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Meeting of the State Council on promoting competition

April 5, 2018, The Kremlin, Moscow

In the Kremlin, Vladimir Putin chaired a State Council meeting on priority areas of activity of the Russian regions to promote competition in the country.

Head of the Republic of Udmurtia Alexander Brechalov, Head of the Federal Anti-Monopoly Service Igor Artemyev, Minister of Economic Development Maxim Oreshkin and Governor of the Ulyanovsk Region Sergei Morozov presented the main reports.

The meeting participants discussed the measures needed to achieve the goals set forth in the Presidential Executive Order No. 618 of December 21, 2017 on State Competition Policy Guidelines.

* * *

President of Russia Vladimir Putin: Good afternoon, colleagues,

Today we hold the first meeting of the State Council after the presidential election.

You know what ambitious tasks the country has. They require that everyone engages in their solution as effectively as possible: the civil society, businesses and government bodies must work together. And, of course, the efforts of all the Russian regions are needed.

Promoting competition in Russia is the subject of our meeting. First of all, I would like to say that this is a key area of our work. We cannot do anything without solving tasks in this area; we cannot reach any goal.

Let me stress once again that the fundamental importance of the competition is determined by the Russian Constitution. As I have already said, this is one of the most important areas in order to reach the goals I listed in my Address to the Federal Assembly.

Fair and honest competition is a basic condition for economic and technological development as well as for the country to reform and dynamically advance in all fields of life.

Let me begin with regulations in this sphere. In general, they are in line with international standards. Recently we have approved four packages of antimonopoly laws. The main thing is to provide the corresponding legal precedents.

Unfortunately, there still are many cases when the competition law is ignored, especially by local authorities.

Let’s see what we have in practical terms. Of the total number of antimonopoly law infringements in 2017, 1.2 percent falls to federal authorities, and 98.8 percent, to regional and local authorities, which means Russia is not paying enough attention to this. We think this is some kind of nonsense, nothing serious; figuratively speaking, people must care about their companies, state unitary enterprises and municipal unitary enterprises. I will talk about this later.

To be quite frank with you, the damage to Russia’s economy is enormous. We cannot see or feel it, but it is huge.

Currently, the Federal Anti-Monopoly Service is developing the fifth legislative package. But in addition to the legislation, the managerial logic must change, too. I believe the most important task is to introduce pro-competition approaches in government agencies.

However, the approaches based on encouraging competition are very rarely used. The reason lies in a customary and long-standing bureaucratic mindset and the lack of commitment to building an economy of state or municipal procurement that would be beneficial to the region and its residents.

As I said, it is easier to work with local state and municipal unitary enterprises than select efficient contractors in the competition-based market. This practice leads to higher budgetary spending and preserves outdated production and low quality. Eventually, it affects consumers, Russian citizens.

It should be particularly noted that public and state-run companies are occupying the niches that could be taken by small and medium-sized businesses. They are forcing SMEs out of the markets and monopolising these markets. Therefore, cartels are growing in the industries with high competition; entrepreneurial initiative and motivation to open a business get undermined.

People believe they have little chance to succeed in the markets taken up by public and state-run companies; that it is difficult to win a state or municipal order through honest competition. Public and state-run companies have very different opportunities for lobbying and funding. They can access loans much easier. They also have instruments to turn tenders in their favour and we are aware of them.

For your information, in 2017 some 675 court cases on anti-competitive agreements were filed, including 360 cases on cartels. This is eight percent higher than in 2016. For the second year in a row, the construction industry is number one for this kind of violations.

We have discussed these problems many times. We have taken a number of decisions, specifically, those that would expand the access of small businesses and socially-oriented NGOs to state and municipal orders and services. Apparently, this is not enough. I would like to hear about the current state of affairs and what specific measures you plan to take.

It is also necessary to create a single register of state and municipal property with full information on rights to it, encumbrances and designated use and, while this work is in progress, to activate the identification of unrecorded or inefficiently used real estate and plots of land.

This subject has been discussed for a long time, but, unfortunately, there is no real progress here so far. In this regard, I propose to discuss in detail improving the efficiency of management of state and municipal property at one of the State Council meetings.

Since 2015, the regions have started to implement the competition development guidelines, approved by the Government. For a number of Russian regions, this has become a real incentive to support competition. This is so, we can see it. But in general, the country has no systemic changes for the better.

In December last year, an Executive Order was issued, which stipulated competition promotion as a priority for the authorities’ work, while the National Plan for 2018–2020 outlined specific industries and the targets of competition development in them.

I believe that the same subject areas need to be defined for each region – of course, this work should be carried out together with the regions, taking into account their specifics and capabilities. Thus, regional teams will have clear indicators as regards the creation of a competitive environment, as well as obligations to develop private enterprises in priority markets, including new ones, digital ones, and so on.

I would like to point out another important problem – the trend towards the development of so-called regional protectionism. The motives for such actions are clear: the regions try to create favourable conditions for local producers and to simplify their access to the market.

Meanwhile, I would like you all to hear it now: a local producer means a Russian producer, this is extremely important. But we can see regional protectionism even in those regions that are in the forefront and show good development results. This is absolutely unacceptable. I would like to draw your attention to this.

I agree that it is possible and necessary to use regional preferences for supporting business and thus to increase employment and incomes of residents and revenues of the budget. However, it is one thing when benefits are equally available for everyone but it’s another story all together when discriminatory restrictions are created for entrepreneurs from different regions or bans are imposed on the imports of goods.

This directly contradicts the principle of the unity of the country’s economic space. Such overprotection is distorting the competition environment.

I would like to add that having got hold of these artificial advantages such companies, and you understand this full well, will become less effective in the long term and will impose on you low quality goods or services for inflated prices.

I would like to make two important points in this context. First of all, each of our steps aimed at supporting industries, companies, including as part of the import replacement, should encourage the production of modern competitive goods and services that are in demand both on the domestic and international markets.

The second thing I would like to point out is that it is necessary to take a general look at the markets and consider the prospects of the demand to prevent exclusive terms for projects and investors in some regions from having an adverse effect on the development of successful similar companies in other regions of the Russian Federation.

It is necessary to search for and find a balance as well as ensure fair and equal competition. I am quite sure that everyone will have enough work if managers do their job properly.

Let me repeat that for a breakthrough in national development it is critical to ensure economic freedoms and a high level of competition. Very much depends on the state and all levels of the authorities. But, of course, business itself is playing an enormous role in forming the business climate, the ethics of entrepreneurship and the practice of fair competition.

It is clear that profit is the main priority for a business but it should not be gained at any price. You know why I am talking about this today and why responsibility of business to the people and society is so important. Entrepreneurs should work honestly and conscientiously. They should not be timeservers that are only worried about their own prosperity. We have huge tasks and goals lying ahead.

I believe the business community understands just how important its contribution to a breakthrough in national development is. And once again I would like to appeal to every single one of you: we cannot afford to waste any time!

April 5, 2018, The Kremlin, Moscow