THE Russian government has ordered mining giant Mechel to “significantly” cut its prices after it was declared to be in breach of competition laws.

The Russian Federal Anti-Monopoly Service (FAS)announced on Thursday that Mechel has abused its dominant market share in coking coal, used in making steel. The price limit and fine amount will be decided next week. Experts have voiced concern how the FAS can artificially set a price when the product isn't freely traded on any exchange. Igor Artyomyev, the head of FAS says it can.

“We decide the price based on the cost of production, prices on similar foreign markets and the reasons why Mechel has doubled its prices. It would be much better to have a domestic coal exchange to set the price, and we're working towards that.”

Mechel refused to speak to reporters after the hearing. But Vice President Mukhamed Tsikanov told Business Today off camera he was pleased FAS had recognized they'd cooperated fully with the enquiry, resulting in a “lower than average” fine. He added Mechel will officially respond next week.

The investigation was prompted by Mechel's steelmaking customers NLMK, MMK and Altay-Koks. They accuse the firm of selling their coal for 3-5 times more in Russia than abroad, and dodging taxes.

Regulators today pointed to probes of government favourites Rusal and Gazprom as proof they're not picking on politically less-connected Mechel. But foreign commentators note the attacks on bankrupt oil company Yukos began with the same accusations of transfer pricing and tax evasion. That's why companies and investors are watching these developments closely.