Translated material
Penalty frenzy
The state is going to plant managers of oil companies and set prices for gasoline
The trade law debate has raged throughout the past year. The law was eventually passed, but it did not affect the trade in gasoline, one of the most important goods. The Ministry of Energy decided to fill the gap and in the new version of the law on oil proposes to introduce price regulation on the oil products market. The Federal Antimonopoly Service will have the right to take control of prices if it sees that they are set by monopolists or if there has simply been a sharp rise in prices. However, Igor Artemiev's service had new opportunities for oil workers already now, before the adoption of the law.
Threats from the FAS against overpriced oil companies have been heard for a long time, and many no longer take them seriously. For two years, the service has been trying to impose really large fines on companies, calculated as a percentage of turnover. However, the courts, as a rule, took the side of the oilmen. When FAS deputy head Anatoly Golomolzin said last Tuesday that the service was ready to initiate criminal cases against top managers of oil companies and that they were talking about "plantings", one could consider that this was just rhetoric. But the official spoke for a reason: the FAS has an important ally in the form of the Supreme Arbitration Court.
Last Monday, the decision of the Supreme Arbitration Court (SAC) was published, from which it follows that TNK-BP held a monopoly high price for gasoline and kerosene at the end of 2008. The decision of the SAC should become a precedent - now there are eight more similar cases in the courts of other instances, and all of them have been frozen until the moment when YOU have your say. LUKOIL, Rosneft and Gazprom Neft are next in line at the cash desk, who are accused of collectively maintaining monopoly high prices together with TNK-BP. They will have to pay fines of 26 billion rubles.
The crisis helped the antimonopoly agency win in court—it added arguments to the prosecution. Statistics show that at the end of 2008-beginning of 2009, oil prices were falling rapidly, while gasoline prices were not going to. Vitaly Kryukov, an analyst at IFD Kapital, explains that companies tried to compensate for losses in exports at the expense of the domestic market. Now the price of gasoline for more than 50% consists of taxes and excises, about a quarter is the operating costs of the manufacturer, the rest is the margin of the seller.
Usually, the isolation of gasoline prices from oil prices is not so obvious. The problem is that there is still no clear method for determining the fair price of petroleum products. For many years, the government and oil companies have not been able to decide on a formula. How to correctly estimate transport costs? What is the rate of return and what is considered the market in which the product is circulating? The court decided that the word of the antimonopoly service will now become the correct position in litigation.
The BAC has effectively lowered the standard of proof—since the company couldn't prove that the price wasn't too high, then it's the company's fault, says Vadim Novikov, a senior research fellow at the Academy of National Economy. Although, it would seem that the FAS should prove that the price is too high.
Not everyone in the government believes that the FAS will wisely use its new opportunities, since accusations of monopoly high prices are always subjective. “The FAS can prove the fact of a monopoly high price, based on its own idea of the acceptable costs of companies and a normal premium. So you can interpret any price. The costs are too high, the premium is too high, so pay a fine to the budget and reduce prices,” says an official in one of the departments. Moreover, this can affect not only the oil industry. In many countries, overpricing is not a crime at all—in the United States, for example, free price increases, on the contrary, are considered to attract new entrants to a lucrative business and encourage competition.
In Russia, accusations of price gouging may become normal practice. Gazprom Neft decided to use the last chance to prove its innocence - the company filed a lawsuit with the Constitutional Court. According to the company's employees, the decision of the Supreme Arbitration Court violates constitutional articles 19 (“On the equality of all before the law and the court”) and 34 (“On freedom of entrepreneurial activity”). This case has chances in court, since the article on monopoly prices is formulated vaguely, it is not clear what expenses and profits are considered necessary, which means that it can be interpreted in different ways—this is inequality before the law, Novikov believes. However, it is not certain that Gazprom Neft's claim will be accepted. In order to appeal to the Constitutional Court, the means of arbitration regulation must be exhausted, so TNK-BP should have turned to the defenders of the Constitution, but it has already paid the fine.
The government has already introduced personal liability for violating antitrust laws. In November last year, an article appeared in the Criminal Code stating that managers who violated antitrust laws several times go to jail. The FAS already maintains such a register, although there are not many names on this list yet.
Vitaly Gromadin, an analyst at Arbat Capital, is sure that the effect of the decision of the EAC will be, it is felt that the FAS has seriously taken up the oil market. So far, experts say, there has been no reduction in the price of gasoline either in the wholesale or retail segment, since the companies do not consider themselves to be guilty.
However, the decision of the Supreme Arbitration Court does not oblige de facto price cuts, it only obliges companies to pay fines, albeit impressive ones. However, last week it became clear that the government is ready to go further. The Department of Energy is proposing price regulation in two cases: if the dominant companies manipulate prices, or if prices rise sharply.
The proposals of the Ministry of Energy look quite consistent. The government is already regulating prices for electricity, gas, rail transportation. It is believed that it is temporary—until the market works in these sectors. But the temporary easily becomes permanent. Last year, a law on state regulation of medicines and a law on trade were passed, allowing regulation of food prices, along the same lines as the Ministry of Energy proposes for oil.
What is a sharp rise in prices and for what extra charge oil workers can be subject to regulation, the government has yet to determine. Anatoly Golomolzin, deputy head of the Federal Antimonopoly Service, says that gasoline prices are too high even now, in particular in the wholesale sector. “Prices for oil products that monopolists supply to independent market participants are up to 10% higher than those supplied to dependent and subsidiaries,” the official explains.
A source close to one of the major oil companies is sure that we are talking about concerted government actions against oil workers. But the prime minister's press secretary, Dmitry Peskov, says that blaming the state for declaring war on the oil industry is at least not smart: "It's the goose that lays the golden eggs, but that doesn't mean this goose can violate antitrust laws." There can be as many lawsuits as you like until the antitrust laws are upheld. The prime minister keeps this topic under control, Peskov notes, but he will not personally interfere.
It is unlikely that this war will end with the victory of the consumer, an official from one of the departments believes. As a result, the oilmen will come to the government and demand subsidies, for example, in the form of tax breaks, since their prices are regulated anyway. It may turn out that as a result of the struggle for the interests of consumers, the same oil companies will win. However, the government has not yet given the green light to the bill from the Ministry of Energy. The introduction of state regulation is a debatable issue, the White House official believes: this is an extreme measure that must be applied when other mechanisms no longer work.