case. It’s necessary to employ some advanced tools used globally as well as to model corresponding markets.

Unfortunately, as I said, there’s no information available on the structure of demand and supply, nor about what kind of competition is prevalent on a certain market. There are markets where just two or three companies ensure balanced competition and there are markets where twenty companies aren’t enough to create competition because such is the demand and supply structure. The report suggests that the FAS has no idea about the degree of flexibility of demand and supply, nor of the actual level of competition on each of the markets mentioned.

A lack of economic justification for the conclusions makes the proposed measures seem volatile. If measures are proposed in keeping with an accepted procedure for most government agencies, including the ones in charge of economics (the  Ministry of Economic Development offers an assessment of regulatory effects in almost all the documents issued), then why won’t the FAS, as the principal economic regulator, incorporate this in its measures? Why aren’t these principles laid down for calculating the risks? We should estimate the consequences in advance and then use those preliminary assessments in analysing the expediency [of measures taken]. This has been the ABC of the Economic Development Ministry’s work for quite a while now. Unfortunately, I haven’t seen this [practiced] here. And in my opinion, this very important market – the labour market – has been lost while it should be viewed as the cornerstone, by the FAS above all. The many barriers spilling over from other markets provide no labour mobility – something that forms the basis of competition in the economy as a whole, intersectoral and interregional. This issue is overlooked, making it impossible to really understand if the FAS regard the lack of competition and low labour mobility as problems and whether they hinder the development of competition in the Russian economy. Thank you.

Dmitri Medvedev: Thanks a lot. Please.

Artyom Eiramdzhants (First Vice President of the PIK Group): Good afternoon, Mr Medvedev. I’m Artyom Eiramdzhants from the PIK Group.

Thank you very much for the invitation to take part in discussing this vital issue. We’d like to make a few points in regard to real estate, which I am representing here, that we think should supplement this report.      

We think that without criticising the current report in any way, it could be supplemented with the impact of FAS measures on the price of a final product. We could start the analysis from the final product whether it is apples or a square metre of housing. What could be done to promote competition in order to keep the prices on housing stable without sacrificing quality? Regrettably, the report does not analyse this aspect of the problem.

The five major goals that are mentioned in section 1.1 in the very beginning are important. Nobody disputes the urgency of these goals, but the report doesn’t mention them in the main directions of activities and we don’t see this as entirely logical.

Switching to real estate, I’d like to make a few points. I don’t want to divert your attention again to infrastructure connections. I’ll just say that we have sent tour specific proposals to Open Government. We believe it is necessary to change the procedure for endorsing the investment programmes of energy supply companies. The world experience, or at least the practice of many European countries, suggests creating commissions with the participation of the chambers of customers at regional regulatory bodies or regional energy commissions (REC), as we used to call them before. We think this proposal would be useful and the FAS could take many practical steps in this direction.

Speaking about construction costs, we have a proposal on railway tariffs. In 2011 the costs of aggregates, such as chip stone, sand and grit doubled in some cases (I’m referring to the Moscow Region) mostly because of higher railway tariffs. In this context we suggest that the owners of the rolling stock (I’m not talking about Russian Railways per se) should be listed as subjects of natural monopolies. We think this would help at least slow those rapid increases in prices which we saw last year.

I’d like to make a brief comment on running apartment blocks. The FAS report notes with good reason that the amendment to the Housing Code on the conduct of municipal tenders for the right to run apartment blocks is a big step forward. However, as a developer I can tell you that such tenders do not work. The law compels municipal entities to hold them but the relevant procedure is based on the government’s resolution of 2006, which is outdated. The practice of Moscow and the Moscow Region shows that there is no competition because there is no opportunity to compete for services, their quality or price. This is a technical issue and we are prepared to give additional recommendations on resolving it. This is all I wanted to say. Thank you.

Dmitry Medvedev: Thank you very much.

Alexander Galushka (President of the Russian public organization Delovaya Rossiya): May I? Thank you. In general, we think that the report is too formal and bureaucratic. It does not take into account the interests of individuals and private companies. Apparently, public consultations and hearings must become an indispensable condition for its drafting. FAS public councils should have the right to change the work entirely. It is important to resort to crowdsourcing that would enable people to voice their opinion on the problems they face in competition and in FAS activities. People should be able to bring their opinion to top management through an open crowdsourcing FAS council. This would compel the FAS to take into account the interests of the public and would make its reports more relevant in this respect.

In addition, we think that the report as such reflects a problem in FAS strategy, notably, that the FAS is getting more and more authority, whereas competition is becoming weaker all the time. We can adopt the fourth and the fifth anti-monopoly packages but this won’t encourage more competition. This is probably, the main problem - the assessment of independent international institutions and the way the business community feels both suggest that that’s the case. In our view, the report overlooks the central issue, which is the assessment of the current state of the competition, its changing dynamics over time, and the efficiency of the regulatory measures taken by the Federal Antimonopoly Service to improve the situation. This main link is missing, in our opinion. Yet it should be the central link of the report, as well as the primary responsibility (and key performance indicator overall) of the Federal Antimonopoly Service. Those are the main, essential aspects of the report in our opinion.

Dmitry Medvedev: Thank you very much.

Vladislav Korochkin (Vice President of Opora Rossii, a public organisation representing the interests of Russia’s small and medium-sized businesses): Mr Medvedev, dear colleagues. My name is Vladislav Korochkin, I represent Opora Rossiii. I think so many antimonopoly-related problems have accumulated over the years that it simply makes no sense listing them all here one by one. We’ve approached the issue of creating a tool that could help us in the long run find effective solutions to all these problems. So our appraisal of the report is positive enough. It contains a large number of expedient proposals in its final part. We believe that these proposals… the report could become a really efficient tool if it was reconfigured a bit, to begin with setting out the tasks, for instance, then passing on to an appraisal of the effectiveness of the measures taken in the previous period, and finally ending with a description of the current situation in various sectors.

It’s understood that we need to devote more time for discussions with the business community. We’ve seen this year’s report only now that it has been finalised and has already been submitted to the government. But it needs to be decided in advance whether this will be a crowdsourcing solution or something else, because it’s a Federal Antimonopoly Service report we’re discussing here, not a report prepared by the business community. Maybe two reports should be made instead: one from the Federal Antimonopoly Service and another from business associations, so that the government could compare the two points of view and see who is wrong and in what sense.  Common problems that crop up where these two sources intersect will perhaps prove to be the most significant ones and should then be identified as next year’s priorities, given that we’re discussing a recurring report, to be provided on an annual basis.

We’ve got a whole number of concrete proposals in a number of areas. One of them, it might make sense to include a separate chapter on assessing the effectiveness of self-regulation institutions in specific economic sectors, in particular in sectors that we expect to create a large number of small businesses in the coming years, such as medicine, education, and the utilities and housing sector. In these sectors, especially in medicine, the number of small businesses may grow by a factor of 50 within a fairly short time span, provided the right conditions for competition are created. The self-regulation institution that is currently introduced could play a crucial role in this. The report identifies problems related to healthcare, but it would be interesting to highlight the self-regulation of the health sector or even to make it the centrepiece.

The same is true of the law on trade, well not exactly the same but the principle is the same, since it’s through commercial activities that small businesses can enter a market. Correlations between various forms of trade, including family businesses, small businesses, chain and non-chain retail, and transnational networks – this is an issue to be reflected in the report not just in general terms, but specifically, as this is a direct indicator of competition.

There are other proposals, which we’ve set out in writing and submitted to the Open Government.

Dmitri Medvedev: Thank you very much. Please go ahead.

Alexander Shokhin (President of the Russian Union of Industrialists and Entrepreneurs): Thank you, Mr Medvedev. Dear colleagues! It’s no coincidence, perhaps, that at our union’s session this morning, we discussed this very report on the state of competition.  And we had Mr Artemyev drop in ahead of a conference with representatives of the oil and gas industries. Which means we’re all on the same wavelength.

Dmitri Medvedev: Well done, Mr Artemyev! The ubiquitous Mr Artemyev!

Alexander Shokhin: First of all I would like to emphasise the useful nature of this instrument, namely, the annual report on the state of competition in the Russian Federation. We have had various tools, including a competition promotion programme. I hope that this programme has not been forgotten either. Although, to the best of my knowledge we are not currently supposed to assess the extent of the programme’s implementation. Moreover, we should use the relevant methodology contained in the Key Performance Indicators to assess the programme.

What’s important? Certainly, it’s important that we assess the state of competition, and it’s not only the Federal Antimonopoly Service which is responsible for this. If we use football terminology, then the Federal Antimonopoly Service can be called a defender of competition. However, many other government agencies should also promote competition. We pursue this task in conjunction with the government and the Presidential Executive Office through other channels. For example, the business community’s initiative to improve the investment climate is the reverse side of the competition promotion goal. Certainly, it would be correct if we merged all these types of activities. Actually, the government and institutionalised business communities are responsible for such activities. We need to find ways to transcend the boundaries of the Federal Antimonopoly Service’s responsibilities. For example, our colleague Vladislav Korochkin has mentioned several issues. But, frankly, it was the Ministry of Industry and Trade that submitted the trade law. For example, the Ministry of Education and Science, as well as the Ministry of Healthcare and Social Development, etc., oversee small businesses in the social sector. To be honest, even these examples show … I agree that such issues should be covered, but these examples show that the Federal Antimonopoly Service  can coordinate the preparation of the report’s section assessing the state of competition as well as outline specific competition promotion tasks. The Ministry of Economic Development can probably do the same. The Federal Antimonopoly Service is directly responsible for assessing the enforcement of anti-monopoly legislation and facilitating the implementation of the competition protection law.

Assessment itself is the second issue. Speaking of the report as part of the Federal Antimonopoly Service’s sphere of responsibility (in the narrow sense of the word), it is, of course, very important to use a regulatory impact assessment mechanism here, to assess the effectiveness of Federal Antimonopoly Service directives and decisions, including those legislative changes which were passed last year. In effect, this means that we should monitor the developments inside the competitive environment after the implementation of the decisions. For example, it appears that we should assess the effectiveness of the third anti-monopoly package at the end of 2012. And we should set such objectives, including a request for proposal (RFP) well in advance, while preparing the next annual report.

And, of course, it is very important how the people perceive the business community and the state of competition because we can make independent surveys in line with the Regulatory Impact Assessment Practice. And the business community can provide support in the form of business associations. At the same time, private companies and individuals can, certainly, make different assessments. Therefore it’s important to create polling methodology to cast a wider net and to assess the perception of competition.

Certainly, it is important to become involved early. It’s good that the Open Government discusses this issue prior to the government meeting. Nevertheless, it seems appropriate that we discuss the report a bit earlier, so that the government can examine the written proposals of the expert and business communities. Moreover, it is important that the business community take part in preparing this report and various other reports not dealing with this issue.

This is a common subject: It’s important that the business community and the expert community take part in drafting the concepts of such serious documents, including strategic and long-term documents. But, on the whole, I get the impression that part of the ideas voiced here could be realised if there was enough time to finalise this report at the government’s meeting tomorrow. But, obviously, the relevant term for finalising the report should not be too long. Naturally, something can be done so that the document can embody the relevant ideology and methodology of the annual report as a serious tool for assessing competition, the state of competition and probably the entire economic policy. Thank you.

Dmitry Medvedev: Thank you. But I would like to say in advance that the decision, which has been drafted for tomorrow’s government meeting, states expressly that Russia’s Federal Antimonopoly Service will make it possible to heed the opinions of the concerned state agencies in the context of this discussion, and specific remarks during the report’s finalisation. The service will also take into account the results of the public discussion involving business and consumer associations and the expert community. This is directly stipulated. Please.

Andrei Nikitin (Director General of the Strategic Initiatives Agency): Mr Medvedev, colleagues. I would like to thank the Federal Antimonopoly Service for their detailed cooperative work on these road maps. Together, we have done a lot to improve the investment climate in construction and to improve customs regulation. Today, we are launching work on a new road map, which will improve the regulatory environment for the business community. And we are also counting on assistance here. But, unfortunately, it appears that the report did not reflect in full our joint work. I believe that, quite possibly, apart from the industrial aspect, which is present in the report, it would be appropriate to somehow coordinate this with the national entrepreneurial initiative regarding the subject matter and content of barriers.

Second, the country’s business people and consumers tend to assess competition relative to where they live and do business. Consequently, I would like to ask the Federal Antimonopoly Service to assess the regional aspects of competition. We are ready to do this in our efforts to improve the regional investment climate. Thank you very much.

Dmitry Medvedev: Thank you very much. Please.

Denis Kamyshev (Ernst & Young): Thank you. I’m Denis Kamyshev from Ernst & Young. The subject of our current discussion is largely motivated by the very format of the report, in which it is represented. There are very many issues here. But as you can see, every reader perceives only that part, which he or she considers   most significant. At the same time, due to the huge format and volume, it’s probably difficult to correlate these things and see the whole picture. Therefore I believe that, not by the way of improvements, but the next report … when it will be possible to include this in the structure of the report itself … In effect, this implies the big picture. Industrial aspects will probably be represented in greater detail because, on the one hand, the current report contains a lot of information on virtually all sectors. On the other hand, very little has been said about each sector due to the report’s format. But not all sectors are the same in the context of, say, competition regulation. Part of it could be omitted without losing the essentials. Certainly, I would like to augment the regional perspective, and I agree with Andrei Nikitin.

  And the second thing – maybe a separate section needs to be devoted to small and medium-sized businesses, because their rules, regulations and problems have little in common with those of the large companies. And two more things – which I think noone will draw attention to except the Federal Antimonopoly Service (over the space of a year it has to come up) – these are the markets of licensed activities and goods. That is to say we create unequal conditions from the start, so we would like the regulator to pay more attention to these branches. The second point, perhaps a very important one, is the situation in the area of procurement, because on the one hand it concerns some mechanisms of restriction of competition, which may crop up there, as well as with small and medium-sized businesses, that is to say this is an enormous amount of work. These three parts (and perhaps I agree with Natalia Volchkova, the labour market too), these four parts, or regional expansion, small and medium-sized businesses, licensed activities and purchases are a different proposition, it is not perhaps something which only the Federal Antimonopoly Service deals with. But this will make it possible to see some progress in an annual format, on a yearly horizon – if it is there or not. Thank you.

Dmitry Medvedev: Thank you very much. Next speaker please.

Leonid Melamed (General Director of Kompozit Holding Company): Mr Medvedev, members of the government, colleagues. I am Melamed from the Skolkovo Management School.

First of all, the experts who were interviewed within a brief time unanimously agreed that the report is an honest one, that there is nothing deceitful about it and that it is a true reflection of the current situation. This is, of course, a situation of total disarray in competition. I would like to focus on five points which I would like to be reflected in future reports.

Firstly, it is unclear what objectives the government has set in terms of increasing competition and as a result it is not clear to what extent they have been achieved... I would like to see in an updated version clearly stated objectives, and in numerical format the measures that will lead to these goals being achieved and an assessment of the contribution made by each measure to the achievement of these goals. So that society and those responsible for implementing the objectives can see at a glance what has been done, what hasn’t been done, and what point we are at.

Secondly, the entire part about the activities of the Federal Antimonopoly Service  is, in our view, heavily slanted towards control measures, while we believe that the main aim of the Federal Antimonopoly Service should be to establish the right conditions for competition and reduce the number of cases requiring subsequent monitoring.

Thirdly, I would like to see in the report a section assessing the impact of regulation. The last period saw a huge number of regulatory acts adopted, perhaps several thousand. And the overwhelming majority of these regulatory acts have had an effect on competition – but we do not know how. So the government lacks a proper means of assessing what needs to be changed in these regulatory acts: which ones should be refined, which ones repealed and which ones strengthened.

Fourth point, I would like to see a large section dealing with the role of civil society institutions in promoting competition. The Open Government meeting you presided over, Mr Medvedev, devoted a lot of time on how to get those people who are interested in this type of work involved in promoting competition. It seems to me this is the most important part. Some of my colleagues mentioned self-regulating organisations, but apart from these organisations there are many other types of activities by our citizens and a considerable part of these activities could be directed towards increasing competition.

Lastly, I would like to see a section on the impact of corruption on the state of competition. Obviously the effect is a huge one, but it needs to be assigned a numerical value and must be dealt with calmly, gradually, step by step. We are all perfectly well aware how much in practice corruption distorts competition today, in all markets. That is the gist of what my colleagues asked me to say. Thank you for the opportunity to speak.

Dmitry Medvedev: Thank you. Next speaker please.

Mikhail Slobodin (Executive Vice-President for Gas and Energy Supplies at  TNK-BP Management): My name is Mikhail Slobodin, and I am from the TNK-BP energy consumers board.

It has taken me little time to read through the entire report. What would I like to say? Firstly, my impression is that the report is not about competition proper but a Federal Antimonopoly Service’s review of competition, although actually competition from the point of view of … It is not only a matter for the Federal Antimonopoly Service. If it is the common ideology of the state, it must be the concern of every department which is responsible for this matter. But what have I failed to see in the document at all? Firstly, the retail electricity market is not covered at all. The volume of this market is one trillion roubles a year and it affects a large number of people, and small and medium-sized businesses. The rules on this issue are now changing, nevertheless there is no mention of this market at all.

Secondly, there is no mention of the retail market of oil products at all in the section. Undoubtedly, wholesale and retail markets are interconnected, but still serious processes have been taking place in the retail market (I am referring to the oil market), and this market has an annual turnover of over one trillion roubles, which has not been explicitly stated here.

Third. The gas market, which also has a volume of about a trillion roubles, is also basically not covered. This means that the report does not cover the key markets, which are vitally important for the business community, the population, and a great number of interested parties. If we have not made any progress in the gas market that is exactly what the report needs to state: we have made no progress in the gas market, we cannot do anything in this area.    

I also carefully examined the section on heating and housing and utility services, which I used to be involved in. The report devoted an equal amount of space to discussing heating and housing utilities as to the wholesale motor grader market. However, these two markets have a volume of one trillion roubles each (in fact, it is an additional 2 trillion roubles), and the report is narrowly descriptive, whereas this is not just an apartment building management market, but also a market of solid and liquid waste. Everything is very interrelated there.       

The problem there is both corruption and lack of competition, but we don’t even have any statistics on these issues. This is a difficult sphere and it is not easy to understand it. In essence, it has not been covered by any government regulations, except for very important but still fragmentary decisions.

I would also like to point out the document’s emphasis on administrative and repressive instruments. While it’s fine to report on these issues, we also need, as our colleagues mentioned here, to understand which of our actions contribute to the creation of a competitive environment, which actions undermine competition, and what enhances it. There is no discussion of these issues in the industry section of the document.  

Still, the Federal Antimonopoly Service does a lot to establish such rules. For example, appropriate rules and regulations are being established in the oil market. Specifically, TNK-BP has agreed a code of conduct. While these are all the right things, they are fragmentary and do not represent a general policy.    

Then there is another important issue. Competition involves not only rules but also equal access to resources in terms of deposits, etc. We are experiencing some serious problems in this area, but these issues have not been addressed in the report. I believe this is very important in terms of attracting investment and creating a conducive investment environment in a large and high-volume industry such as oil and gas.   

The issue of economic concentration is only analysed in terms of FAS control over mergers and acquisitions by means of authorising or denying them. Actually this means that the current level of economic concentration in Russia is normal and, therefore, the goal is to ensure that it does not increase. In reality, however, this is not quite the case, and the government and the FAS should take a more active approach to break up the monopolies. But we have yet to see such actions.   

As far as recommendations are concerned, I believe we need to focus on specific markets. It will help us formulate our priorities. We need to focus on important and large markets, with a volume of no less than one trillion roubles, study them thoroughly and monitor the situation there. This will allow us to get a clearer and more objective picture. We could seek expert analysis in narrower fields. Having markets with turnover of more than one trillion roubles is extremely important for the country.      

And, of course, ideally the goals and priorities should be outlined from the outset, as it is usually done. These are the tasks, of which these many have been accomplished and these many have not for these specific reasons. This information is present in the report, but it is spread out over 300 pages of text and it is very difficult to get a clear understanding of the issue. I believe the document needs to be thoroughly reworked and made more structured so that we don’t have to go over it again a year from now.         

Dmitry Medvedev: Thank you. Who else wants to speak? Go ahead, please.

Denis Sverdlov (General Director, Yota): Mr Prime Minsiter, colleagues, my name is Denis Sverdlov, I am the director of Yota. I examined the section of the report on communications and information technology. It is rather difficult for me to comment on the document overall, as I could not understand its goals, since the introduction to the document does not specify it. In my opinion, the form of the document is also not very convenient, as many speakers have mentioned it.  

It has 312 pages and too many general words, which makes it very difficult to get to the substance of the document. Speaking of the communications issues, I would like to note that overall, the FAS proposals in the field of regular communications are quite relevant, meaning that all the proposals included in the report are reasonable and certainly important for the communications industry.  

However, in May 2011, government resolution 734-e was adopted, which outlined a number of measures to be implemented in the communications industry. This document included 29 points, of which only two have been implemented over the year. The point I am trying to make is that if the resolution included only three points, instead of 29, ranked by their priority, we would have seen serious changes in terms of competition in the communications market.

These three points should include access to infrastructure (today, access to fixed infrastructure undermines competition and negatively affects the penetration level of communication services); making frequencies available for civilian use (if there was consistency in this area, we would have a very different situation in the communications market today); and the third point is the ability to keep your number when switching operators.   

Currently, this issue is being discussed in the context of mobile numbers. I believe number portability should also apply to land lines. If we realise these three points, I am confident that very soon we will have a completely different level of competition in the communications industry, which will benefit consumers.

As for the information technology market (there is a section in the report on this issue), I believe due to its nature this market should not be addressed by the FAS. This market is absolutely open as far as software is concerned, as well as various kinds of services. However, the report devotes much attention to the discussion of information technology… There is information there, but in my opinion it is not comprehensive or relevant. In other words, it does not correspondent to what is really happening on that market. Thank you.           

Dmitry Medvedev: Thank you. Please, go ahead.

Vadim Radayev: (First Deputy Rector of the Higher School of Economics National Research University): Mr Medvedev, colleagues, I believe the report is quite informative and concrete. There are also significant improvements compared with previous reports. And in general, I can say, based on personal experience, that the agency is not only very active but also quite open both in terms of providing information and engaging in discussions and cooperation.

My question is: how can we improve this kind of document and how can we improve the discussion of these documents and make it more efficient? First of all, I agree that significantly more attention should be paid to the effects of the measures that are being taken and the policy that is being implemented. In its current form, the report is mainly focused on describing the activities of the Federal Antimonopoly Service, whereas it needs to provide the regulatory impact assessment and it should be quantifiable.      

The report should include at least some elements of quantifiable assessment without simply listing the number of inspections, verified violations, and imposed fines, as is often the case. They should assess the changes in market conditions, which describe the level of competition from various perspectives, whether this applies to the results of tackling cartel agreements or the regulatory impact assessment of the Law on Trade, which is another major industry.   

Just a single page of this extensive document is devoted to these issues and it mainly lists the number of criminal cases filed. We have conducted a study on this subject, which demonstrated that the adoption of this law has not brought about any major changes in the interactions between market participants or in the competitive environment.

It seems the administrative expenses on its realisation have gone up again. The Federal Anti-Monopoly Service probably has its own views, which should be made known and come under discussion before the law is amended to toughen it, as proposed.                                                                     

It has been said already that the report contains an excessive amount of details while the priorities must be highlighted more clearly. It’s impossible to cover all markets in full in one mere law even if we adopt a hundred amendments. We should perhaps concentrate on the sectors where the state policy is undergoing comparatively radical changes. We should also devote more time to discussions about the general principles of this policy: how should competition develop, what challenges the FAS is facing, and to what extent its ambitious goals should cross the limits of competition guarantees as such, and also guarantee the balance between the free market and the principles of fair exchange?

This issue is much more subtle and extensive. To what extent should we increase the number of agreements and practices prohibited irrespective of their impact on competition? What should the position of relevant agencies be, and what is their position now on the standards of proving violations? Should these standards be mitigated or toughened? Tougher standards will impede work because it’s objectively difficult to prove the presence of domination and even harder to prove the abuse of domination. It is sometimes easier to calculate the share of the market held by a company or a group of businesses with unified prices and draw conclusions, but this is not the best way to do things.

One final point: we said before that competition is multi-sided and influenced by a wealth of factors. The FAS is not alone in trying to promote its development. The report points at certain contacts – interfaces with foreign agencies, with the Interior Ministry, etc. I think we should extend these interfaces and pay greater attention to collaboration. Possibly, instead of discussing just the departmental report we could look at the system-wide problem with supplementary materials and alternative reports. Such discussions would be very valuable. Thank you.

Dmitry Medvedev: Thank you. Go ahead, please.

Oleg Vyugin (Chairman of the Board of the MDM Bank): Thank you. Mr Medvedev, ladies and gentlemen, this report is very interesting but my first impression of it is that it is somewhat inconsistent. The scope of competition in Russia leaves much to be desired though the FAS is doing a big job as we can see from the facts cited in the report. This point is illustrated by figures cited in the report. There is an impression that those whom it concerns turn a deaf ear to reasoning. Perhaps that is too harsh but that is the general impression. I don’t mean that just private companies seek to avoid private competition but also state companies acting on the nation’s behalf. At least that is my impression.

I think everyone will agree that this impression is accurate and should find clear reflection in the report, so I would like to begin by saying a few words about how that should be done. To begin with, we should have a clear understanding of what it is we want: a departmental account of its work, which in itself is a good and useful document, or a kind of a White Book of Competition, based on thorough and precise analysis. In that case, we will need more than the materials we have used so far; for example, the results of opinion polls in business associations, which will make the picture more comprehensive.

Next, we will be able to prioritise the problems more reliably when we have such statistics. I don’t think this is the place to talk about it in great detail. However, they can be worded explicitly and many of the speakers posed such questions though they do not present the situation in full – I mean challenges generated by those problems and efficiency indices according to the set goals.

We cannot achieve the impossible. I agree with Mr Slobodin, who said that such an ambitious task demands that we focus on the markets of crucial social importance, which have a direct impact on public expenditures on commodities and services. It is easy to identify such markets due to their size, and I think we should concentrate on them. That’s all I wanted to say in my recommendation concerning the content and structure of the report.

In principle, drawing up such a report goes beyond the responsibilities of the FAS but then, the FAS is not some exclusive agency: it is just an instrument of federal power. So such a report can be drawn in the Open Government or in cooperation with business associations. I think it’s possible.

There was a request to speak about the banking market. I’ll say a few words about it but oil comes first. The FAS has a fairly long record of fighting cartel agreements and other attempts to manipulate prices, which have a direct impact on the public, with the rapid growth of petrol consumption. We have not yet achieved the target, and I think we should take a closer look at the problem. It may never be solved in vertically integrated oil companies.

Airlines are a rapidly developing market whose social importance is growing fast. I think they are relevant to our discussion because Aeroflot, a state company, plays a huge role and influences fairs to a certain extent. I just wanted to mention it without going into too much detail.

In conclusion, I would like to say a few words about banking. Banks are in tough competition with each other. There is a problem of state banks, which is discussed from time to time. It concerns the competitive edge, purely psychological one, which they have due to their opportunity to obtain cheaper liabilities. Moreover, it is generally believed that budget funds, and the monies of state companies, ministries and agencies should be kept either in the Treasury or in state banks. This also reduces the cost of liabilities, and together with skilled business activities, leads to prosperity. Mr Gref has clearly demonstrated at Sberbank that efficient management can make a bank grow far faster than the market by using its competitive edge, and occupy an increasing share of the market.

What is the best way out of this situation? Look at the world’s largest banks. For example, the United States’ largest retail and full-service banks are in tough competition with each other, but they are not entirely US-owned. They are American by origin but at present they are transnational giants competing in the global market. They have real competition in the United States while occupying a huge place in the world.

Perhaps we should also regard our banks in this way: let them grow outside Russia and compete for serious positions when they have an opportunity. However, their growth in this country needs to be limited to prevent their market domination, which they have now. If we don’t take any measures against them, they will oust private capital from the market step by step. These are all lengthy processes but I think we should consider them. Thank you.

 

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