INFLATION COMPETITION

Inflation is the main problem facing Azerbaijan's economy today and can be felt directly by every citizen of the country. For all the government's efforts, it is already clear that it will not be possible to hold the consumer price index steady. The reasons are many - the flow of oil dollars into the country as oil and gas projects come on stream, processes on external markets and the growth in the state budget. Many of the reasons are related to objective economic processes which cannot always be controlled by the government.

But what are known as subjective factors are also amongst the reasons for the growth of inflation, the main one being the artificial increase of prices provoked by market cartels. This is an instance when the government's supervisory bodies could and should intervene in order to stop conspiring businessmen further heating up the situation. In many countries anti-monopoly services are tackling these issues and today they have decided to join forces in the war on cartels.

Fighting together

During their 15 years of existence Azerbaijan's anti-monopoly services have conducted a number of investigations, the results of which have helped to get rid of artificial price increases for a list of goods and services. Suffice it to remember the recent investigation of the cement market and the subsequent decision to set price limits for cement. However, as has been mentioned above, processes under way on external markets are amongst the objective factors influencing inflation. No-one can guarantee that price fluctuations in the countries with which Azerbaijan has close economic relations are not linked with a conspiracy by a group of producers at the interstate level. Protecting the market from monopolies and cartels requires a comprehensive approach which includes the anti-monopoly services of the states concerned. Azerbaijan, the CIS and other of our trading partners understand this full well. This may be why the Interstate Council for Anti-Monopoly Policy is today described as the most effective body in the commonwealth. 

The legislation of the CIS countries has been harmonized in many areas, including anti-monopoly policy. Any legislative act passed in a member state is examined by experts to check its conformity to the model laws drawn up by the CIS Interparliamentary Assembly. All this helps to find and punish law-breakers together, which increases efficiency in the fight against monopolies. True, in Azerbaijan the Competition Code covering all normative and legislative aspects in this area has so far only passed its first reading in parliament, but the chairman of the Milli Maclis economic policy commission, Ziyad Samadzada, has said that the points made during the parliamentary hearings have already been incorporated into the bill and its final reading should not be far off. "Some trans-national companies operating in the CIS could soon find themselves on the receiving end of serious attention from the anti-monopoly services," the chairman of the Interstate Council for Anti-Monopoly Policy, Igor Artemyev, has said. "Many of these companies either break or verge on breaking anti-monopoly principles and we are beginning a joint effort against them. For example, we have already begun to investigate the markets in air transport, telecommunications and cement and, at the suggestion of the Azerbaijani side, will begin investigations of the grain market." He said that investigation has begun into the telecommunications market in CIS countries, especially the mobile communications, IP services and roaming markets. "There is evidence of conspiracy between companies and monopoly behaviour on the market. We will analyse all these issues and announce our conclusion," Artemyev said.

Confession or a big fine?

Even though they have 15 years of work experience the Azerbaijani anti-monopoly services can learn a thing or two from their CIS colleagues. Take the process of revealing cartels and carrying out programmes to mitigate their effects on the insurance and financial markets that has caused a sensation in Russia and Ukraine. The programme has already been under way for six months in Russia and basically consists of revealing conspiracies between banks and insurance companies in issuing credits to the public. "We asked the banks and insurance companies to come to the anti-monopoly service and make a statement about the existence of a conspiracy," Artemyev said. "Then they are exempted from a large fine. Otherwise, we conduct an investigation and apply serious sanctions against law-breakers. We already have positive examples of major companies such as Ingosstrakh, Rosna and many big banks, such as Rosbank, making a 'confession'. The same thing has happened on the exhibitions market." 

Could similar cartels be operating in Azerbaijan? Artemyev said that the conspiracy here is for a bank to offer a 1-per-cent rate on consumer credit, but then make the recipient of the credit take insurance with a company specified by the bank and on the terms offered by the company. As a result, the final rate far exceeds the initial terms. "Haven't you come across this in Azerbaijan?" Artemyev asked rhetorically.

Of course, the anti-monopoly services will not have much trouble finding similar examples in Azerbaijan - practically all the banks do this here. Bearing in mind that many of the banks have their own insurance companies, there can be no doubt about the presence of cartels on the Azerbaijani financial market. It is another matter that the anti-monopoly services rely mainly on complaints from the public when they start an investigation of a specific market. And in Azerbaijan people are not used to making complaints, the head of the Economic Development Ministry's Anti-Monopoly Service, Samir Dadashev, said. The state service, therefore, has to begin investigations on their own initiative which does not always produce a quick result.

Igor Artemyev thinks that these violations can be prevented only by applying strict fines on law-breakers. "The fines must be hundreds of millions or even billions of dollars, but before this the company should be offered the opportunity to give itself up voluntarily," the Russian expert concluded.

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How effectively can anti-monopoly services collaborate in clarifying the situation of increasing prices for plane tickets? Igor Artemyev said that analysis of the market in Russia had revealed a range of major problems that require a joint solution. "We came to the conclusion that the reasons for the increase in prices for plane tickets are mainly the increase in the cost of fuel and the monopoly on aviation kerosene filling stations. It also emerged that many airlines also own airports and can, therefore, prevent other airlines from gaining access to them. This creates a monopoly on the market and allows them to manipulate prices." Artemyev said that it had also been found that one airline can have a monopoly over one specific route in the CIS. "We agreed to investigate all these aspects together and send enquiries to all the airlines in the CIS. We intend to apply large fines if they are late in providing answers," Artemyev said. Azerbaijani's State Anti-Monopoly Service will also carry out investigations. The head of the service said that all the airlines operating in the company, including Azerbaijani Airlines (AZAL), will be included.

While the examples given above may affect a specific group of consumers, there are other goods and services where price fluctuations have a real effect on everyone's pockets. This applies first of all to the grain market. The Azerbaijani State Anti-Monopoly Service's analysis of this market has shown that external factors have caused the rise in grain prices on the domestic market. This is mainly the result of price increases for grain in exporting countries who supply grain to Azerbaijan - Kazakhstan, Russia and Ukraine. Therefore, the Azerbaijani side has suggested to the anti-monopoly services in these countries that they collaborate in an investigation to find out the reason for the grain price increase and the presence of any cartels and conspiracies in this sector. "Before July grain was imported from Kazakhstan for $135 per tonne, but since July the price has shot up to $185 and is now $230. We conducted an analysis and found that countries such as Australia, Argentina and Iran have restricted or stopped grain export altogether, which has led to an increase in prices in other exporting countries. How far the prices set by them reflect the current reality is another question - we intend to find out," Samir Dadashev said. If grain prices are reduced as a result of the investigation, then no-one will be left in any doubt as to the effectiveness of the anti-monopoly services' collaboration.