Yesterday Prime Minister Vladimir Putin taught industrialists a lesson in math and management. He explained to metals industry management, who decided to raise prices by 30% in one go, where their desire for wealth could lead to and how the government could keep prices in check.
At last the Russian economy has begun to look up. Inflation stood at 3.4% for the first four months of the year, the lowest rate in eight years. Heavy industry posted double-digit growth at 10.4%, and according to the most modest forecasts, Russia's GDP is expected to grow by 3.5%-4% and maybe even more this year. International economic conditions are quite favourable as well: Oil, gas and metal prices, Russia's main export goods, are increasing. In short, it is impossible to imagine a better environment for investment activity. As a result, some companies have become more active, maybe a little too active.
"Such a change in the economy is encouraging optimism and even leading some to believe that all our problems are over. But optimism is a bad adviser; it could induce us into making rash moves that could have serious negative consequences," the Prime Minister said to the industrialists present at the meeting.
He reminded them of the cost of avoiding a total collapse during the downturn; he pointed out that the government had allocated 106bn Rbs to Russian Railways, 102.5bn Rbs to the automotive industry and so forth. And after providing support to business, the government had the right to rely on business's sense of responsibility.
"Plans by several large metals-manufacturers to raise prices for their products in the domestic market could not have slipped by unnoticed. We believe there was no validity in increasing prices. International prices have increased over the last six months. Nevertheless, a 25% to 30% one-time price hike for domestic consumers is beyond normal economic logic," the Prime Minister stressed.
And why did they do it? "A subjective desire by said companies to make up for the losses sustained during the downturn," the Prime Minister said. All of which leads to this: the government is also a major consumer of metal products especially for infrastructure projects. So from now on price hikes will be tightly controlled. Vladimir Putin explained how tightly.
"Commercial contract disputes should be resolved through negotiation, or, in extreme cases, in arbitration courts. Any attempts to drive one's partner into a corner are impermissible. Business conflicts should not lead to the closing of a production facility," he said. "The government believes that domestic supplies of steel and coke should be high priorities. Major steel producers and consumers should resume the use of long-term contracts based on fixed prices, which would prevent any abrupt increases."
But big business had its own interests at heart. And, as the Prime Minister suggested, this would not go unnoticed. Of course the growth of prices for services of natural monopolies was also discussed. Vladimir Putin named some specific measures to curb price increases. The Prime Minister said that the transition to equal pricing for domestic and foreign gas consumption would be more gradual than previously planned. Domestic prices will be only 55% of what western consumers pay to Gazprom. The partially state-owned companies RusHydro and Rosatom will be advised to reduce internal costs and eliminate inefficient expenditures.
The government will continue to monitor housing and utilities prices attentively. A draft law to transfer the authority to set pricing policies for domestic consumption from the municipal level to the regional level is already under consideration in the State Duma.
Anastasia Savinykh