Merged FAS and FTS may become price regulator rather than competition guardian

11.09.2013

A possible merger between the Russian antitrust agency Federal Antimonopoly Service (FAS) and the Russian tariffs agency (FTS) could create a new strengthened administrative body that may be tempted to regulate tariffs and control natural monopolies rather than ensure fair competition, according to lawyers and industry sources.

FAS head Igor Artemyev has reportedly mentioned the possibility of a new economic regulator by merging FST and FAS. Discussions on this project are ongoing in the Russian government. InAugust, the Russian Ministry of Economic Development reportedly called for the creation of a new natural monopolies regulator based on the model of the FAS and the FST.

FAS believes that the merger will be beneficial because it may create a "synergetic effect", an FAS spokesperson told PaRR. In addition, FAS believes that the fewer the government bodies the better, the spokesperson added.

FTS is an executive body mandated with price and tariff regulation in the country. It regulateselectricity tariffs, gas prices and certain other tariffs. FTS also carries out some functions of natural monopoly regulation. The merged body would thus not only oversee fair competition but also set prices and tariffs as well as regulate natural monopolies: it would perform colliding functions.

Given that FAS is the active proponent of the merger and because the competition watchdog outnumbers the tariff service in terms of size, the antitrust authority would likely dominate the merged entity, according to Nikolay Voznesenskiy, head of the competition and antitrust practice at Moscow-based law firm Goltsblat BLP, the Russian practice of London-based law firm Berwin Leighton Paisner LLP.

The new merged body may be tempted to concentrate on tariff regulations and control of natural monopolies because it is easier to set rules rather than to ensure fair competition practices, said Voznesenskiy. Notably, FAS already has some price regulation functions, he added. For example, the competition watchdog oversees trading practices in energy sector, noted Voznesenskiy. The merger may be damaging for antitrust enforcement in Russia, echoed Andrey Shastitko, director at the Centre for competition and economic regulation studies, the Russian Presidential Academy of National Economy and Public administration. There is a risk that instead of pursuing antitrust enforcement, the merged agency will merely determine how things should be done, he said. According to Russia’s federal law on “essential monopolies”, certain sectors such as pipe transportation of oil and gas, landline telephone communications and public postal services are better without competition, recalled Voznesenskiy.

However, the risk of creating a strengthened price regulator might not materialise, commented Voznesenskiy. Some people at FAS are capable of choosing the more difficult route of antitrust enforcement, he added.

Finding a balance between economic and antimonopoly regulation is an important requirement for a potential merger between FAS and FTS, said Alexander Galushka, co-chair of the Business Russia organisation and the head of a governmental working group responsible for the “development of competition and improvement of antimonopoly politics”. It is important to carefully consider all the aspects of a potential merger, he added. The role of personalities who will be in charge of a new body will be of great importance, Voznesenskiy forecasted. They will determine the direction which the new agency will take, he added. It is too early to speculate about these figures though, lawyers and industry sources said.

Merged regulator expected to be more powerful

Politically the new body will be more influential than the current FAS and FTS individually because it will have more responsibilities, Voznesenskiy predicted. Additional responsibilities may cause some bureaucratic problems, though, he added.

However, the possible merger of the FAS and the FTS may allow FAS to reduce administrative workflow, argued Shastitko. When merged, the resources of the two bodies may be more capable deal with increased workflow. Currently FAS experiences a shortage of resources due to its extensive responsibilities including consumer protection cases and advertising related cases. There have already been attempts to solve this problem. In March 2013, the Russian Parliament approved changes to M&A rules designed to lower the administrative burden on the FAS. A couple of thousand post-closing notifications every year should not be filed as a result.

The merger between FAS and FTS is likely to happen in light of the trend of merging institutions in Russia, said Andrey Goltsblat, managing partner of Goltsblat BLP.

In June, Russian President Vladimir Putin proposed the merger of the Russian Supreme Commercial Court (VAS) and the country’s Supreme Court. PaRR has reported on this idea. Iin August the Minister of Defence, Sergey Shoigy, suggested a reorganisation of the Ministry of Emergency Situations of Russia, and that it be subordinated to the Ministry of Defence. Russian parliament has recently passed a law creating a new financial mega regulator. PaRR has previouslyreported on this issue. Possible merger between FAS and FTS is a subject of debate, and the government has not decided on this issue yet, the FAS spokesperson has told PaRR.

by Natalia Lapotko in London

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