Source Pravda.Ru

Bleeding a Rock Dry

Will natural monopolies cheat us out of our last kopecks?
Natural monopolies in Russia lack cash and non-cash finances. However, does anyone ever have enough money? did anyone ever have actually enough money? It is quite a different case how people solve their financial problems. We hear that corporations abroad shut down subsidiaries and change shareholders. As a result, new technologies are introduced, the manufacturing process is intensified, the competitive strength of products is increased, and customers are able to purchase cheaper goods. However, the situation is quite different in Russia. The quality of goods isn’t improving; on the contrary, it is becoming worse, and services grow worse from day to day. In addition, the prices of all goods increase every four months, or even more often.

This situation can be explained by national tradition. Cannot people in Russia work properly? It is sad, but increase in prices seems to be the habitual way of solving economic problems in Russia, and this doesn’t mean at all that the Russian people have more and more money to spend.

Russia’s natural monopolies are once again going to raise their rates in 2003. Russian news agency RIA Novosti informs that Gazprom plans to increase gas prices by 37%; Russia’s RAO UES will increase the price of electricity by 18.9%, and the Russian Railway Ministry wants to raise the prices for railway transportation by 20.6%. This is despite the fact that the following growth of prices for services is fixed in the budget for 2003: 12% for services of the Railway Ministry, 14% for electric energy, and 20% for gas tariffs. Does this mean that monopolists are attempting to amend the budget?

It is funny, but when prices increase in Russia, this traditionally brings no considerable increase in profits; it has become an economic axiom already. As soon as prices increase, this immediately entails the reduction in number of consumers, even despite the fact that the above-mentioned companies are the monopolists in the spheres. The economic effect achieved by raising the prices is usually short-term and ineffective, which results in yet more increases in prices. This is the situation we see in Russia from year to year. The most important thing is that prices are increasing much more rapidly than the wages of Russians. It now seems that, soon, Russians will not be able to cope with all of the price increases that the government and monopolists have planned.

Deputy Chairman of the Duma’s budgetary committee Ashot Yegiazaryan is upset with the increasing appetites of the natural monopolies. He is certain that, if the government agrees to the suggestions put forth by the natural monopolies, inflation will reach 10-12% next year. This, by the way, will result in yet more increases in the prices of goods and services, because spending on energy and transportation will be included in the prices of all goods. The deputy says that real earnings of the population will reduce as a result of it. Does anyone doubt this?

The problem of the increasing prices of services provided by natural monopolies will be discussed at a governmental session today. The deputy chairman of the Duma’s budgetary committee is sure that the price increases should be smaller. It is suggested that thenatural monopolies work on the optimization of their spending and on increasing the effectiveness of their subdivisions’ activity. In addition, they can save money by reducing the wages of all the presidents, vice-presidents, and directors. The deputy is sure that the natural monopolies have other reserves as well. For instance, they can reduce their investment programs, which are very excessive. This measure would bring them approximately 30-35 billion rubles, and the money saved this way would allow to them top raise their prices by only 30-50% of what is now suggested. This would help to hold back inflation and not bleed Russians dry.

Yesterday, President Vladimir Putin informed that this year, the inflation rate would exceed the parameters planned by the government. On the whole, the Russian president hopes that this year, the inflation rate will remain on a reasonable level, which is less than last year. In his opinion, economic stability is still successfully maintained in the country. Will this stability remain if natural monopolies are allowed to raise prices as high as they like?

Kira Poznakhirko PRAVDA.Ru

Translated by Maria Gousseva

Read the original in Russian: http://economics.pravda.ru/economics/2002/7/21/62/4131_monopolism.html

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