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Moscow Times
August 14, 2009
Watchdog Threatens Crackdown on Oil Giants
By Maria Antonova / The Moscow Times

Anti-monopoly chief Igor Artemyev promised an imminent crackdown on the country’s oil producers if they continue their tactics of collusion, saying rules going into effect Sunday would give him expanded powers to punish violations.

“Greediness must be contained,” Artemyev said at a news conference Friday. “Companies should realize that a new reality is beginning for them.”

The Federal Anti-Monopoly Service began a concerted effort to bring down prices for refined oil products, including gasoline and jet fuel, after Prime Minister Vladimir Putin warned its leaders in July 2008 to “wake up” or find new work.

Artemyev lobbied hard for revisions to the country’s anti-monopoly law, and at a news conference last month he thanked Putin for helping get the changes passed, including amendments to the Criminal Code that would allow him to hold executives responsible for collusion.

Legal analysts said the legislation strengthened the service’s position considerably and widened its net, so that now companies with small market shares can also be targeted for antitrust violations.

But Artemyev will only be able to call on his biggest weapon in two months. On Oct. 28, revisions to Article 178 of the Criminal Code will allow the service to go after individual executives found guilty of three offenses in three years. If convicted by a court, they could face up to six years in prison.

President Dmitry Medvedev signed the changes into law on July 29.

“[The article] has been practically dead after it was amended in 2002,” Artemyev said, but now carries the criminal punishment for anti-monopoly violations, such as limiting competition or abuse of dominant market position.

Collusion can be punished on the first offense.

The service has about 200 active court cases against oil companies and “will start a new series of cases if needed,” Artemyev said, adding that the current increase in oil prices was likely happening through agreement among the dominant companies.

Crude prices passed $74 per barrel in New York on Friday, the first time in 10 months.

Russian gasoline prices have been growing by up to 1 percent weekly in the past month, according to the State Statistics Service. “Our gas prices don’t fall when they fall everywhere else, and once they start decreasing they decrease more slowly,” Artemyev said.

The reason, he said, is that most oil is processed by about 10 refineries, so prices are formed at the wholesale level and transfer to the pump.

“Criminal prosecution is not ideal, but if the fines are still smaller than the profit companies are getting through illegal actions we will have to bring in law enforcement,” he said.

Artemyev also blamed high prices on low export tariffs, which create an “artificial deficit” on the domestic market, and a lack of sales on the oil commodity exchange.

Legal experts said the new rules could create more risks for all companies, no matter their size or position on the market.

The amendments clarify the procedure anti-monopoly officials can use in the course of checks, said Yelena Gurbatova, an antitrust lawyer at Yukov, Khrenov and Partners.

“It’s hard to judge their effectiveness, but the changes to the Criminal Code … deserve close attention,” she said. “Article 178 is now more clearly tied to the law on competition. Before the article was practically disabled.”

“Accusations of collusion become more important and risky, as they can be extended to companies that don’t control a significant part of the market,” said Ivan Smirnov, a partner at Baker & McKenzie.

“The new amendments create a real threat that the anti-monopoly service may abuse their legal authorities more often,” Smirnov said.

Rosneft spokesman Nikolai Manvelov said his company “has and will operate under Russian law,” and that “not one of [the service’s] decisions regarding Rosneft has taken effect, since all of them are being contested.”

LUKoil, the country’s largest private producer, was not immediately available for comment.

Last year, the service fined four of the country’s biggest oil producers, including Rosneft and LUKoil, a combined 6 billion rubles ($190 million). All of the fines are still being contested.

Artemyev also welcomed the package’s 30 amendments regarding state purchases.

Buyers will have to make their tender lots smaller so that they are more accessible for small businesses, while the names of companies participating in electronic tender auctions will be coded for anonymity to avoid collusion with government officials, Artemyev said.

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