Publication: Monitor Volume: 3 Issue: 180

Legislation recently submitted to parliament by the Ministry of Economy and Trade would subject natural monopolies in Kazakhstan to the special regulatory regimes developed for these industries in developed market economies. (Russian, Kazakh agencies, September 26) If the legislation is passed into law by the end of the year as expected, Kazakhstan would join Russia as one of the two CIS countries that have passed special natural monopoly laws. The Russian experience suggests that the law’s implementation in Kazakhstan could be quite controversial.

Natural monopolies occur in industries where the costs of production are lower for a single firm than they are for two or more firms. They are typically found in the energy, transportation, and telecommunications sectors. However, the same large size that gives these firms their natural monopoly status can also give them immense political power. This is apparent in the case of Russia’s Gazprom and United Energy Systems natural gas and electricity monopolies, which were defined in the relevant 1995 Russian law as natural monopolies. Attempts earlier this year by Russian first deputy prime minister Boris Nemtsov to implement this law on natural monopolies generated a great deal of political turmoil and yielded what are as yet unclear economic results.

The creation of specialized commissions to regulate natural monopoly industries can also be a source of controversy, in that these commissions can find themselves at loggerheads with other government agencies that attempt to control monopoly behavior. This has happened in Georgia. There, the State Antimonopoly Service has charged that the establishment earlier this year of an agency to regulate the electrical energy industry diverted scarce resources away from the service’s efforts to introduce market competition in the energy sector.

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