Baltic Rim Economies - Baltic Port List

Expert article 903 Baltic Rim Economies, 21.12.2011 Quarterly Review 5�2011
Antitrust cases against Russian oil companies – battle for cheap petrol is
under way
By Svetlana Avdasheva and Guzel Yusupova
In 2006-2007, Russia amended its competition law and rules
on prosecution. Turnover penalties (from 1 to 15% of the sale
on the market affected) were introduced instead of fixed and
relatively low fines. Impact of new system, potentially effective,
depends dramatically on the goals of the rules enforcement.
During last years the major aims of antitrust provisions
enforcement is ‘battle for low prices,’ and the most important
cases for Russian competition agency (Federal antitrust
service RF, FAS) were the cases against oil companies.
Low prices as a goal does not correspond to world best
practice of antitrust policy aimed at protection of competition
but not the competitors or buyers directly. However we should
keep in mind that Russian economy is dominated by resourceextracting,
capital-intensive industries, with a small number of
interdependent producers and high entry barriers. Structural
features of Russian markets support coordination between
sellers, tacit or explicit, which in turn results in high prices.
Prices for oil products occupy special place in the Russian
economic policy. On the one hand, economy and budget are
highly dependent on oil business, including export. On the
other hand, low retail prices on oil are considered as a kind of
social obligations of Russian government. The desire to keep
oil product prices stable makes trying different way to solve the
problem, in spite of the fact, that oil product prices in Russia
are among the lowest in Europe (see figure 1).
Enforcement of antirust provisions is considered as one of
possible ways to force oil companies to charge low prices. In
Autumn 2008 FAS identified four largest Russian oil
companies – Lukoil, TNK-BP, Rosneft and Gazprom Neft as
collectively dominant in four markets - gasoline, diesel fuel,
heating fuel oil, and aircraft kerosene and abusing their
dominance in the form of excessive prices and discrimination
against independent wholesale buyers of oil products.
Decisions on the violation of the competition law were
supported by two types of evidence: first is comparison of
world oil price index and oil product price increase in domestic
market and second is comparison of price and cost indexes of
oil companies. FAS found that when world oil price increased,
domestic retail prices of oil products increased at the same or
higher rate, and the lag was minimal. On the contrary, under
decreasing world oil prices domestic retail prices fell at lower
rate and with increasing time lag. FAS also found that the
increases in the prices of the products were greater than the
increases in their costs, and were also greater than the
increase in the wholesale price index for Russian industries. All
the cases contain analyses of the prices, costs, and profits
“needed for production and sale”. However, Russian antitrust
law does not provide instructions on what price mark-ups or
profit rates might be “needed” in a market, nor what
determines whether increases in those rates are permissible.
In this context enforcement of the prohibition on ‘excessive’
price becomes too arbitrarily.
In summer 2009 the second wave of cases against ‘Big
Four’ was initiated. The accusation of ‘unjustified withdrawal of
a commodity from the market’ replaced the accusation of
‘excessive price’. The increase of export volumes was
regarded as a cause for the reduction in quantity and the
increase of prices in domestic wholesale and retail; markets in
the early 2009. Again, without any ruling it is difficult to find
standard of decisions considered to be legal (do not export at
all? do not export when prices in domestic market increase?).
In both cases oil companies were accused as
discriminating independent wholesale buyers by charging
higher prices in comparison to the subsidiaries of Big Four. In
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addition, there was some emphasis placed on the refusal to
supply independent wholesale customers during periods of
supply shortage.
Supreme Arbitration Court RF found oil companies guilty
(TNK BP in May 2010, Gazprom Neft in February 2011).
Overall sum of penalties for Big Four, initially exceeding 26 bln
RuR, was reduced to about 6 bln RuR. At the same time many
regional subsidiaries of oil companies are accused by regional
subdivisions of FAS in more than 500 cases during last three
years.
Punishment of largest oil producers hardly can achieve
primary objective of competition policy, in spite it could be able
to prevent price increase in domestic markets (see figure 1).
However, other policy measures are also under discussion or
even implementation. In February 2011 prime-minister Vladimir
Putin asked from Russian oil companies to decrease retail
prices on gasoline and diesel fuel. Paradoxically, direct price
cap on petrol can be preferable in comparison with antitrust
enforcement for the prices exceeding cost, since the latter
heavily depress the incentives of producer for cost-saving. To
the autumn 2011 other legislative initiatives are under
consideration. These are draft laws introducing new rules of
contracts and pricing of oil and oil products.
To conclude, the battle for cheap petrol in Russia is still
under way, and antitrust enforcement is onlyy one of the
weapons in this fight.
Article is a part of the output of a research project
implementation as a part of the Basic Research Program at the
National Research University Higher School of Economics.
Svetlana Avdasheva
Vice-Director
Institute of Industrial and
Market Studies
National Research University
Higher School of Economics
Russia
Guzel Yusupova
Researcher
Institute of Industrial and
Market Studies
National Research University
Higher School of Economics
Russia
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