Be more competitive

For the Antimonopoly Committee of Ukraine the year 2015 was one of staff renewal and legislative messages . A complete change in the AMCU’s members was particularly marked by the dialogue between regulators and economic agents moving to a completely new level. There is a tendency for modifications in roles and the nature of the Committee’s activity: from a punitive agency to real assistance and development of competition. At the same time, there are decadent judicial tendencies, mainly related to an apparent increase in court fees.


The situation with protecting competition is inextricably intertwined with the activity of the regulator - the Antimonopoly Committee of Ukraine (AMCU). This year, again, it should be viewed in light of personnel affairs: the change in the AMCU’s members had an impact on both the government agency’s prioritization and adjusting the position on some questions, which are of interest to legal practitioners. A case in point is that for the first time in the AMCU’s history, approaches on giving punitive sanctions for violation of competition law became public. It should also be noted that getting some practicing lawyers into the (current) VIII convocation of the Ukrainian Parliament revived the development work of relevant legislation.

However, it helps to remember that early in the year the AMCU worked the same as usual, and the final case of that AMCU membership was a sensational "retailer case".


Troubled Heritage

The problems that existed in 2014 moved to the next year: significant staff cutbacks (since March 2014 instead of nine authorized government officials only five have been at the position; and four administrative branches ceased their full-scale work) and funding. The AMCU insisted on the impossibility of publishing the regulators' decisions and unveiling approaches to fixing penalties for violation of competition law. Last year the regulator focused on counteracting monopoly abuse in the markets of municipal housing economy, fuel and energy sector, healthcare and pharmacy.

The beginning of the new year was marked by routine activity on the part of the Committee: public purchase decisions were interlaced with merger clearance to the participants of the pharmaceutical, household appliances, diesel engine and other markets. The regulator noted violation during a defense company asset sale; dealt with economic overpricing in markets of social importance (bakery goods production, public passenger transport) by providing advice and initiating surveys.

However, the AMCU’s key decision was made in May 2015. It took the AMCU two years to speak on a retailer-related cartel agreement case. The decision caused public outcry and mixed reviews from legal authorities.

The “cartel collusion ” case involving large trade networks (operating under the brands Silpo, Fora, Furshet, Velyka Kyshenia, EKO Market, Karavan, BILLA, NOVUS, METRO, ASHAN, ATB and others) and research company ASNilsen Ukraine went against  "the accused" - the total amount (fine) was 203,616 million hryvnias. The Committee believes that the cartel activity led to the restriction of competition in the market for retail trading arrangement services in non-specialist grocery stores located in Kiev. This resulted in rough conditions for producers and suppliers that caused impediments to investments and innovations, retarded small and medium-sized businesses entering the market and incurred essential overpricing of everyday goods for customers.

The materials in the "cartel collusion" case came to thousands of pages, about 250 DVD data discs. The Committee explained that the preliminary conclusion was announced as early as in 2013. Afterwards the parties filed petitions seeking review of the conclusion. The investigation was later affected by revolutionary events - and the proceedings were initiated again only in March 2014. During the year there were three sets of proceedings, but the parties never got the regulator round to their way of thinking.

Lawyers specializing in competition law complained not so much about the sum of the penalty, as the setting by the AMCU of market boundaries, settlement of its players and that the Committee forgot about other trade networks when listing violators. The  “cartel collusion” case has now reached trial.


A new page

May 2015 became significant for the AMCU not only on grounds of adopting a decision on whether there had been a cartel agreement. Towards the end of spring, the Committee got a new head. On May 19, 2015 the Verkhovna Rada of Ukraine appointed the general legal advisor of OJSC ArcelorMittal Kryvyi Rih,Yurii Terentiev, as chairman of the AMCU.

The main personnel appointment was followed by renewal of authorized government officials. According to a Decree issued by the President of Ukraine of June 26, 2015, eight authorized government officials were appointed. A fortnight later Mariia Nizhnik was appointed to the post of first deputy chairman (previously - partner of Aequo law firm), and at the end of August of this year the positions of deputy chairman were taken up by Andrei Vovk (prior to appointment as AMCU authorized government official - director of the legal company Universal Legal Advisor), Nina Sidorenko (previously - managing partner of the Kiev office of PETERKA & PARTNERS law firm).

With the advent of the new management a new page in the regulator's activity began  under the slogan: "More openness, more predictability".

According to Ukrainian MP Viktoriia Ptashnik, the dismissal of the Committee's previous membership was a silver lining. "Time will show how effective and independent the new membership will be (and success is contingent upon its being fully independent and unbiased). In any case, it is important now to purge other AMCU bodies, reduce the number of territorial administrations, reconsider the Committee functions, possibly review the head office’s structure, adopt publication of AMCU explanations on legislative execution and generalize this practice", Ptashnik commented, emphasizing that AMCU representatives are ready to collaborate.

Thus, the AMCU’s renewed membership began to fight violations on monopolistic markets (in Ukraine more than a half of markets bear signs of monopoly), the flagships of which are the power, transport and communications industries.

Therefore, it is no wonder that in July of this year the Committee initiated a comprehensive study of the Ukrainian electricity market. This study is still continuing, but the Committee has already given mandatory recommendations from the National Committee that performs government regulation in energy and communal service management and opened cases regarding violation of legislation by the DTEK group of companies.

The Committee also initiated a probe of the air transportation market (handling, automatic airline reservation and inland transport services). The automobile and aviation fuel markets, pharmaceutical market and banking service market are also under the spotlight of the AMCU.

However, it is not just monopolistic markets which the regulator now deals with. In the summer of 2015 amendments to the Regulation on concentration control by economic agents were approved. They contemplated limitation of the general time for processing petitions and merger clearance cases, including the time required to collect additional information necessary for deciding a case, to six months.

Around the same time, the AMCU resolved to publish its decisions with the purpose of ensuring openness and clarity of its activity. Items subject to publication: petitions and decisions on the cases over concentration, concerted practices, economic competition protection law violation, unfair competition. The full text of decisions will be published with due regard to confidentiality.

Yet the climax of "openness and predictability" fell on the publication of the Recommendatory explanations of the procedure on setting penalties for violation of economic competition protection laws (the Recommendations), so long-awaited by business.

"The major advantage of the Recommendations is a clear procedure of determining the amount of penalties for antitrust law violation", says a Partner of Pavlenko Legal Group, Valeriia Tarasenko. While earlier penalties were rather the subject of haggling, and large business was not very thin-skinned about them, then the algorithm for the AMCU performing penalty assessment is clear now. This, in its turn, enables the company to assess the actual cost of violation risk, as the sum of the penalty will definitely have an impact on business.

Ms.Tarasenko holds up as an example sensational penalty sums applicable in the USA and EU members with respect to unfair companies, especially world renowned brands. Among other positive factors she mentions is the fact that the suggested basic amount of the penalty is related to the income or benefit, the gaining or deficiency of which occurs due to a violation. "The AMCU penalty assessment used to be related to the company’s turnover irrespective of the amount of income, benefit or their deficiency as a result of the committed violation. Consequently, it is impossible that the amount of penalty is incommensurable with the actual cost (economic benefit) of the committed violation", clarifies Valeriia Tarasenko.

Moreover, the speaker believes that problems and disputes will arise, as the Recommendations do not exactly determine the calculation of the ground total figure. For instance, the AMCU will carry out calculations on the basis of certain data, and a violator will use other indicators with smaller amounts. Disputes may also revolve over determining the gravity of a violation and the application of heavy penalty, as these are evaluative criteria.


Legislative concerns

It is especially worth focusing on a legislative element of competition protection.  As we have already mentioned, this process was revived with the advent of new people's deputies, aware at firsthand of problems in the competitive environment, though their efforts are not sufficient. To clear the barriers in a law-making process there must be will on the part of both the Parliament and the AMCU itself which, according the expectations of Ukrainian MP Viktoriia Ptashnik, will conscientiously apply new norms in actual practice in the future.

In the words of Ms. Ptashnik, at the present time there are three drafts devoted to reform in this field - on the publication of decisions of the Anti-monopoly Committee, control over economic concentration and fixing the amount of penalties for violation of competition law. "Surely, these are only the first steps of reform in this field. The ultimate purpose is the modification of the roles and nature of the AMCU’s activity: now it is in some way a punitive agency, but it must be the agency that supports and promotes competition", emphasizes the people's deputy of Ukraine.

The aim of draft bill No. 2102 is to introduce an obligation that the AMCU publishes absolutely all decisions, taken as part of cases over violation and issuance of permits for concentration and concerted practices (except for proprietary information). "It is evident that earlier the AMCU’s decisions were published selectively, moreover, it was impossible to understand from the so-called publications, who, for example, was behind Cypriot companies announcing their merger", comments Ms. Ptashnik. The proposed law is also aimed at giving warnings about violations, as bona fide market participants will always be able to familiarize themselves with AMCU practice and draw certain conclusions on preventing violations in their activity.

Another important legislative act is draft No. 2168a, which proposes to raise the amount of cost parameters, and in case they are reached it is necessary to apply for merger clearance to the AMCU. "This draft bill can be called unique deregulation, as in case of its acceptance by some market players, whose activity does not influence competition, there will be no need to apply to the AMCU. The bill also proposes to adopt a mechanism on the provision of official consultations by AMCU representatives on concentration cases. This mechanism is intended to remove corruption within the AMCU’s activity, associated with frequent cases when appellants return their documentation packages with the reason of "non-compliance with law", the MP motes. If the document is adopted the AMCU representatives will be obliged to explain the nature of a violation to the appellant as part of official consultations. This mechanism will essentially simplify the life of concentration participants.

Another piece of draft legislation, bill No. 2431, is aimed at dealing with the imposition of punitive sanctions for violation of economic competition protection law by the AMCU’s agencies. "It is obvious that the Committee’s punitive policy was rather debatable over the last years, a regulatory mechanism for setting penalties was absent, which resulted in different abusive acts on the part of the Committee. The draft bill binds the AMCU to assess penalties exclusively in accordance with appropriate methodology as a statutory document", Viktoriia Ptashnik says in her comments.


Court case

As to court appeals against decisions adopted by the regulator, nothing has changed in this process, which is to say that there are still many appeals, though their number is falling.

According to Valeriia Tarasenko, the AMCU disputes  main trend is the appeal of competitive bidding by official institutions and companies initially in the AMCU, and in case of losing an appeal by the AMCU - in a judicial proceeding. "In 80% of cases the purpose of such appeals consists of delaying the procurement process and interference with competitors receiving a contract", she explains. As explained by Valeriia Ptashnik, such disputes are usually not so much about economic competition violation during a tender as technical questions on the organization and holding of tenders.

At the same time, she admits that the number of court complaints about the AMCU’s decisions is falling drastically; however, it is not so much due to qualitative changes to law as it is in connection with a significant increase in court fees for bringing an action, which automatically makes technical court complaints financially inadvisable.

This many discussions in a year in academic circles as to who should adjudicate disputes in the field of economic competition protection, it should either be administrative or commercial courts, are not dying down. In June of 2015 year the Supreme Court of Ukraine spoke in that respect. Having analyzed legislative provisions, the Supreme Court of Ukraine arrived at the conclusion that the cases over the disputes on the appeal of decisions, adopted by bodies of the AMCU, are under the jurisdiction of commercial courts and subject to consideration according to the rules of the Code of Commercial Procedure of Ukraine, save in respect of disputes over the appeal against the AMCU’s decisions on complaints about violations of legislation in the field of public procurement under Art. 19 of the Administrative Procedure Rules (territorial jurisdiction of administrative cases).

In summing up, we can predict that 2016 will be just as interesting in competition as the year that just ended recently. It is expected that the results of probes into very monopolistic markets will be made public, and there is also a probability that court proceedings on the sensational retailer-related cartel collusion case will be further prosecuted as well as the law-making process will be continued - the market is waiting for draft bills on competition laws to move beyond being just "drafts".



Leading FIRMS
3 AstapovLawyers International Law Group
4 Arzinger
5 Galyna ZAGORODNIUK (DLA Piper Ukraine LLC)
Oleg AKHTYRSKYI (Gide Loyrette Nouel)
Olga BELYAKOVA (CMS Cameron McKenna)
Timur BONDARYEV (Arzinger)
Ulyana KHROMYAK (Clifford Chance)
Olexander MARTINENKO (CMS Cameron McKenna)
Oksana SIMONOVA (Baker & McKenzie)