Whip or carrot: In whose interests Antimonopoly Committee of Ukraine acts?

Author : Olena Holubeva

Source : 112 Ukraine

The Antimonopoly Committee is one of the most important government agencies in Ukraine, which plays an arbitrator role in almost all sectors of the economy. The Committee restrains the negative influence of large monopolies, issues permits for concentration and purchase of assets. Its duties include avoiding cartel arrangements and price spikes as a result of concerted actions by major players. In Ukraine, it has recently become a target for harsh criticism and attacks. The decisions taken by the Antimonopoly Committee in several high-profile cases caused a resonance in the media space and heated discussions on the issue in what interests the committee operates: the rule of law or individuals.
22:30, 11 June 2019


Open source

Large fines cause discontent

Recently, the Antimonopoly Committee has fined WOG, OKKO and SOCAR, the largest automobile gas stations networks for a total of 2,75 million USD for committing anti-competitive concerted actions in 2017, when gasoline prices rose by 17.4% and diesel fuel by 20.7%. The committee found no objective reasons for the increase in prices by networks, which accounted for a third of the retail sales of A-95 gasoline and diesel fuel. Note that this case has been considered by the committee since 2017. The situation was approached really thoroughly and fairly unbiased. Commenting on the investigation, the head of the committee, Yury Terentiev, emphasized that the body takes into account the influence of objective external factors that could lead to price increases, in particular, "instability of the monetary unit, increase in oil prices." He said that operators would be fined only if signs of coordinated actions were identified in their activities. Previously, the correctness of the analysis and conclusions in a similar case of a simultaneous increase in prices for motor fuel, the decision on which was taken by the committee in November 2016, was confirmed by the courts, including the Supreme Economic Court. Then all 6 defendants who were charged appealed the decision of the committee.

As a rule, all market participants to which the committee imposes fines resort to the assistance of courts. “For example, over many months we have been observing the situation around Shell, which the Antimonopoly Committee also fined. The company does not agree with the claims or the fine attributed to it. Obviously, if the business does not agree with the committee’s decision, it should go to court," Anna Derevyanko, executive director of the European Business Association told, complaining that the judicial system in Ukraine does not always work effectively.

Note that even those who disagree with the committee’s conclusions deny that its decisions can be affected by the corruption component: “I haven’t heard any complaints about corruption in the Committee from companies that are members of the EBA. Moreover, it has now become easier to obtain permits from the conduct concentrations than it was with the committees of previous compositions. This process is smoother than before. If there are no legal obstacles, permits are issued," said Anna Derevyanko.

Interviewed market participants praise the work of the committee. Lawyer, partner of the Berylstone group of companies Denys Fetisov, in an interview noted that in recent years, the committee has been significantly strengthened by young and strong lawyers. According to him, the current body works legally very well: it is very difficult to win against the committee in court, given the solid strategy built in accordance with the letter of the law.

Imposing fines on fuel market participants is not only decisions of the committee that it applies to large market participants. In May, the committee fined two companies belonging to one of the largest construction corporations, Ukrbud, for UAH 150 million for collusion in two tenders. In April, the Antimonopoly Committee uncovered a loud scam against army power suppliers. The committee identified tenderers of the Ministry of Defense who were simultaneously withdrawing cheap offers, as a result of which companies with higher prices were recognized as winners. Some companies had a common address and employees, using the same means of communication and IP-address. As a result of their actions, in some cases, they won offers that took more than a tenth position in the rating by cost. The committee fined 22 companies for UAH 869.27 million for colluding on tenders.

Related: Ukraine's Antimonopoly Committee has been slowing business deals for years

Noting the professionalism of the current governmental body composition, market participants say that in previous years, the Antimonopoly Committee most often played the role of a whip, which the authorities used as one of the measures to intimidate market participants. At the head of the committee, they put, as a rule, only experienced officials. The current head of the committee, Yuri Terentyev, a master of international law, has come to the office from the business. Before being appointed head of the committee, he worked for 10 years in the international trading company of the METRO group - METRO Cash & Carry Ukraine LLC, holding the positions of head of the legal department, head of the financial control department, director of the development coordination department, director of compliance control and corporate standards . By law, his achievement is to ensure comprehensive legal and organizational support for the implementation of 25 investment projects for the construction and operation of Metro shopping centers with a total budget of about 500 million euros. Terentyev served as Deputy General Counsel at ArcelorMittal Kryvyi Rih, Legal Advisor at the JT International Company Ukraine.

Related: Strike shutters Ukraine's greatest steel plant ArcelorMittal Kryvyi Rih

“We’ve known the head of the Antimonopoly Committee Yuri Terentyev long before he took office. He came from business. An absolutely sensible person, a good lawyer. We do not overlap with him so often. We must admit that most of the business complaints that go to the EBA are connected with the actions of other government agencies. But when questions arise about the application of antitrust laws, we certainly communicate and, unfortunately, sometimes our appeals cause debate,” said Anna Derevyanko, noting that it would be wrong to say that all decisions depend only on Terentyev. According to her, decisions are made collectively by members of the committee, the head cannot influence them, even if they take a different position from his.

Another reason why the market participants are not always satisfied with the decisions of the committee is the imperfection of the legislation. "One of the problems is the big difference between the minimum and maximum penalties that the committee can appoint. The fines vary greatly. The committee most often penalizes closer to the highest mark. We think that this issue should be settled at the legislative level. More a clear gradation is in the competence of the Verkhovna Rada, "said Derevyanko.

The big difference from the committee’s predecessors is its openness and readiness for dialogue with market participants. In particular, the committee repeatedly held open consultations on the problems of concentrations in the electricity market, and Terentyev took part in them. With the participation of MPs, experts and market participants, consultations were held on the mineral fertilizer market. Just last week, representatives of the committee held a working meeting with representatives of the Association of Milk Producers, where they discussed the problem of low purchase prices for milk.

The permitting procedure is simplified.

The procedure for obtaining permits for concentration has become more transparent and now takes less time, says Fetisov. “Compared to what it was before, it has become simpler. Besides, now it is being held in shorter terms,” confirmed the president of the Ukrainian Agrarian Confederation Leonid Kozachenko.

Another thing is that due to a significant decrease in activity in the M & A market (mergers/acquisitions) in Ukraine, transactions, especially large ones, have become much frequent than in previous years. In mid-May, the Antimonopoly Committee approved the merger of the largest operators in the provision of medical care in Kyiv, Dobrobut and Boris. Earlier, a permit was issued for the acquisition of the Dniprovsky coke-chemical plant previously owned by the Russian Euras Metinvest group. The Committee gave permission to the Ukrainian telecommunications operator Prosat, which, together with the Chinese company Xinwei, is implementing a project to create a national mobile broadband multimedia communication network for the acquisition of the Ukrainian Newest Telecommunications operator (TM UNTC), which provides Internet access services, telephony (SIP), television, building data networks and remote video surveillance systems in 8 regions.

Related: Ukraine's Cabinet vs. Naftogaz: Who to become new gas monopolist?

One of the decisions that caused resonance and discussion in the media was the issuance of a permit to DTEK Naftogaz LLC for the purchase of shares of Kyivoblenergo and Odesaoblenergo, subject to five years of careful control of the committee. The Ukrainian company acquired shares of large energy assets, which were previously controlled by the VS Energy group, owned by former Russian MP Alexander Babakov, who is under sanctions by the US and the EU and Mikhail Voevodin.

The fact of the transaction revealed one of the most important and has long been requiring an immediate solution issue. In Ukraine, only half of the problem has been settled at the legislative level - representatives of the aggressor state are prohibited from taking part in the purchase of most enterprises, while at the same time the issue of their ownership of existing assets has not been settled, said Deputy Minister for Temporarily Occupied Territories Georgy Tuka: "In a war with Russia it is already abnormal. It is a factor of great risk. The fact that large Russian business is represented in the Ukrainian financial and energy sectors has a great negative impact. I believe that this is unacceptable."

According to Tuka, the presence of Russian business in Ukrainian energy assets presents particularly great risks and creates prerequisites for destabilizing the situation in the country. In particular, VS Energy remains the owner of large stakes in other large oblenergos (regional power companies) in Ukraine: in particular, Chernivtsioblenergo, Zhytomyroblenergo, Kirovogradoblenergo, Khersonoblenergo, Rivneoblenergo, and Sevastopolenergo.

"As shareholders of Ukrainian oblenergos, Russian companies have access to information that is restricted. In particular, about the country's energy balance. This creates a high risk of leakage of strategically important data into a country that is waging war against Ukraine. Among the tools that they could use as a destabilizing factor in Ukraine factors are delayed wage payments, which could increase social tensions, can disrupt the supply of fuel and limit the volume of production. Therefore, as a citizen of Ukraine, I support the decision of the Antimonopoly Committee, which is authorized to acquire stakes by Ukrainian companies" said Georgy Tuka.

We note that the situation in the energy sector takes place against the background of Ukraine’s critical dependence on automotive fuel supplies from Russia. In particular, deliveries from this country account for up to 50% of imports of liquefied gas. The Russian Federation occupies a large share in the supply of diesel fuel to Ukraine.

After completion of the transaction for the purchase of stakes in Kyioblenergo and Odesaoblenergo, the number of distribution grid companies in which DTEK owns shares will increase from 3 to 5. In total, there are about thirty distribution companies in Ukraine. Thus, the cumulative share of DTEK will not exceed 30%, while European countries are characterized by higher concentrations in this segment - in Portugal 84% of the distribution of electricity (networks) has a private company ENERGIAS DE PORTUGAL, in Italy - 70% has a private company Enel, in Spain, private companies Iberdrola and Endesa Energia own a total of 78. In comparison with these countries in Ukraine, the situation in the segment of electricity distribution resembles a patchwork.

We note that the head of the committee, Yuri Terentyev, confirmed that, from the point of view of the governmental body, DTEK is not a monopolist on the electricity market.

It is important that after completion of the acquisition of 68.2949% of the shares of Odesaoblenergo JSC and 93.9978% of Kyivoblenergo PJSC, DTEK began a program for the development of electrical networks in the Kyiv and Odesa regions. Its goal is to improve the quality and reliability of power distribution, to improve customer services, the press service of the company said. The program for the development of electrical networks in the Kyiv and Odesa regions will focus on the system digitization of infrastructure management, improving the reliability of electricity supply and the quality of customer service.

Related: Naftogaz monopoly should to be destroyed, - Medvedchuk

“During its work, DTEK has invested more than $ 300 million in the electricity distribution business. Thanks to these investments, as well as management solutions, our distribution companies are among the most efficient and reliable in the country. For example, the time of unplanned outages of DTEK consumers is for 30-70 % less than the national average (excluding front-line areas). Electricity losses are almost twofold lower. To simplify the electrical connections in each region, we have created special departments for new connections and optimized internal processes. As a result, let's say, in the Dnipro over the past year we managed to connect 2.5 times more new customers to the power grids - almost 8,000", said Ivan Gelyukh, General Director of DTEK Network.

DTEK Networks stressed that the concentration of new assets does not limit customers in the market opportunity to choose how to buy electricity. “Today, the electricity supply market is fully competitive, and DTEK supports the development of this competition,” concluded Ivan Gelyukh.

There will always be opponents

Thus, as we see, whatever decisions the Antimonopoly Committee may take, they will always have opponents and supporters. And on both sides of the barricades, there will be those who try to manipulate public opinion in the interests of certain business groups.

The only way the committee can protect itself in this situation is to continue to strictly adhere to the legislative norms, initiating their improvement in parallel.

There are still a lot of unsolved issues, because of which the Antimonopoly Committee will again become a target for criticism. In particular, large monopolists are present in a number of agricultural sectors: in the sector of oil and chicken production, in grain exports: "In their regard, the committee should be more active. We are also waiting for its response on the issue of the sharp rise in prices for onions, which is observed in the last month, the price jumped almost three times. I would like the committee to study this situation: find out whether everything is happening within the framework of the legislation, or there was a conspiracy," said Leonid Kozachenko. According to him, it would also be nice if the Antimonopoly Committee helped to find out the true cost of gas production in Ukraine because in this area the state is a monopolist with a share of almost 70%. This would remove a lot of political insinuations on this issue.

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