Zoya Borysenko: "It is more important to create a competitive environment than to fight against monopolists"
An author behind Ukraine’s anti-monopoly policies in the 1990s on how oligarchs have limited the Anti-Monopoly Committee’s impact, and changes that are taking place in this domain today
Few people can explain today why the Anti-Monopoly Committee exists and what it does. You were among those who helped create it. What was the original idea behind it? What mission did you see for it?
The AMC was established in 1993-1995. The goal was to protect competition. Ukraine had to build its system from scratch, creating a completely new legislative field and respective state entities, and training specialists for all this. American and European experts from the OSCE, UNCTAD, USAID and World Bank provided huge assistance. They were interested in creating a civilized field for entrepreneurs in the country because international businesses had huge plans for us.
New markets are attractive for investment because they can yield huge revenues. Yet, people could not afford to come to a country with no adequate and competitive business environment. We could feel how enthusiastic people here were about this: a different Verkhovna Rada was in place, a different Cabinet too. Today, unfortunately, all this is very different.
What do you think of the AMC’s work today? Has anything changed?
The system has been in place for over two decades now; a new generation of anti-monopoly specialists has appeared. Still, it took a year to appoint the current staff because those on top couldn’t pick the candidates that would be convenient for everyone.
The new managers are mostly fairly young people with prestigious degrees in economy or law. They have come to the AMC from private business, law firms or consultancies. Yes, most of them really never worked directly with the application of anti-trust laws. Moreover, virtually all new managers have little executive experience in running extensive teams. In the early 2016, AMC structure, including regional offices in every oblast, comprised 636 employees. This is a huge regulator tasked with control over very complex issues and protection of competition across Ukraine. To do this kind of work, one needs not only purely professional expertise and skills, but good organization capacity as well. Therefore, we shouldn’t expect any significant changes in the way the AMC operates anytime soon.
Given the data posted on the AMC’s official website, the newly-appointed team is still learning. They are having workshops, conferences and trainings funded by foreign investors. Meanwhile, no improvements in procedures to prevent violations of anti-monopoly laws have taken place since 2015. The AMC website mostly informs us about licenses, appeals against violations in public procurement procedures or penalties for failure to provide necessary information to the regulator. The most burning issues, however, which are in the spotlight for most experienced anti-monopoly regulators in the world, take too long to be looked at in Ukraine.
Could you give examples?
These are the things that common people and businessmen are worried about: outrageous violations by monopolists, cartel agreements, criminal actions of government entities against businessmen, numerous facts of imprudent competition. There are a huge number of such violations in practice, while the AMC stops very few of them. Utility services are just one example: the rates for them are unreasonably high while the quality of services is very poor. Take my own apartment: one radiator doesn’t work. Every year, the utility company people come over, try to fix something – and that lasts till the end of winter. The same thing happens over and over again, every year. The explanation is simple: I pay for the service, and when it’s not provided well enough, it means that the monopolist provider is abusing its status. It should be fined heavily to discourage from such practices.
Or take cartel pricing in the markets for petroleum products, medicines, or many other services? Obviously, price hikes that happen regularly at one time and for no good reason are a result of cartel agreements. Officials, meanwhile, prefer to not prove that this is the case. And when they do, key players on the given market are somehow overlooked.
In fact, our laws provide for a serious penalty for violation of competition rules. This can include a fine of up to 10% of the business entity’s yearly revenues. The business entity in this case covers the violator, as well as all affiliated entities, i.e. founders, subsidiaries, family members and more. So the punishment can be very painful.
Earlier, when we were at the AMC, the violator could also end up in jail: the system of sanctions included criminal liability like it does in many developed economies. This means that the AMC has powerful tools to use against wrongdoers. Unfortunately, it is not exercising them to a full extent. Quite on the contrary, it often punishes not those who neglect the law. In some cases, the law envisages recommendations for the wrongdoer, not a fine. The problem is that these cases are not outlined clearly (significant or insignificant impact of the violation on competition is not defined clearly in law). Isn’t this a legalized way to corruption for low-paid officials?
How were cartel agreements decriminalized?
Until 2001, the Criminal Code of Ukraine had a fine or up to three years in prison for a wrongdoing. When a group of wrongdoers was involved, they faced up to 5 years in prison. When Oleksiy Kostusiev chaired the AMC (in 2001-2008 – Ed.), this penalty was changed several times, and eventually abolished in 2011. Lately, a campaign has been in place to review the system of fines, too.
What changes are the legislators looking to pass now?
The Verkhovna Rada is currently looking at the draft law to change the system of calculating fines for anti-competition activities. MPs claim that the bill should be passed to restrict arbitrary actions of officials in defining the rates of fines and to create ways to appeal against penalty decisions in courts. This requirement stems from the Association Agreement with the EU. The problem is that the current laws lack even the most general description of a procedure to calculate penalties or a list of extenuating or aggravating circumstances. This means that currently an official decides everything.
The idea to change this is good in itself. However, if it is actually to work, it should be integrated into law. The suggested amendments, however, only offer to include a reference to the penalty calculation methodology which the AMC is developing. Because of this aspect the draft law was returned for further improvement in the second reading. But the necessary changes are still not being made.
Without integrating the procedure to calculate the penalty into the law properly, the idea will not work effectively: those who need it (foreign companies mostly) will be unable to appeal against officials’ decisions in courts. Courts do not rely in their verdicts on methodologies. This is because Art. 92 of the Constitution says that the rules of competition and anti-monopoly regulation are defined exclusively by laws. If the current draft law is passed, the EU’s requirement will be met formally. But it will be next to impossible to prove an official’s wrongness in courts.
Another tricky thing about this draft law is this: the methodology profoundly changes the concept of fine calculation that’s applied in international practices. We used this concept in the early 1990s as the basis for developing Ukrainian laws. It placed an accent on penalties as prevention: they had to potentially exceed the wrongdoer’s profit from violation. The AMC’s current methodology provides for relatively small penalties, while the significant components of the punishment will be determined by a responsible official. This creates loopholes for corruption. Thus, we are now seeing a decrease in the severity of punishment for the violation of competition law. This plays in the hands of our oligarchs whose businesses mostly have monopoly positions in Ukraine.
Would it be right to say that oligarchs were the main driver of market monopolization in Ukraine over the years of independence?
This is a very important question: it reveals a key reason for many of our malaises. Ukraine’s economy is highly monopolized. This is not because some individual businesses have been hugely successful, but because some people had close ties to those in power in the process of property redistribution. It is too bad that the AMC has not prevented, but often encouraged this process throughout all years of independence – even though it had powers to regulate concentration. Oligarchs now own not only some big companies, but entire industries. It is not very difficult to redraw it all back and create a competitive environment. The only way to do this is to reveal and stop abuse of monopoly position. Yet, many newly-appointed officials who have due powers are lobbied by oligarchs and often try to avoid doing that.
What could change Ukraine’s anti-monopoly policy?
— It would be more correct to refer to it as “competition policy”. It makes more sense to create a competitive environment than to fight with monopolists. Prudent competition would automatically solve most of Ukraine’s economic problems which officials fail to do year after year. I think it is important to clearly follow the current laws in order to protect competition. International experts claim that Ukraine’s competition protection laws are fairly sophisticated and take into account the practices of many countries which have a lot of experience in this field. Our main problem is not the lack of laws or officials who don’t know what do to. It’s that few actually stick to the law. One of the reasons why Ukraine’s huge economic potential cannot be used to its full extent is the lack of a proper competition policy. It is also a big barrier in establishing cooperation between domestic businesses and the international environment.
In this, civic control is very important. People don’t understand competition laws: this is true for average citizens, and for top officials. Very few actually realize how important competition is for the country. Therefore, our task No1 is to reinforce the role of civil society in solving the problems of competition policy.
Zoya Borysenko is Professor of Economy. In 1993-2001, she was First Deputy Chair of Ukraine’s Anti-Monopoly Committee. After that, she taught at the Kyiv Mohyla Academy and KROK University for Economy and Law. Since 2015, Mrs. Borysenko has been Senior Fellow with the Verkhovna Rada Legislature Institute.