31 august 2009

Prime Minister Vladimir Putin met with Prosecutor-General Yury Chaika

Mr Putin and Mr Chaika discussed how pricеs are determined in the pharmaceutical industry and retail chains, as well as protecting the rights of legal entities and small businesses.

Transcript of the beginning of the meeting:

Vladimir Putin: Mr Chaika, at a Government meeting we discussed how prices are determined in the pharmaceutical industry and in retail chains. We have reviewed the price of medicines several times.

As you know, the Ministry of Healthcare and Social Development has prepared a number of proposals to normalize and establish control over the situation on this market. I have also asked the Prosecutor's Office to join this effort in order to help the ministry find out what is happening in general and take any necessary action.

I know that you are working on that.

Yury Chaika: Yes, Mr Putin, we discussed this subject at the Government Presidium. We have organized a comprehensive investigation that will involve all the corresponding ministries and departments of the Russian Federation. I believe that now we have a full understanding of what is happening.

In 2001, the Government passed a resolution authorizing the regions to establish ceilings on wholesale and retail prices.

Unfortunately, the procedures for determining prices have not been developed. Therefore, in each region these prices depended on officials, and they are higher in some regions and lower in others.

In 10 regions, wholesale and retail margins ranged from 50% to 100%, and in 34 regions, from 30% to 50%. In one region, the Samara Region, no legislation was adopted, and wholesale suppliers and retailers were free to do what they wanted.

The performance of the Anti-Monopoly Service was not up to the mark either. The service did not conduct enough inspections in this area. Therefore, in a single region or city, retail prices were varied from 20% to 50%.

We took action, and instituted five criminal proceedings against illegal entrepreneurship in a number of regions. Some cases were brought against tax agents for failure to perform their duties.

There was even a case of swindling. Some suppliers sent medicines to wholesalers at inflated prices. This was a crime, and we brought criminal charges against those responsible.

All in all, following the inspections, we... To begin with, we have submitted more than 470 reports on the inadmissibility of violating the law, and made more than 200 warnings to this effect. We have also sent 99 statements to the courts, and have compelled entrepreneurs in the pharmaceutical industry to change prices on medicines. These decisions were carried out.

I must say that immediately after our intervention, 280 wholesalers and retailers have brought their margins down to the level established for the regions.

Vladimir Putin: And so prices decreased, correct?

Yury Chaika: Yes they did. Moreover, it was the first time we applied the Code of Administrative Offences to this issue, specifically article 14/6 on pricing violation. This article suggests imposing fines of twice the amount earned from the sale of drugs not in compliance with government price regulations on the legal entities making those sales.

So we appealed to courts. A total of 65 cases were initiated in accordance with the Federal Antimonopoly Service's appeals, whereas the Prosecutor General's Office initiated 400 such administrative cases. I think that after the courts reach their verdicts, there will be significant fines, perhaps worth billions of roubles. And therefore these suppliers will incur financial losses. I believe they have already decreased prices. As many as 280 wholesalers have already brought their pricing practices into compliance with the constituent entities' requirements. Therefore, we will continue to make progress on this issue.

Vladimir Putin: Good. I think we'll discuss this issue in more detail now. Do you have other questions?

Yury Chaika: Yes, I do. As you know, we have started implementing the law for the protection of legal entities and small businesses. In accordance with your initiative, this law will take effect a month earlier than planned.

Let's say that this law has proved sufficiently effective. We have carried out an unscheduled inspection of prosecution agencies to find out how they are functioning.

A total of 16,000 inspections were cancelled within three months. But another extreme emerged. Federal agencies charged with carrying out such inspections, including the Federal Service for Veterinary and Phytosanitary Supervision, the Federal Service for Supervision of Consumer Protection and Welfare and the Federal Migration Service, took it to another extreme. They started aggressively to inspect local governments and municipal authorities.

The number of such inspections multiplied. Here are a few examples. For example, in the Krasnoyarsk Territory, regulatory agencies carried out over 1,200 inspections on local governments within the three months, while only 2,500 inspections were carried out in 2008. So the number of inspections increased twofold.

The situation is similar in the Leningrad Region: 240 inspections were carried out, as opposed to 260 inspections in 2008.

In the Voronezh Region, 714 inspections of municipal authorities were carried out between May and July, while only 499 inspections were carried out within the three months preceding the law's taking effect. Again, the number of inspections grew twofold. This trend is common throughout Russia.

Another extreme is an increased number of inquiries into local governments and municipal authorities' routines. The number of such inquiries has multiplied as well. We have investigated these practices. For example, within the three months, regulatory agencies carried out over 20,000 inspections of local governments and municipal authorities. Imagine - over 20,000 inspections!

Therefore, we investigated these practices and came to the conclusion that it is necessary to amend the law on the general principles of local government operation in the Russian Federation. This needs to be changed, otherwise local governments and municipal authorities...

Vladimir Putin: ...will be unable to work.

Yury Chaika: Correct. Regulatory agencies will suffocate them.

Vladimir Putin: Good.