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(Task II.E.P.3)
Development of competition in the sectors with a natural monopoly component: justification, options, constraints
S.B. Avdasheva, A.E. Shatitko
Introduction
Competitive policy in the deregulated sectors is important for a whole number of reasons. The natural monopoly sectors or at least the ones containing a natural monopoly component occupy a prominent position in Russia’s economy – more so, than in the economies of developed countries. This is connected both with the basic commodity orientation of Russian industries and traditionally high energy consumption. In such set of circumstances the efficiency of, for example, fuel and energy sector, a significant share of which is composed by natural monopoly sub-sectors acts as an important factor of the efficiency of the country’s economy as a whole. The majority of sectors with a natural monopoly component are currently undergoing or at least expecting the reforms related to regulation and organisation of the sector.
As the international practice shows, there are various potential sources of threat for competition both on the part of the traditional market players and on the part of the regulatory authorities. The principal differences between the sectors comprising a natural monopoly component render standard antimonopoly regulation tools not sufficiently effective. The specifics of such sectors establish a basis for continued market power (in accordance with the Russian antimonopoly law, market domination). That is why one of the tasks pursued by the policy aimed an effective deregulation is to fight the abuses of dominant position. In the first place, this objective is being achieved through adjustment of specific decisions and adopted statutory acts to the incentives for market players and the creation of opportunities for the market players to get adapted to the changes and implement the previously concluded agreements.
The present report has an inception nature and is not claiming a detailed and exhaustive coverage of the problems related to competition development in the deregulated sectors. References to the specific problems of the competition promotion in Russia are random and declaratory; in the first place, they have to do with telecommunications, railways and gas sector. The analysis undertaken here is not sufficient to determine the problem areas that are most important in view of promoting competition in Russia’s deregulated sectors.
At the same time, we expect that the report will allow drawing attention to the important issues requiring solution in the course of the reforms pursuing the improvement of public administration, antimonopoly regulation and competition policy. It is our intention to show that both in Russia’s antimonopoly legislation and in the specific legislation of deregulated sectors a set of rules sufficient for successful reform is missing. Consequently, the reform of natural monopoly sectors in Russia is taking place against the backdrop of underestimated opportunities for the application of competition policy instruments in the deregulated sectors.
The set of issues discussed in this report is determined in the first place by the context of the ongoing discussion in the society, while the sequence of parts within the paper is designed is so as to ensure convenient perception of the problems to be tackled when developing competition in the sectors with a natural monopoly component.
The first issue to be dealt with will be the one about the basis for the existence of a natural monopoly and classification of such operators (Section 1). In spite of the fact that the problem of defining natural monopoly is believed to be solved in the framework of economic theory (which is proven by the presence of the natural monopoly as a special market structure in nearly every textbook on microeconomics), some of the definitions used in the relevant discussions are significantly distorting the essence of the problem in question.
The demand for and logic of the competition promotion in the deregulated sectors will be scrutinised after that (Section 2). The considerations contained in the second section are specifically related to such issues as development of the rules for entry and contract conclusion in the deregulated market (Section 3), identification of natural monopolies and potentially competitive sub-sectors within the reformed sectors (Section 4), and identification of essential facilities and access procedure to the essential facilities taking into account the specifics of each sector (Section 5).
Because the development of competition is connected with the changes in the regulatory framework, the reform of tariff regulation system as leverage for the development of competition is discussed as a separate issue. Not only do natural monopoly sectors have important properties from the point of view of service provision, but also the services as such nave important features affecting the regulation system and creating additional impediments for the development of competition. In the first place, we are talking about universal services. Finally, in Section 8, the question is discussed about competency delimitation between the regulatory bodies in the deregulated sectors.
The materials of the following research projects by the Bureau of Economic Analysis Foundation were used in this report: “Development of the concept for the regulation of services delivered by natural monopoly operators and structural reform (on the example of federal airports)” (1999-2000), “Mechanism for the improvement of antimonopoly law in the field of gas supply in Russia’s goods markets” (2001), “Problems of the distribution of limited resources when monopolism is excluded (on the example of telecommunications sector)” (2002), “Local monopolies and public utility reform including the analysis of international practice and prospects for the application of the concession mechanism” (2003), “Comparative analysis of the methods of competition fostering in the sectors utilising essential facilities (on the example of railways) (2003), and the comparative analysis of the regulatory framework for the natural monopoly regulation of the Single Economic Space member countries. Besides, the materials from the annual surveys of economic policy prepared by the Bureau of Economic Analysis have been used (in Russian - “Obzor ekonomicheskoy politiki v Rossii…” - “Survey on economic policy in Russia in 1997”, Moscow, 1998; “Survey on economic policy in Russia in 2003”, Moscow, 2004).
Published on 04 Oct 2005
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