Expert article 903 <strong>Baltic</strong> <strong>Rim</strong> <strong>Economies</strong>, 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 62 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 � Pan-European Institute � To receive a free copy please register at www.tse.fi/pei �
Expert article 903 <strong>Baltic</strong> <strong>Rim</strong> <strong>Economies</strong>, 21.12.2011 Quarterly Review 5�2011 Figure.1. The Comparison of retail gasoline prices in the world: Europe, Russian Federation, United Kingdom (Nov.2008, Nov.2010, Sept.2011), USD cent per liter Norway Italy Finland Germany France United Kingdom Poland Sweden Austria Belarus Spain Estonia Lithuania Latvia Russian Federation Ukraine 0,93 1,08 1,33 0,88 0,84 0,89 1,13 1,12 1,01 0,88 1,23 1,18 1,44 1,61 1,57 1,43 1,38 1,37 1,29 1,57 1,57 1,56 1,52 1,63 1,63 1,56 1,76 1,54 1,59 1,68 1,48 1,87 2,12 2,15 1,94 2,05 1,9 2,06 1,98 2,12 1,92 2,06 1,87 1,88 1,8 1,85 2,18 63 2,39 0 0,5 1 1,5 2 2,5 Sep. 2011 Nov. 2010 Nov. 2008 Source: http://www.gtz.de/de/dokumente/gtz2009-en-ifp-part-2.pdf http://www.gtz.de/de/dokumente/giz2011-international-fuel-prices-2010-2011-data-preview.pdf � Pan-European Institute � To receive a free copy please register at www.tse.fi/pei �
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