Head of the Antimonopoly Committee of Ukraine: "On one hand, we are criticised for imposing too low fines, and on the other hand, for killing businesses with huge penalties"

With the onset of russia's aggression against Ukraine and the imposition of martial law, the Antimonopoly Committee of Ukraine (AMCU) relocated from Kyiv to Lviv. However, it quickly resumed its operations in the capital and has been functioning almost normally since July of last year, operating in a standard pre-war mode. Mind spoke with Olga Pishchanska, the Head of the Ukrainian competition authority, about collusion in public procurement and the Great Construction project, the most interesting cases and the most common types of violations, the markets currently receiving AMCU's attention, the de-monopolisation of the energy sector and the case of Naftogaz, the steps taken to overcome the monopoly of DTEK owned by Rinat Akhmetov, and the economic results of the committee's activities after February 24, 2022.

On the reputation of the AMCU and its true impact

– In society, there has long been an opinion that the AMCU is somewhat of a 'fictitious' body, lacking significant influence. Even if that is an exaggeration, it cannot be denied that the Antimonopoly Committee in Ukraine is not as formidable a structure as in EU countries or the United States. In your opinion, has the influence of the committee on the economy and the business environment strengthened in recent years?

– Indeed, such a position exists among a certain part of society. I believe this is because not everyone fully understands the principles of AMCU's work – what it actually influences and what its functional responsibilities are. Hence, accusations may arise, such as "the committee does not fulfil its functions" or "does not set prices," and so on. We are concerned with protecting and developing competition, which is one of the most important factors for economic growth.

Regarding the claim that "the AMCU has no influence," I would respectfully disagree. It is worth analysing our reports from recent years – we will see that the AMCU has focused its attention precisely on significant market segments and economic entities (DniproAzot, the Avias case regarding petrol station conspiracies, and so on). We have made decisions against economic entities, including those owned by individuals with oligarchic characteristics, in accordance with the law on de-oligarchisation. These entities have a significant impact on markets and, consequently, on our economy. It is doubtful that one could say an 'ineffective' body would be capable of such actions.

– Which entities are you referring to?

– TEDIS Ukraine (the "tobacco case" regarding abuse of a monopolistic position), DTEK Zakhidenergo PJSC  (abuse of a monopolistic position, the Burshtyn Energy Island case), the so-called OstChem case – when for the first time in the history of the AMCU, a decision was made on forced divestiture (unfortunately, the court disagreed with the AMCU's position and overturned the committee's decision). So, we are working, even though decisions are not issued daily due to the extensive workload within each case. It's a "big game, but a long game."

By the way, not only fines are an effective instrument. In certain cases, the AMCU also provides recommendations. Their goal is to prevent specific actions and cease or eliminate the consequences of violations. It provides an opportunity to restore market balance relatively quickly if it has been disrupted, while also saving internal resources for the committee.

Whether the war is an obstacle to antimonopoly violations, and which sectors are favoured

– Whattypes of antimonopoly violations  are the most common in Ukraine? And how did their list change in 2022 (compared to 2021)?

– There are several types of violations, and they have always been equally 'popular'. These include abuse of a monopolistic (dominant) position by economic entities and anticompetitive concerted actions by economic entities. Another 'popular' type of violation is the implementation of concentration by economic entities without the necessary AMCU approval.

As for public procurement, it includes, for example, the formation of discriminatory conditions by the purchaser in public procurement (these statements are considered by our appeals body), or anticompetitive concerted actions (collusion for the purpose of obtaining benefits) among the participants themselves. We conduct investigations across all areas, but the public procurement segment is always prominent. There are always many violations and decisions, even in 2022 despite the war. Moreover, both the AMCU and other competition authorities worldwide consider this type of violation the most severe because it involves deliberate, calculated actions aimed at profiting by effectively appropriating the state's funds or resources.

The overall volume of recognized violations during the war period has somewhat changed compared to the pre-war period. For example, in 2021, we discontinued 1,675 violations, while in 2022, it was only 611. However, I must state that we are currently observing a trend of increasing violations again. In the first four months of 2023, the AMCU has already discontinued 378 violations, whereas during the same period in 2022, there were 82 violations, and in 2021, there were 305.

While the types of violations have remained the same, the list of markets where they occur has changed due to current economic challenges. Therefore, the actual decrease in the number of identified violations cannot be considered a sufficient indicator for analysing whether there have been improvements or deteriorations in general.

– Identify the top sectors where you see threats to competition. Specifically, do they exist in the poultry meat production and tobacco distribution sectors?

– We monitor activities in all sectors of the economy and analyse all complaints, but we pay special attention to segments that have a significant impact not only on their own sphere but also on other economic directions. For example, the energy sector. The war showed its importance for the entire country, so any disruptions in this sector can also have a significant impact. We have also prioritised the financial (banking) sector in 2023 because the conditions of financing and operations in this sector affect the development and recovery opportunities of other economic segments.

In addition, a priority has been set regarding the privatisation of state property. Control over this process is crucial at the moment because, through coordinated actions between economic entities during auctions, we may, for example, end up with new monopolies or entities with significant market power after the war.

Another priority relates to construction materials. Its determination is associated with the planned reconstruction of Ukraine, and the sector also has the potential to stimulate other market segments or, conversely, hinder competition there.

The sectors of food production. They are not among the priorities but are socially important. For example, within the research concerning the market for chicken eggs, we identified 18 instances of concentration by the Avangard group without obtaining permission from the AMCU. We initiated a case and fined them 10.7 million UAH. The fine has been paid now. The AMCU also conducted market research on chicken meat, within which a case was opened regarding possible abuse of a monopolistic position by the MHP group.

– When will there be more detailed information about MHP?

– The timing depends on the speed of obtaining information by the AMCU from economic entities, government bodies, registries, and so on.

By the way, our draft law No. 5431 on the reform of the AMCU (increasing institutional independence, improving tools, regulating the procedure for inspections by the AMCU, granting the right to access registry information, specifying the conditions for obtaining concentration clearance in accordance with EU norms, etc.) has been in the Verkhovna Rada for almost two years. It has long been ready for voting in the second reading, but I don't see the willingness there to adopt it. Its consideration has been delayed. Even though our European and American partners have repeatedly expressed support for the draft law, as has the European Commission in its latest report. And if we go back to the beginning of the question, the implementation of this draft law would have provided the committee with the opportunity to obtain information not only through written requests but also through access to databases. This would have expedited our work.

If we analyse the last 7–10 years, a significant number of draft laws aimed at reforming the AMCU have been registered in the Parliament. This requirement is even stipulated in the agreement with the IMF. However, to date, there have been no breakthroughs in implementing the reform.

Why? That is a question not for us but for the MPs. Meanwhile, we are forced to continue working not only with partially outdated legislation and tools but also in conditions of limited resources – the salaries at the AMCU are the lowest among all government bodies. We are gradually losing employees. But we are still holding on and delivering good results.

For example, although we issued fewer decisions in 2022 than in 2021, we imposed significantly higher fines (part of which has already been paid to the state budget) than the cost of maintaining the AMCU. The economic effect of the AMCU's activities also turned out to be greater than in 2021. I believe that it is due, in particular, to our strategy of focusing efforts on investigating large and important cases, such as the case of Naftogaz (regarding the establishment of contractual terms for economic entities). Or the investigation of the retail market for petroleum products, initiated during its shortage and price increase. Here, we have already provided recommendations and proposals to the Cabinet of Ministers to establish effective control (not to be confused with "regulation") over this market. But unfortunately, nothing has been done yet to implement these recommendations.

On high-profile cases under AMCU’s consideration

– At the end of the year, the AMCU imposed the highest fine in 2022 – UAH 92 million for collusion in public procurement related to the reconstruction of a stadium in Rivne. The AMCU was able to prove that two companies participating in the bidding process coordinated their behaviour to artificially eliminate competition. Can you name any other interesting cases related to collusion in 2022, and are there any notable cases and victories of the AMCU this year?

– And this year, we have opened cases and issued numerous decisions regarding collusion in procurement. The work is ongoing. Speaking about 2022, at the central office level, 16 decisions were made regarding collusion, and at the regional branches level, additional 57 decisions were issued. So, a total of 73 decisions were made throughout the year. Additionally, it should be noted that our regional branches have already made 69 decisions regarding collusion in procurement in the first four months of 2023. For example, decisions were made regarding collusion in the tenders of Budgarant-7 and Kharkivspetsbudmekhanizatsiya-7 for the repair and cleaning of streets in Poltava, the acquisition of passenger cars for the State Ecological Inspection (collusion between Art-City LLC and Artmotor LLC) etc. There was a decision regarding Ukrstalpostach LLC and Ukrainian Pipe Plant LLC – a fine of UAH 103 million, which was the largest fine in 2022. It is currently being challenged in court.

In 2022, we also made a decision regarding collusion in the procurement of food products, with the Ministry of Defence of Ukraine as the customer. Unfortunately, regarding the ongoing procurements, we cannot always provide an assessment because some of them were not conducted in an open format.

We have repeatedly emphasised our position: it is necessary to avoid such practices and ensure competitive bidding (if there are all conditions) and provide the maximum number of economic entities with the opportunity to participate. An interesting case also relates to privatisation, not procurement: Sambir Radio Plant Signal 'won' due to collusion with Trade House Lviv Electric Lamp Plant Iskra LLC during an auction for the sale of a small privatisation object – Ternopil Radio Plant Orion. The AMCU fined both participants

We have prioritised the control of auctions for the sale of small privatisation objects and seized assets because there are still significant risks of violating antimonopoly legislation. This year, in addition to completing the cases initiated before the war, we are focusing on violations in public procurement taking place during the war. Colluding during the war to obtain excess profits from the procurement of food or medicine is unacceptable. It is close to looting.

In general, there are many potentially interesting cases under consideration at the AMCU. One notable case involves the gas transmission system operator, which is being investigated for abusing its monopoly position. We are currently in the analysis stage. Another important and interesting case concerns sugar, but there are not only significant amounts of information but also difficulties in obtaining information from economic entities (related to the war). And it is an example where the AMCU is unable to quickly handle the case using only the instrument of requirements.

– Who are the subjects of the case?

– The case involves possible anticompetitive coordinated actions by major sugar producers – the Astarta group and Radekhivsky Tsukor LLC. The case was initiated even before the war (based on our investigation) when there was a sharp increase in sugar prices. Certain suspicions were raised because the producers, who operated under different market conditions, limited competition through similar actions, thereby gaining the ability to raise prices above the competitive level.

About international experience in detecting collusion in auctions

– What mechanisms for detecting collusion do you take from foreign experience?

– A month ago, we had a large roundtable in Washington dedicated to collusion in auctions. Based on the outcomes of the event, we can conclude that this issue is not unique to Ukraine; it exists in every country. Everywhere, the situation with gathering evidence of violations is becoming more challenging. On the one hand, courts are raising the requirements for the evidentiary basis presented in cases (and the Antimonopoly Committee of Ukraine feels this during court hearings). On the other hand, entities intending to violate the law are constantly 'improving' and inventing new methods, including through the use of advanced technologies, to engage in collusion. Therefore, we need to stay one step ahead.

When it comes to international experience, a system of direct evidence is largely employed. This includes inspections, analytical databases, specialised software, and so on. Here we come back to the issue with the adoption of Law No. 5431… However, despite the lack of resources that our foreign colleagues have, the AMCU finds ways to strengthen its evidentiary basis, such as cooperating with law enforcement agencies.

We have several cases based on materials obtained from law enforcement. In particular, materials from the National Anti-Corruption Bureau served as the basis for a case involving collusion in auctions by the companies of the SAP Ukraine group (selling SAP software). As of today, the company has already paid a fine of 75 million UAH. So, we are moving towards obtaining direct evidence while also collaborating with international partners to explore opportunities for improving software for investigations. 

We have good statistics in our courts regarding collusion in auctions. For example, in 2021, only one decision was overturned by the court in this area, and overall, in that year, only 1% of the total number of AMCU decisions were overturned by the courts (data for 2022 is still being compiled). Entities almost always challenge AMCU decisions, especially when facing significant fines. Furthermore, they end up on the colluders list, which prevents them from participating in public procurement for three years.

– Just recently, Mind prepared a ranking of so-called tender champions – companies that consistently win tenders. Therefore, the question arises as to what extent they adhere to competitive rules in their work. Can we say that such cases are becoming systemic, and if so, how does the AMCU plan to combat them?

– We can counter any negative tendencies only by improving our practices, strengthening our work in areas such as gathering sufficient evidentiary basis. But we not only expose anticompetitive concerted actions but also function as an appeals body. Moreover, we operate non-stop. From January to April of this year alone, we received over 3,000 complaints related to procurement. We issued approximately 2,000 decisions to uphold the complaints. And by the way, during this period, not a single decision of the appeals body was overturned by the court.

Furthermore, recently, new commissions composed of authorised personnel for procurement appeals have started working. It will further enhance the productivity of this structure. Therefore, the appeals body is an effective instrument for restoring balance in procurement, so I would encourage economic entities to utilise it if they believe their rights have been violated.

As for the specific systemic nature you're asking about, I can't say. We always have a considerable number of cases regarding anticompetitive concerted actions in procurements and appeals to our body.

On the effectiveness of fines as a method to deter violators

– On the eve of the new year, the Antimonopoly Committee fined a butter and cheese manufacturer from Mykolaiv (for 2,057,956 UAH) for improper labelling of products, and the Ruzhyn-Moloko dairy plant in Zhytomyr oblast (for 1.6 million UAH, for fake butter). Don't you think this is futile work, and the approach or the amount of fines should be changed, perhaps, or licences revoked if the manufacturer does not correct their behaviour?

– The law establishes the amount of the fine – up to 10% for violations of the Economic Competition Law and up to 5% for violations of legislation on protection against unfair competition or concentration without obtaining AMCU approval. In other words, we impose a fine based on the income of the business entity.

Indeed, on one hand, people blame us for imposing too lenient fines, and on the other hand, they claim that the AMCU is killing businesses with huge fines. The fined entity will always be dissatisfied. That's understandable. But I want to emphasise that the purpose of our fine is to deter the violator, and in most cases, it is an effective way to achieve that. Even in the major case you mentioned, after dairy producers paid fines, some of which exceeded 20 million UAH (such as Bogodukhiv dairy factory LLC), the behaviour of the defendants mostly changed. So, I believe it is not appropriate to draw conclusions about the overall situation based on one or two examples.

What should be done when the violator does not respond to fines and continues illegal activities? We have a set, so to speak, of 'punitive' instruments that are applied uniformly for similar violations: we impose fines, and we can additionally impose certain obligations on the violator. As for the suggestion of revoking their licences or introducing other even stricter prohibitions, I want to emphasise that such decisions should be carefully considered, as there are risks of distorting competition, altering markets, possibly not for the better.

If we talk about international practice, there, in such cases, the 'cost' of the manufacturer's reputation also comes into play. After a decision is made, stores may cease cooperation with them, and the company's stock value may decline. I believe that someday it will be the same in Ukraine.

– In early January, the AMCU initiated a case against Philip Morris Sales and Distribution LLC on suspicion of violating the Law on Protection Against Unfair Competition. The cigarette manufacturer claims that the statements regarding IQOS are credible and scientifically supported. The AMCU has begun the process of determining whether the alleged violation is substantiated. What has been established so far?

– It's an interesting case related to the publication and dissemination of information about the properties of the mentioned product. It is currently under consideration. We are currently analysing the materials and will be requesting additional information. Our goal is to reach a decision on this matter within this year.    

On the systemic abuses in the government's Great Construction project and whether the state is a banking monopolist

– One of the main corruption scandals in Ukraine in 2022 was the Great Construction overseen by Kyrylo Tymoshenko. In early 2022, former authorised representative of the Antimonopoly Committee, Agiya Zagrebelska, stated that the Great Construction was an exemplary case of cartel organisation at the state level and embezzlement of budget funds: "A limited number of companies participate in auctions through prearranging the distribution of contracts and do not compete with each other." According to her, the regulatory authorities are colluding with the contractors. What is your comment on this?

– The AMCU does not assess actions for corruption – that falls under the jurisdiction of law enforcement agencies. We evaluate agreements among economic entities or actions that distort competition.

Regarding the Great Construction, I want to emphasise that we do not differentiate between cases related to it and those unrelated or related to other projects. The AMCU evaluates all facts and examines whether there are signs of violations. I cannot say that there is a systematic issue and that all projects falling under the definition of Great Construction or included in this program were conducted with violations. However, collusion does occur in some cases. That's true. We evaluate them on par with other similar violations.

For example, we are currently considering case No. 54/45-21 regarding a possible collusion between DS PROM GROUP LLC and ZTS GROUP (the procurement related to the major repair of the M-12 road: Stryi – Ternopil – Kropyvnytsky – Znamyanka, passing through Vinnytsia). There is also a case under consideration regarding a possible collusion between Grand Place LLC and Pivdenbudservice-18 LLC (related to the capital repair of certain premises of the admission department of the Municipal Clinical Polyclinic No. 25 in Kharkiv). There is a case regarding a possible collusion between Gas and Oil Industrial Complex LLC and Komfortkolir LLC (related to the reconstruction and extension of a kindergarten in the Poltava Oblast). Therefore, there are signs of violations in this project as well, but I cannot say that they are more numerous than in procurement in other sectors.

– Currently, the level of state concentration in the banking sector stands at around 60%, which is one of the highest indicators in the world. Can't it be interpreted as a monopoly?

– Here, we deal with various economic entities, not just one. Each of them conducts separate economic activities, each has supervisory boards, and there is no single central management. Moreover, a monopolist is a specific economic entity, and the state is not one. Because if we follow your logic, we should unite not only all state-owned banks but also all state-owned enterprises into a single system.

However, I agree that our banking sector has a larger state sector than the private sector, which is atypical compared to the experience of EU countries. For competition and economic development, it is more effective for the share of the private sector to increase. Currently, there are several programmes (separately for each bank) addressing how this situation will change.

What the AMCU does to de-monopolize the energy sector and eliminate DTEK's monopolistic practices

– There are natural monopolies (identified in the corresponding register) and acquired monopolies. The monopolistic position itself is not a violation of the Competition Law. Abuse of this position or market power is a violation. Before taking any actions to reduce monopolisation, the AMCU needs to first establish the presence of market violations.

The energy sector consists of various markets (such as electricity buying/selling, which takes place in several separate market segments, together with the ancillary services market, forming the electricity market). Most of these markets have different players. Each market also has its own regulatory framework. Although the product itself is the same – electricity. Therefore, if there are indications of violations, the AMCU first determines the presence/absence of a monopolistic position of a particular entity in each market.

If we establish this and confirm the fact of abuse, measures such as fines and obligations to cease violations are imposed. Currently, for example, we are conducting investigations regarding the position of Energoatom in the electricity market, determining the market boundaries where relations between the State Enterprise Guaranteed Buyer and renewable energy producers occur, and prohibiting electricity sellers from resale.

Also under consideration are concentration cases related to the acquisition by the Energoatom of shares in Khmelnytskenergozbut LLC, Cherkasyenergozbut LLC, and Mykolaiv Electric Supply Company LLC.

If we consider de-monopolization literally, it means that we should set a demerger. So far, the AMCU has made only one such decision, which concerned the forced demerger of the OstChem group of companies, which we mentioned at the beginning of the conversation. By the way, there are not many similar cases in world practice. The most famous case is, of course, Standard Oil in the United States, which the court reviewed for five years. Another example is the 'voluntary-forced demerger' of AT&T, which was achieved through a consent decree and commitments to restructure the business. Such a radical instrument is generally relevant to apply when a subject commits systematic and significant violations of the law. Unfortunately, our decision regarding OstChem was not supported by the court. However, we have analysed the grounds for the court's annulment and will take them into account in the future.

In my opinion, truly effective de-monopolisation should be carried out through the development of markets, reducing barriers to entry, and creating stimulating conditions to attract new participants. Here we are working together with the National Commission for State Regulation of Energy and Public Utilities and the Ministry of Energy to improve the regulatory framework.

– Last summer, there was a lot of noise about the transfer to Naftogaz of 26 regional gas companies belonging to Dmytro Firtash under the brand name RGK (which represents almost 60% of the entire retail gas distribution market in Ukraine). AMCU made a statement that Naftogaz was becoming the de facto monopolist in supplying gas to the population without the necessary permit from the AMCU. Furthermore, Naftogaz did not even apply for a permit regarding the concentration of 93% of the gas supply market to residential consumers. However, currently, structures affiliated with Naftogaz are supplying gas to consumers in as many as 16 oblasts. How did Naftogaz continue to absorb regional and municipal gas companies, creating a monopoly in the gas distribution market? And will the AMCU take any measures to counteract this?

– I want to emphasise that according to the legislation, the Cabinet of Ministers has certain powers to make decisions even when the AMCU does not grant permission or establishes a prohibition. However, we are currently investigating all the circumstances regarding this matter. Once we have the result, we will publicly announce our official position.

In general, we currently have three cases under consideration regarding violations by Naftogaz of Ukraine NJSC and related entities in the field of economic competition protection, specifically regarding abuse of a dominant (monopoly) position in the markets of wholesale sales (supply) of natural gas and transportation services.

There is a case, in particular, concerning the abuse of a monopoly position by Naftogaz Trading LLC in the wholesale sales and supply of natural gas markets (related to the content of contracts for the purchase and sale of natural gas by gas supply companies). We have already provided recommendations to the respondent in relation to this matter, and they have been implemented. Although the case is still ongoing, the economic effect of implementing these recommendations amounts to over 808 million UAH. Despite the complexity of the cases, we intend to reach decisions on some of them this year. 

– And what is the AMCU doing about tackling the monopoly of DTEK? Are you documenting the abuses by companies within the Akhmetov Group that holds a monopoly position in the electricity market?

– We have already made two decisions regarding companies within the DTEK group. By the way, I don't recall any decisions being made about these companies in previous years. One of our decisions was related to abuses on the Burshtyn Island Energy System (investigated for several years, with a fine of 275 million UAH), and we are currently facing significant challenges in defending it in court. It has now returned to the "new judicial cycle." The second decision pertains to anticompetitive concerted actions, where DTEK was one of the parties involved (concerning the determination of coal prices). Again, our decisions are mostly not supported by the courts. I cannot say at this point how it will all end.

Furthermore, on its own initiative, AMCU is currently analysing the information that recently has emerged in the media regarding the sale of electricity by Energoatom to DTEK companies for 0.01 UAH/MWh..