Translated material
Arithmetic competition
The Customs Union will reduce the share of Russian monopolies in the market
The Russian antimonopoly agency, celebrating its twentieth anniversary this year, intends to mark it with perhaps the most significant “instant” contribution to the fight against monopolism in the Russian market. True, the decrease in the level of dominance will be purely arithmetical: when calculating the share of monopolists in the market, the Federal Antimonopoly Service will henceforth take into account the economy not of Russia alone, but of all three countries of the Customs Union. Deputy head of the FAS Andrei Tsyganov admitted yesterday that this will inevitably affect the share of the current Russian monopolists - it will decrease. But he does not see the danger of an increase in the real level of monopolization in the Russian economy due to an arithmetic decrease in the share of the current largest companies. On the contrary, in his opinion, competition will increase due to the emergence of new players from the markets of Kazakhstan and Belarus.In the meantime, FAS considers its contribution to attracting foreign investment to be one of the main directions for developing competition in the Russian market. Yesterday, Mr. Tsyganov told how much the FAS has done in recent years to facilitate the arrival of large foreign strategic investors in our country.
To achieve this, the thresholds for the size of controlled transactions were significantly increased - they ended up, in some cases, even higher than in developed countries, despite the incomparability of the value of their markets and companies. The time frame for making decisions on controlled transactions has been reduced. In the end, over 95% of transactions involving foreigners entering Russian companies are approved without any restrictions. No more than 1-1.5% of transactions are prohibited.
Even the law adopted in 2008 “On the procedure for making foreign investments in business entities of strategic importance for ensuring the country’s defense and state security,” according to Mr. Tsyganov, is not a real obstacle to the entry of foreign capital into these very strategic sectors. “In Russia there are no areas of activity closed to foreign investors. There are prohibitions for foreign state capital. And private owners - please,” assured one of the FAS leaders.
Deputy Head of the FAS Andrei Tsyganov cited statistics on decisions made by the government commission on investments in strategic enterprises, headed by Prime Minister Vladimir Putin and including almost the entire government. Of the 37 petitions it examined for foreigners to join the capital of Russian strategic companies, only two were rejected. The FAS itself reviewed 129 requests, but the requests it returned to the applicants did not contain prohibitions, since they concerned either enterprises that were not strategic or cases where foreign companies did not gain control over Russian strategic companies.
Foreigners also talk about how comfortable the Russian market is for them in personal conversations with Andrei Tsyganov. “Those companies that came to Russia are doing great. It is possible that the leaders of some of them are deliberately spreading rumors that everything is bad here so that their competitors do not come here,” the official suggested. True, he admitted that behind the majority of transactions involving the investment of money from abroad in our enterprises are actually our own businessmen, who in this way are trying to secure their funds transferred abroad or optimize taxation. Nevertheless, Mr. Tsyganov assured: “There are real deals with the arrival of foreign investors. Maybe there are not as many of them as we would like. But they exist."
It is unlikely that the influx of foreign investment into the Russian economy is as capable of improving formal indicators of the development of competition in Russia as the creation of the Customs Union (CU) . With the beginning of its functioning, a single space is being formed for economic entities of all three countries. Therefore, FAS now intends to determine the share of dominance of companies in a particular market not within the national, but within the international borders of the Customs Union. “It is absolutely clear that the boundaries of the markets in which we traditionally considered certain actions, transactions, anti-competitive agreements are expanding. This applies to all industries,” warned Andrei Tsyganov. — In principle, we know what the Kazakh and Belarusian economies are. It doesn’t take any effort to understand what will happen to the Russian coal mining industry if we add Ekibastuz to it, or to the Russian oil mining industry taking into account Western Kazakhstan.”
The new calculation method will not even require changes to Russian legislation. According to Mr. Tsyganov, the scope of FAS regulation now includes all agreements concluded outside the territory of Russia, but affecting the state of competition in the Russian market. “It is no coincidence that the Customs Union involves the creation of a supranational competition authority. This is a new reality for us, and we will not escape it,” the official said.
Such a recount, as Andrei Tsyganov was forced to admit in a conversation with a Vremya Novostey correspondent, will inevitably lead to an automatic reduction in the share of Russian monopolists in our market, since players from Kazakhstan and Belarus will begin to be taken into account. Consequently, a number of monopolists within the borders of Russia, having ceased to be such within the CU, will have the opportunity to further strengthen their positions. But the FAS representative does not see any particular risks for the development of competition in this. “The market will become more competitive. Instead of two companies there will be four,” he explained.
Some experts disagree with this arithmetic. “Previously, when the procedure for calculating market share was applied, taking into account only the Russian territory, large businesses were more likely to fall under antimonopoly restrictions. With the new calculation procedure, there is a high chance that for the same entities antimonopoly restrictions will cease to apply. Accordingly, the level of competition in the domestic market will decrease,” warns Elena Yuzhakova, Deputy General Director of the audit company MKPTSN.
“I’m afraid this will not have any effect on the “level of competition” in Russia. Just as there was no competition in the most capacious markets, there never will be,” agrees Eduard Savulyak, director of the Moscow office of Tax Consulting UK. In his opinion, the energy markets (supplies of electricity, gas, oil, as well as gas stations), food and banking retail may be the most sensitive to the new payment procedure. “For the latter, this innovation may open the way to new acquisitions and extensive development,” Mr. Savulyak fears.
Theoretically, Natalya Zubarevich, director of the regional program of the Independent Institute for Social Policy (NISP), agrees with this. But she draws attention to the fact that the practically new procedure for calculating dominance levels will not in any way affect the position of Russian monopolists and consumers. “The economies of Kazakhstan and Belarus are many times smaller than Russia’s, which is the only reason why there will be no major erosion of the shares of our monopolists. In our country, the most unpleasant monopoly is local - at the regional level. Neither in oil production, nor in petrochemicals, nor in coal mining, nor in metallurgy do we have formal monopolies at the national level. At least no one has more than 35% of the national market. In the potash fertilizer market, our Uralkali has been and will remain a monopolist, even taking into account Belkali from the Belarusian Soligorsk,” explains the specialist.
The new procedure for calculating dominance levels, in her opinion, is primarily beneficial for the monopolists of Kazakhstan and Belarus. “The Kazakhs are ceasing to be monopolists in all the main products of their specialization - oil, gas, copper, ferrous metals, thermal coals. Kazmunaigas will not dominate the oil production market, Kazakhmys will not dominate the copper market, and, for example, the Karaganda Metallurgical Plant will not dominate the rolled metal market. In Belarus, for example, MAZ, as a manufacturer of heavy-duty vehicles, ceases to be a monopoly,” says Ms. Zubarevich.
Perhaps the only industry where real consequences are possible from the new procedure for calculating dominance levels may be the cellular communications market, says Dmitry Dmitriev, partner at the Legal Department law firm. “Most of our operators have competitors in Belarus and Kazakhstan, while some Russian operators have been doing business in Kazakhstan for a long time,” he explains. But the expert is confident: “This state of affairs in a number of industries where Kazakh and Belarusian companies are strong will have a beneficial effect on the development of competition in Russia. In turn, Belarus and Kazakhstan will receive a similar effect in those areas in which Russian companies are strong.”