26 november 2008

Vladimir Putin chaired a meeting of the Government’s Council on Competitiveness and Entrepreneurship

Vladimir Putin

Meeting of the Government’s Council on Competitiveness and Entrepreneurship

"Efforts to streamline the sphere of competition are called on to improve Russian economic patterns, to facilitate the more effective performance of its sectors and separate enterprises, to provide substantial incentives for reducing outlays and improving the quality of our goods and services and developing small and medium businesses."

Vladimir Putin's introductory remarks:

Good afternoon,

Today, the Council on Competitiveness and Entrepreneurship will discuss a routine issue, namely, competition incentives.

We have been working actively in this direction for a long time. But I would like to stress that in the present situation, when the entire world is affected by the financial crisis, this issue is becoming particularly important. I hope you will agree with me.

We are now implementing an entire range of measures to support domestic industries. But it is obvious that we might achieve diametrically opposite results, if these measures are not backed by a consistent policy aiming to promote competition and to make the economy more effective. We are not using the crisis to strengthen the Russian economy and to boost its qualitative development. On the contrary, we will mothball ineffective and uncompetitive production facilities at the expense of state support measures.

Efforts to streamline the sphere of competition are called on to improve Russian economic patterns, to facilitate the more effective performance of its sectors and separate enterprises, to provide substantial incentives for reducing outlays and improving the quality of our goods and services and developing small and medium businesses.

As you know, the President and regional leaders discussed this issue at a recent State Council meeting. The subsequent United Russia party congress also discussed competition incentives. I believe this issue should also be discussed in great detail with representatives of the business community. The Council on Competitiveness and Entrepreneurship provides a good opportunity for this discussion.

I would like to remind you that the Law On Competition was passed two years ago. Tougher administrative liability has been introduced for violating this law. The application of new legislation has already yielded certain results. For instance, this concerns the creation of modern law-enforcement and court proceedings.

Business leaders generally accept the changes positively, while healthy competition is gradually turning into an important tool for raising labour productivity, encouraging investment in new technologies and business optimisation schemes.

However, competition in Russia's economy is clearly insufficient, while cases of abusing one's dominating position and other mala fide business practices are still rather frequent.

According to Russia's federal anti-trust regulator, a total of 1,590 cases of market power abuse and 226 collusion cases were exposed in 2007. If we are determined to promote entrepreneurship, to encourage economic restructuring, and to support small businesses, we certainly need to change this situation.

Growing international competition should also be taken into consideration. Russian companies should be prepared to meet the tight requirements.

Our plans to promote competition can be divided into two major blocks.

The first block includes protecting competition with a strong anti-trust policy. The plan I would like to present to you today (I will present the general layout, while Ms Nabiullina will probably be able to give you more detail) has in fact stemmed from working on additional anti-trust measures.

Specific instructions have already been given about them. Proposals include a crackdown on cartels and greater punishment for government and corporate officials for violating competition rules, even up to criminal prosecution.

The second block has to do with shaping competitive markets. The Government proposes a systematic action plan for that. Our first priority will be to create a favourable environment for new and effective economic operators.

The measures stipulated in the Programme are aimed at attaining these goals. The Government will approve the Programme and the action plan, naturally after consultations with you and the business community, as I have said.

I would like to lay out its basic points now.

First, we'll have to work faster on removing administrative barriers hampering the development of entrepreneurship, implementing our earlier decision as well as additional measures. In particular, we needs to work more intensively on building an information support system for businesses, that is, expand and diversify market reports and price indicators published by the authorities. The move will take away, or at least lessen illegal advantages of businesses benefitting from informal contacts with officials.

Another pressing issue is dealing with the mala fide practice of illegally granting special privileges to companies which are "close" to the federal or local governments, while putting up artificial barriers for their rivals. This often happens when placing federal or municipal orders.

Unfortunately, the frequency of such cases is on the rise - up 17%, to 2,970 exposed in 2007.

Let me repeat once again that to succeed we'll need to increase punishment for federal and local officials for violating anti-trust regulations.

Third, the sectors where unfair competition has reached a systemic level, directly hurting people's interests and hindering business development, require special attention.

I am referring to jet fuel pricing policies, for example, exorbitant fees for connection to power grids, the markets for coking coal and petrochemicals, public utilities and other sectors. We need tailor-made "pinpoint" solutions here. In particular, we need to approve regulations for non-discriminatory access to services of natural monopolies, as well as customs and tariffs regulation measures.

We have several success stories of eliminating monopoly dominance in specific markets. The draft Programme envisages measures to encourage competition in 17 sectors.

Fourth, the Programme also emphasises competition policies aimed at encouraging small businesses. It is an important current economic and social policy issue, because this sector plays a significant role in creating jobs.

Small and medium-sized businesses must be given access to federal and municipal orders, as well as to natural monopolies' and state corporations' supply contracts.

Finally, the Programme envisions improvement of the legal framework of anti-trust policies. We'll have to clearly and precisely define areas where the Law On Competition should be applied. Not all actions currently formally qualified as breach of antitrust law are really violations.

We'll also need to delineate between tough but fair market play and forbidden tricks. And, in cases where the law has been definitely violated, serious sanctions should inevitably follow. Everyone should play by the same rules interpreted in the same way.