New antimonopoly rules to put transgressors behind bars

On Friday, the law on criminal liability for abusing antimonopoly rules also came into force, with energy majors under the pump for their pricing policies according to the Federal Antimonopoly Service.

7 years in jail. That’s the maximum sentence for executives at firms abusing their dominant position in the market or price-fixing.

To be sent to prison a person has break anti-monopoly legislation 3 times in 3 years. Igor Artemiev, Head of the Federal Anti Monopoly Service, says its high time the issue was addressed more firmly.

“Price-fixing causes up to $300 billion worth of losses annually in the United States. And this is in the country where they've been fighting cartel practices for a hundred years, sending people to jail for such things. Here nobody's ever dealt with it.”

Last week the regulator fined Rosneft a record $180 million for inflating fuel prices. Gazprom-neft and TNK-BP have also been punished for not cutting the cost of fuel after crude prices crashed. Artemiev says the impact was substantial.

“Whole industries were losing because of their price policies – trucking companies lost up to 30% of the market, air transportation dropped about 15% – all of this was directly linked to high fuel prices.”

But experts says the behavior of oil firms is explained by Russia’s tax system which levies a tax of 90% on revenues gained when Russian crude trades above $25 per barrel. Russian Urals is currently around $70 per barrel – meaning most oil turnover gets sucked into the state coffers. Alexander Nazarov, analyst from Metropol IFC, says Russia’s taxation system sets it apart.

“We have this production tax and other taxes like nowhere in the world. Oil producers are trying to compensate losses by passing the cost on to consumers. The Federal Anti-Monopoly Service will not be able to do anything about that.”

In total the oil majors need to pay the state more than half a billion dollars in fines. And if that fails to convince them, well there's always the prospect of a little jail time.