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PUBLIC AUTHORITIES SHOULD WORK EFFECTIVELY AS A SYSTEM

PUBLIC AUTHORITIES SHOULD WORK EFFECTIVELY AS A SYSTEM

Head of the Anti-Monopoly Committee (AMC) of Ukraine Yuriy Terentyev speaks about the main role of the antitrust agency, drafting of the National Strategy for the Development of Competition, and other issues of protection of competition in the domestic market.

– The AMC is assigned the role of a powerful tool to protect economic competition. How much does this role correspond to reality? What are the main difficulties in this regard, in particular in the energy sector?

– The Anti-Monopoly Committee of Ukraine (Committee) was created according to the Constitution of Ukraine. The Law of Ukraine “On Protection of Economic Competition” states that among the Committee’s main tasks is the protection of economic competition. We don’t replace the state authorities tasked with preparing economic development programs, developing a competitive environment, expanding the competitive environment in relevant fields, and constant monitoring of issues in the relevant industries. We must deal mainly with law enforcement. But we regret to see that, compared to the antitrust agencies of other countries, the ones with a well-developed and stable information environment, where proper market data is available and reliable, where markets are mature and less susceptible to sharp fluctuations, it is much harder for us to operate. After all, we have to independently develop the entire information base on the state of the markets and competition, in order to understand and prioritize the most important issues and respond in the most effective way. If we talk about different markets and corresponding issues, we see that among them there are those with the largest weight and significance. For quite a while, the energy market has traditionally been a priority for the Anti-Monopoly Committee.

If we analyze the Committee’s activities over a long period, we will see that in our law enforcement efforts, we sometimes get onto the territory of other agencies (consumer rights protection, regulations). We annually receive almost 6,500 complaints and hand down nearly 2,500 decisions. However, such stats are not representative, because on the one hand, this testifies to public trust in the Anti-Monopoly Committee, as to the agency able to resolve certain problems of specific economic entities or individuals; while on the other hand, when comparing the AMC with foreign agencies, the latter hand down no more than a hundred decisions per year. Such a large number of decisions we issue in fact testifies to the fact that in its work, the Committee, as an instrument of competition law enforcement, is often called upon to resolve issues that lay within the scope of competence of other public authorities. When we see in the complaints we receive violations by monopolies (especially in the regions), we launch relevant cases. To better respond to such violations, we work out tools for a clearer separation of powers with the relevant state authorities (the National Energy and Utility Regulations Commission (NEURC), the State Service of Labor), by signing memorandums.

Another direction is public communication and communication with businesses, to make clear to people, which problems should be addressed to the Anti-Monopoly Committee and which should be solved with the involvement of other government agencies.

– Is there any problem with the clear distribution of authority?

– Well, such distribution exists. But it has become a long-time tradition for individuals or businesses to apply to the AMC when they consider a violation certain actions by a monopoly. In accordance with the law and the general principles of handling citizens’ claims, if our territorial offices or headquarters see in the said actions abuse of monopoly, the case is opened, an investigation is conducted, and a decision is handed down. This takes time, but if we analyze stats on such decisions, we see that their significant share is on the border of other government agencies’ authority.

It would be incorrect to claim that the AMC shouldn’t have to deal with cases in regulated markets. We also look into operations of oblenergos [regional energy distribution companies] and gas distribution companies, but we do so from a systemic perspective rather than from the point of view of some problems of a particular consumer.

It can be assumed that if complaints are submitted to the Anti-Monopoly Committee instead of the NEURC or the State Service of Labor, this is due to public trust in the AMC. But public authorities should work within their competence, and they must work effectively as a system. And it would be even more efficient and expedient if cases that are within the competence of the NEURC or the State Service of Labor be dealt with by said agencies. After all, any AMC probe takes at least six months. During this period, the violated rights of any entity could be restored in a more effective way.

– Does this great number of cases affect the quality of investigation?

– The most significant part of violations is the abuse of monopoly position (795 decisions last year) and anti-competitive actions by authorities (610 decisions). Very often, anti-competitive actions on the part of authorities are accompanied by other violations where a particular entity abuses a monopoly position through certain moves of state authorities creating preconditions for such violations.

– Sometimes, the process of challenging AMC decisions in courts drags on for years, while the company fined manages to transfer ownership to other legal entities, declaring itself bankrupt. How can this be prevented?

– This is a big problem related to the ineffectiveness of the process of collecting fines, as it is now laid down in the current legislation. At the moment, businesses have two months to appeal a decision of the Anti-Monopoly Committee in the courts of three instances. If they lose their case, the Committee is to once again turn to the court to ensure that the fine is paid, getting into litigation to recover the fine. The system is extremely ineffective, and the bill (No. 6723), which is currently under consideration in parliament, contains a provision making AMC decisions binding. That is, if businesses appeal against a decision by the Anti-Monopoly Committee, they do have the right to do so, but if the Committee’s decision has not been canceled in court, we would not have to get into litigation again, so that businesses could not abuse their procedural rights, preventing the Committee from recovering fines. An AMC decision, which will gain the status of the executive document, will go straight to bailiffs. This should reduce at least by half the deadline for the execution of Committee decisions.

Also, in the long run, additional liability will be introduced for founders and executives in case of them bringing to bankruptcy (insolvency) companies they control on which the AMC has imposed fines, in order to avoid their payment. A classic example of such move is the change of a single letter in the name of a legal entity behind one of the well-known gas station networks, which is a violation of the legislation on the protection of economic competition, that is, resorting to anti-competitive concerted actions.

Another interesting novelty of draft Law No. 6723 is the norm, which provides for the following: if a decision has been made and a fine imposed, the defendant has the opportunity to pay a fine within two months and in this case, to have the right for a 50% fine reduction. For us, the main thing is not to fill the budget with money from these fines, but to make every effort to make sure that businesses cease their illegal economic activity and restore order in the relevant markets that has been violated.

Now we are paying much attention to creating a high-quality base of test cases for the Anti-Monopoly Committee as a collegial body and a base of court rulings challenging our decisions.

I hope that this work will result in legal practice becoming stable, understandable and predictable, and businesses becoming more motivated once they see the position of courts in recognizing lawfulness of AMC decisions in appropriate cases. This is about convincing businesses to pay a certain, limited amount of their fine, restore the affected order on the market and just keep working in their regular mode rather than try playing with the Committee through appeals that may last years.

– Could the reason for the reluctance of businesses to pay fines lay in the excessive amount of such fines?

– If we compare the size of the fines imposed by our law with that in the European Union member states, we will see that we have the same norm applied. The fine may amount to 10% of the defendant’s turnover over the past year. If we look at the practice of enforcement, decisions on violations like abusing a monopoly position, impose fines varying from 0.2% to 1.5% of annual turnover. In our legal practice, we try to clearly follow the European practice in the first place, as it is not only about us willing to hand down quality decisions, it is also about the requirement within the Ukraine-EU Association Agreement, which contains a section on competition, providing in particular that the parties (the EU and Ukraine) recognize the need to protect competition, while Ukraine guarantees it will have an independent body responsible for the protection of competition, and that in our law enforcement, we will approach practices of the European Union. Therefore, in our actions and in our secondary regulatory framework, we certainly take into account both the precedents of the European Union and secondary legislation developed in the EU.

– Does the secondary regulatory framework on antitrust legislation need to be substantially refined in Ukraine or is it already optimal?

– We are now introducing a number of regulations to provide more clarity to businesses about warranted and unwarranted behavior. Most of all, the secondary regulatory framework is being developed in relation to concentration control. This is a classical function of the Anti-Monopoly Committee, the one explaining the creation of antitrust agencies worldwide. In different countries, there are different regimes for concentration permissions. There are cases where such permission is not required, and there are cases, as in Ukraine, where such permits are a must. Therefore, it is in this area that the main array of regulations is being developed. But these regulations actually apply not only to concentration issues – they also concern the definition of markets, definition of a dominant position, as well as definition of fines, vertical and horizontal relations… That is, it can then be applied to investigations into specific violations.

– Is it possible to accelerate the development of economic competition in Ukraine and how could this be done?

– Classical economists have said that there are efficient markets and there is a natural balance present in certain markets. There are many markets in Ukraine where we don’t lag behind, at least when it comes to consumer goods – both in terms of prices and supply. But there is another side of the coin. Usually, competition can be limited by several factors. In competition law, we’re talking about barriers to access relevant markets. When the market is closed, competition is usually limited. Speaking about advocating competition, it is primarily about reducing and eliminating barriers to market access.

For example, the law may provide that it is only state-owned enterprises that may engage in certain activities. An example of a legislative restriction is Ukrzaliznytsia [Ukrainian Railways]: the law stipulates that the rolling stock (rail cars) can be privately owned, while locomotives can only be owned by Ukrzaliznytsia. At the same time, the Ukraine-EU Association Agreement stipulates that locomotives may also be privately owned. These legislative restrictions must be lifted to allow new entities entering the market.

Another access barrier may be the need to get some license, which could cost a million, or 10 million hryvnias. Also, an access barrier may be the need to invest in infrastructure. That is, it is possible to develop competition by removing such barriers. It is impossible to force a speed-up of competition.

The issue of the growth of economic competition should be solved systemically, and not only by the Anti-Monopoly Committee, because we have rather limited possibilities. We can identify the existing barriers; if they are created artificially, for example, as a result of anti-competitive actions or abuse of a monopoly position, we can force violators to destroy these barriers. But when such barriers exist due to certain legislative requirements or as a result of the regulatory regime, we can only provide recommendations to state authorities and proposals to the Cabinet of Ministers. And we are doing so, too.

On the other hand, another well-known precedent of our competition advocacy is a comprehensive study of the energy sector. Having systemically analyzed the issues on energy markets, the Committee provided recommendations to key players – the regulator, the Ministry of Energy and Coal Industry, and SE Energorynok, to systemically fix the situation.

There are great prospects for the development of fair competition. At present, we are drafting, together with the World Bank, a document conventionally called the National Competition Development Strategy aimed at optimizing the work involving all public authorities and systemically examining access barriers in our markets and the problems that are out there in these markets, to make sure that fair competition expands both in the national and regional markets.

. . .

Read the complete version of the article in the magazine TerminaL.

Tel.:(+38 044) 263-68-39, email: terminal.psychea@gmail.com

Interview  OLESIA NATKHA

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