Antitrust Inquiries Rattle Investors

By vigorously cracking down on possible price fixing, the Federal Anti-Monopoly Service may help to combat one of the country's biggest economic challenges, inflation, but it is putting investors on the edge.

As the anti-monopoly watchdog charges ahead in a slew of high-profile investigations, investors are alarmed about the risk of price controls and the selective application of the law.

"At the moment, the market is clearly inclined to be nervous," Kingsmill Bond, chief strategist for Troika Dialog, said Wednesday.

Prosecutors did nothing to allay those fears by announcing this week that they had set up working groups across the country to monitor prices for food, fuel and other goods. The working groups will seek to root out price increases resulting from collusion, the Prosecutor General's Office said in a statement.

Earlier, Prime Minister Vladimir Putin sent the stock market into a nose dive when he accused mining giant Mechel on July 24 of charging more for its coking coal at home than abroad. Worldwide, the price for this type of coal, which is used to make steel, has doubled since the start of the year.

Mechel at the time was under an investigation by the Federal Anti-Monopoly Service. After Putin's criticism of the company, anti-monopoly authorities have begun looking into two additional coal miners, Raspadskaya and London-listed Evraz Group. Together, the three companies control more than half of the local coking-coal market, anti-monopoly authorities said.

The agency has also opened a probe into jet fuel prices, heeding a call by Putin last month to wake up to the fact that jet fuel prices were higher in Russia than any other country or be ready to see heads roll. In the latest development in the probe, the agency said Wednesday that it had to enlist the police to collect information from Gazprom Neft, TNK-BP, LUKoil and Rosneft, which it said had failed to honor a request to submit information by Aug. 1.

"Not submitting the information that the Federal Anti-Monopoly Service needs to make a decision in the antitrust investigation is a legal violation that creates a threat to state management," the agency said in a statement.

It said only one company, Surgutneftegaz, had met the deadline.

LUKoil said earlier that it had complied with the agency's request. "We have submitted all the necessary documents," LUKoil vice president Vadim Vorobyov told reporters Tuesday.

Seeing which direction the wind is blowing, fertilizer producer Uralkali introduced a voluntary freeze on its domestic prices this week.

By ensuring fair competition, the Federal Anti-Monopoly Service might help the government in its efforts to restrain inflation, Finance Minister Alexei Kudrin said Tuesday.

The annual inflation rate slowed down to 14.7 percent in July from 15.1 percent in June, largely because of a seasonal drop in food prices, the State Statistics Service said Tuesday. Buoyed by soaring global energy prices, that rate is still higher than the government's target of 11.8 percent.

Bond said anti-monopoly authorities have a part to play on the inflation front. "The role of an antitrust body is to fight cartels, and cartels create inflation," he said.

But their contribution to the battle against inflation is inconspicuous compared with other possible measures, such as lower fiscal expenditures by the government and the removal of infrastructure bottlenecks for investors, he said.

Monopolistic collusions are not strong inflation drivers, and a government crackdown will produce a limited effect on price growth across the economy, said Vladimir Osakovsky, chief economist at UniCredit Aton.

By targeting specific companies and sectors with its pricing probes, the government is trying to maintain the economy's investment growth that suffered from tighter federal spending and higher interest rates at the Central Bank this year, said Clemens Grafe, chief economist for UBS in Moscow.

"What they are trying to do is basically say, 'OK, we need somehow to help investment,'" he said. "I think that's a major concern behind that policy, not so much an immediate impact on inflation."

Whatever the purpose, anti-monopoly authorities should stay away from imposing price controls, Bond said. "It's a fine line to tread," he said. "Breaking up cartels is a laudable and beneficial goal, but seeking to control prices is a dangerous way to go down."

Monopolies do cause concern that must be addressed, he said. "The best way out of it is ... to attract more capital to compete with current players," Bond said.