A new model of price control will promote price stability and development of competition

19-06-2018

Mechanisms for full price monitoring and accountability for violations in pricing also do not work. About 60% of commodity groups that are subject to state price regulation are not monitored, and penalty amounts are inadequately low. For example, Article 165-2 of the Code of Ukraine on Administrative Offences provides for a fine of 85-170 UAH for violation of the procedure for forming and applying prices and tariffs, as well as extra charges and extra payments to them.

The government, business, public and expert community representatives discussed the market issues during the Roundtable “State Price Regulation in Ukraine: pros and cons” on June 19. The event was organized by the BRDO Office with the support of EU4Business/FORBIZ as part of the Public Dialogue #PRODialogue.

BRDO experts conducted a rolling review of the legislation and found out that 228 out of 618 regulatory acts in state price regulation, or 37%, are irrelevant. The price regulation tools such as fixed and marginal prices, levels of trade and supply margins, profitability rates and so on, do not have a kind of application mechanisms while being duplicated, and the legal environment loaded with false information misleads consumers and entrepreneurs about current prices and tariffs.

“Today, state price regulation is ineffective: the government is not able to promptly address price fluctuations and inflation, and losses of economic entities reach billions of hryvnias. The law provides for compensation for the difference between regulated and economically justified prices for them, but in most cases it is not paid, so state benefits are actually provided at the expense of businesses. A new ‘price control’ model will promote price stability, development of competition and mostly market pricing,” the BRDO Market Surveillance sector head Volodymyr Holovatenko said.

For example, the losses of non-residential electricity consumers related to its supply to the population and benefit holders at the regulated tariff amounted to over 142 billion UAH in 2014-2017, while the losses in rail transportation – more than 2.4 billion UAH, and losses for services of acceptance/delivery of periodical publications amounted to 51.9 million UAH.

According to the BRDO study, it makes sense to apply price regulation for 61 areas. In particular, it is always reasonable for areas that have a negative external effect and for markets of activities of natural monopolies, and as for social services – subject to unjustified price fluctuations. As for another 78 areas, it should be cancelled, additionally monitored or the relevant legal acts should be amended. The existing model of ‘administrative state price regulation’ should be reformatted. Its essential components will be:

  • Ongoing monitoring of all commodity groups that are subject to the state price regulation, products of natural monopolies and socially important goods.
  • Temporal monitoring of certain commodity groups in case if the price increase exceeded 30% during the last 3 months.
  • Analysis of the reasons for the price growth/fluctuations in markets and the approval of an appropriate decision on price regulation.
  • Effective state control and supervision in this area, the definition of an exclusive list of responsible bodies.
  • Increasing administrative sanctions and providing accountability mechanisms for violations.

The event was also attended by the Head of the State Regulatory Service Kseniya Lyapina, the Acting Director General of “Ukrposhta” Ihor Smilyansky, the Executive Director of the International Blazer Foundation Oleh Ustenko, the Director General of the Ukrainian Association of Trade Networks Suppliers Oleksiy Doroshenko, representatives of the CMU Secretariat, the Ministry of Economy, the Ministry of Regional Development, the Ministry of Infrastructure, the Ministry of Social Policy, the State Aviation Service, Ukrzaliznytsya, the National Commission for the State Regulation of Communications and Informatization, Ukrteplocomunenerho, the Telas Ukrainian Communication Operators Association and the Land Union of Ukraine.

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