The event featured Vice President for Economic Education, Associate Professor of the Kyiv School of Economy Oleh Nivyevskiy, Ukrainian lawyer and Authorised Government Official of the Antimonopoly Committee of Ukraine in 2015-2019 Aghiya Zahrebelska and was moderated by CASE Ukraine Executive Director Dmytro Boyarchuk.
Keynote points of the discussion and abridged expositions of speaker reports are published below.
Keynote Points:
The antimonopoly policy envisages protection of democracy and national security.
The fact that more than 50% enterprises in the economy of Ukraine are state-owned (present in 15 out of 28 sectors) and some 60% enterprises are related to politically exposed persons or oligarchs further complicates the implementation of the antimonopoly policy. The economy of Ukraine is in the firm grip of the government and oligarchs.
The performance of the Antimonopoly Committee of Ukraine is measured by its independence. It is necessary to provide the AMCU with law enforcement function to ensure efficient implementation of a competitive market policy in Ukraine.
The Antimonopoly Committee is the key national regulatory authority commissioned to protect competition, ensure stable development and economic sustainability.
The antimonopoly policy will not perform with the reform of the judiciary.
There are the three ‘pillars’/factors – independence, functional capacity and civic involvement – that need to be simultaneously implemented for the Antimonopoly Committee to operate as intended.
It is necessary to ensure the maximum possible divestiture of the economy and to minimise the number of enterprises with dominant market positions. For this, the antimonopoly reform should be carried out first-hand.
Transcript of discussion (for the full video of discussion please follow the link )
– How important is the antimonopoly policy for successful growth of the economy?
Aghiya Zahrebelska
I wouldn’t start with cliches know to everyone: competition between businesses, quality, price… I would rather try going a bit higher and mention democracy first. Maybe, not everyone will be able to make a bee line connecting the antimonopoly policy and democracy; still, as a former U.S. President[1] once mentioned it, if we will not endure a ‘King’ as a political power we should not endure the King on the market.
Every time we have a king on the market, that is, a monopolist, he at some point turns a king at power – an intrinsic, quite expected and logical outcome. This way a vicious circle is created when first a monopoly emerges to bring super-profits, then the money are used to acquire media outlets and political projects in order to keep the monopoly, protect it from competitors and also from investigations, specifically, by the Antimonopoly Committee.
The antimonopoly policy is, first of all, about democracy and its protection, and secondly, about the national security. It is important that there are no monopolists in the country as they affect the national security. The Gazprom story in Europe shows a direct connection between monopolies and the national security. We were able to witness it also in Ukraine when the loss of a monopoly led to lines at petrol stations (nearly all of the fuel imports were from Russia or Belarus, and the domestic production in Ukraine was also a monopoly).
Thirdly, it is about the future: if we want one, we need will have to have an antimonopoly policy. Monopolies close the market making it a time capsule; the market stops developing, sees nothing new and has no motivation for making anything new. We can use Russia as an example of a narrow-minded antimonopoly policy, the dominance of monopolies and the presence of oligarchs when domestic production sectors are stuck in the past century and everything related to future is brought from abroad. This is the well-being of middle-class citizens because a monopoly is always about increased prices.
When the antimonopoly policy is not working, the monopolist can abuse its position, which is about the life quality. The competition pushes businesspersons to compete producing better products and bringing more satisfaction to customers. When we have monopolies and cartels able to collude or subject employees to untenable payment conditions, when an employee has no choice but to continue, this eventually leads to emigration.
When there is competition in the country, entrepreneurs compete and become stronger and further conquer international markets. This is about country’s competitiveness on the international arena: the more competitive a country is, the stronger negotiation position it has regardless of circumstances.
This is what the antimonopoly policy is all about. It would be wrong for us to regard it solely in terms of the price on fuel or utilities; we have to have a wider view because the antimonopoly policy affects everything we see around, all aspects of our life.
– Are there examples of an efficient antimonopoly policy? The judiciary is now all the rage while the antimonopoly matters still remain narrowly specialised ones. Why so little attention is still being paid to the issue?
Oleh Nivyevskiy
We all try to do something to make our economy as competitive as possible because it will mean greater well-being for the public and the economy in general, more investments and better productivity. On the other hand, monopolies have the right to exist too because, from the economic standpoint, vertically integrated structures offer benefits – for example, the economy of scale or that that of density. Surely, the performance is lost, which is proper primarily for the controlled monopoly where the economy of networks – transport, natural gas supply, power or water supply, utility services – exists in the country or in a certain area. It is important that the status of such enterprises prevents any misuse. The antimonopoly legislation says the monopoly is a bad thing but it is the abuse of one’s market position that is bad indeed.
The situation with concentrations and non-competitive environment has been complicated because of state-owned enterprises and those linked to certain individual politicians or oligarchs. It has been historically so that many enterprises following privatisation fell into the hands of powerful oligarchs. The share of state-owned enterprises in Ukraine is rather large making, according to recent surveys, more than 50% in 15 out of 28 economy sectors. This considerable presence of state-owned enterprises in nearly a half of the sectors is too much. More than 60% enterprises are linked to PEPs or oligarchs. The economy of Ukraine shows symptoms of power and monopolisation.
One example is a survey in which the sectors with certain concentration of oligarchs were compared with those without oligarchs. The total productivity factor showed the sectors with such enterprises present demonstrated 4-10 percentage points less productivity increase. When the private enterprises without oligarchs generally demonstrated a 10% growth, the enterprises with oligarchs present showed a growth rate of 6%. This is a big difference. The productivity increase can be generally extrapolated to the GDP growth rate. That is, such an economy means we are losing on economic growth.
More real-life examples can be found, e.g., in the agricultural sector. If a decision were made in due time to allow any trade in the sector only if via the State Food and Grain Corporation of Ukraine (SFGCU) with its large share on the agricultural asset market (the company owned up to 10% grain silos, two sea ports and enjoyed preferential treatment of rail transport), one can only imagine what kind of the agricultural sector we would have now. The SFGCU is now deep in debts and there have been multiple discussion about privatising it, though without success.
Are there examples of efficient antimonopoly investigations? I can hardly remember successful examples now. There was a lot of discussion about the mineral fertiliser market and Dmytro Firtash’s OSTCHEM corporation last year. In 2019, the Antimonopoly Committee made a decision to unbundle the company; however, the company was able to defend itself in courts successfully appealing AMCU’s decision and having it cancelled.
The antimonopoly policy or the competition policy in Ukraine need to be viewed systemically. It is not only about how the Antimonopoly Committee operates but also about the whole regulation. The privatisation programme is being regularly stifled. It is necessary to privatise as many state-owned enterprises as possible to reduce their share. This will help to solve some of the issues related to the excessive concentration in certain economy sectors.
The Antimonopoly Committee of Ukraine is working and we regularly witness some investigations. On the one hand, the question is how efficient the institution currently is, how much authority does it have, how independent it is from the President and the Verkhovna Rada. These are questions yet to be answered. There are many discussions about how to make the AMCU financially independent, how to add to it the law enforcement function for the Committee to efficiently perform and ensure the competition policy in Ukraine.
– How efficient is the antimonopoly policy in Ukraine?
Aghiya Zahrebelska
The Forbes list and Ukraine’s place in the world competition index attest to the efficient of the antimonopoly policy. Everyone in the audience, the listeners – even sixth-graders – understand the antimonopoly policy in Ukraine is not efficient. There are objective and subjective reasons for that. Objectively, Ukraine has been independent for 30 years, which is not that long – the first anti-trust law was adopted in America more than a hundred years ago. We find it hard because of the Soviet past when there was no market economy and a businessperson was deemed a crook.
During the four years of my work in the Antimonopoly Committee I was challenged by government officials, many of them not understanding the importance of competition at all. They thought of it as a gimmick demanded by Western partners that is not really necessary because a better statist decision would be to hand-pick a contractor or to entrust a company with a certain function. It is necessary to develop consciousness, or rather, an understanding of what the market economy really is.
Speaking of the Antimonopoly Committee as a key national regulatory authority, its function, besides the protection of competition and growth, also includes the provision of sustainability of the economic policy. When the economic policy remains and continues regardless of changes of presidents, parliaments and cabinets, investors understand it. Obviously, the Antimonopoly Committee fails to perform the function.
Independence, ability to perform its function and public involvement in the policy are the three factors that the Antimonopoly Committee does not have; they are the three pillars of a future reform of the antimonopoly policy of Ukraine.
Concerning independence, the system of appointing and dismissing the top management of the Antimonopoly Committee leaves much to be desired. For example, in the past seven years not a single Antimonopoly Committee member was able stay full term in his/her office. Throughout the history of the Antimonopoly Committee not a single member has been ever appointed via a transparent and competitive procedure. The latest nominations – particularly, the batch I was a part of – were people who had no clue as to why they ended there, how they were selected and what the criteria were. A great part of the Antimonopoly Committee, already not the first set of members, had had no relationship to the antitrust policy before their nomination. Consequently, such people are very easy to manipulate by oligarchs or others.
Add here financial and political independence. I can tell from my own experience: when you make decisions that the Ministry of Finance or the State Treasury are not happy with, or regarding which you had a call from the chair of the Parliamentary Budget Committee, you clearly understand you may be left without office paper, working printers or even salaries come tomorrow. This means the Antimonopoly Committee has problems with independence and needs it.
When politicians are in charge of the competition authority, however supergood and honest they are, they will harm competition anyway. The task of a politician is to think about jobs, regional development, big business, the political goal he/she has to reach. The AMCU has to be has to be that scarecrow that will say ‘No, you may be able to reach your short-term political goal but it will harm competition and we will be feeling the ripples for years.’
Speaking about capacity, it is necessary to mention investigative powers. The Antimonopoly Committee is really short of authority. Law offences in the antimonopoly policy domain are those mostly committed by giant companies with legal departments occupying a dozen of stories in the office centre and a security service taking up another dozen floors. These are the people who work to make sure the activity remains under the radar; they use conspiracy and complex schemes to bypass laws. There are just five at the Antimonopoly Committee against them; the five responsible for energy markets: electricity, natural gas, fuels etc. How this handful may fight Kolomoiskyi, Akhmetov, Firtash and the rest with their armies of lawyers?!
How do they resolve the matter abroad? Surely, it is not possible to compete with such big financial and industrial groups having that little staff – but you can involve experts. The competition authorities worldwide spend big money on third-party experts, that is, they are able to pay thousands – tens, hundreds of them – of Euros or dollars to an independent expert to have him make the necessary analysis.
The Antimonopoly Committee of Ukraine has not seen a kopeck for expert assessment in more than a decade; there is no such expenditure item at all. Are we really in a position to request something from the competition authority in such circumstances?
Regarding public involvement in the antimonopoly policy: the topic is really not popular and still rather alien. People feel no results of the antimonopoly policy in their lives. E.g., whenever the U. S. competition authority corners a company of some monopolist, tens of thousands of consumers immediately line up to courts with class action suits to compensate damages. There is a whole industry of law offices and counsels to represent plaintiffs’ interests; they are receiving fees in case of success so the consumers do not have to pay anything. The companies gather a large group of consumers, win the case and claim triple fee from the damages, which amount to millions of dollars. There is no such infrastructure in Ukraine at all. There is a rather interesting story developing on our legal anti-trust market when all the companies are actually defending the delinquents. That is, we have no law offices defending consumers because the system is inoperative and lawyers cannot earn their money. This is what we have to repair.
The Kyiv District Administrative Court may block any investigation. It is a nonsense. Kolomoiskyi, Akhmetov or any other from the Forbs list need not to strain themselves and negotiate resolution, they can simply get an interim remedy injunction and stop the investigation. Cases remain blocked and lose relevance in a year; oligarchs refine their schemes and hide evidence and documents. Without the judiciary reform, the antimonopoly policy will remain inefficient.
This is exactly the situation with OSTCHEM; it is a pity the decision was thrown out. It makes the second case of enforced unbundling in the history of the Antimonopoly Committee, the first one was on the Donetsk Dairy Plant in 1990ies. The key reason for cancellation is the problem with market definition. The Antimonopoly Committee defined markets as of 2017 but the decision was adopted in 2019. When a decision is being made about enforced unbundling of a monopoly, it should be written there it was a monopoly in 2019. It is a problem of professionalism. It is very challenging to have a dream team in the AMCU.
– What should we start with? How should we proceed and how to make a quality antimonopoly policy?
Oleh Nivyevskiy
Firstly, it is a long game, there can be no changes overnight. Like with all previous stories of reforms, nothing will happen in Ukraine without external influence. It is a real challenge to reform oneself from the inside. I do hope the strife to become an EU member will greatly help us to move towards normal practices and powerful, capable institutions.
Secondly, it is about institutions’ capacity to operate, think of the AMCU. As I represent a university, I will be talking about education as the foundation for any capable organisation. Making researches professionally requires some nice education.
Russell Pitman teaches antitrust courses every two years t the Kyiv School of Economics. The course is rather popular with students as many of them have worked at the AMCU. Plus, the other education we provide helps performing high-level economic market surveys.
Such institutions are few and between in Ukraine. We need to build a culture of right education when students yearn for grades that correspond to their progress. It is already about an education reform. Everything is connected; it is necessary to achieve qualitative changes in institutions dealing with the competition policy. Integration into the European Union and education are two fundamental things that we need to do and achieve.
Aghiya Zahrebelska
Integration and education are very important but when it comes to consistency, this is really not an office of simple solutions; it is impossible to wake up and find everything working as it should. This is a system and if we want the antimonopoly policy to serve Ukraine for a long time, then we have to spend quite some time to build it.
It is impossible to carry out the reform of the Antimonopoly Committee consistently. If we now achieve the independence of the committee without giving it authority nor ensuring its capacity, then we will quickly discredit these people in general because they will not be able to produce results without required powers.
If we now only provide capacity and independence without involving the society in this, then we will have a “war” between the Antimonopoly Committee and the oligarchs. When an oligarch with TV channels and political influence it has attracts the society to his side – which happens quite often – then people based on incorrect manipulation information will begin to defend not the one who launched the ‘crusade’ against oligarchs but his own business.
If society is not going to get involved there will be no defender of the Antimonopoly Committee. It is necessary to create an army of Ukrainian nationals and their lawyers who will understand they will all be compensated, and promote the truth via all possible platforms. Then there will be a result.
Therefore, the reform of the Antimonopoly Committee involves doing these three things at the same time. If we separate them in time, we will get a result when there is one body but the other one is not there; then another one appears that was created two years later. Then there is public dissatisfaction and frustration, and the reputation has already been destroyed, and when the body feels no support from the society its leader begins looking for support from politics, and statesmanship positions and decisions emerge.
Oleh Nivyevskiy
Maximum privatization – denationalisation of the economy is needed so that there are no enterprises with the dominant position on the markets.
Aghiya Zahrebelska
Only it is necessary to carry out an anti-monopoly reform first followed by the privatisation, because otherwise the privatisation will be done by same ‘wonder’ guys in the country with non-performing antimonopoly policy. An investor will not come where there is no antimonopoly policy or judiciary reforms. Privatisation needs to be done, but the conditions should be prepared for it.
– Monopolies prevent the market from growing. What do we do then with natural monopolies: why are they here and how do they affect the market?
Aghiya Zahrebelska
Yes, there are markets that cannot be competitive at all or whose functioning in competitive condition will not be efficient. There is an exhaustive list of them; there really are not that many of natural monopolies. They need to be regulated and it is for this exact purpose that special regulators are been created on each market where a natural monopoly is formed.
If our railway is a monopoly, there should be a transport regulating authority. It has not been created in Ukraine yet and its function is performed by the Ministry of Infrastructure. If, for example, it is about water supply or other utility services, it is the National Regulatory Commission (NERC). The function of the regulatory authority is to substitute the competition.
This is why we are trying to make competitive the maximum number of markets in order not to end up with an army of bureaucrats that will be standing next to these monopolies and telling them how they should operate. This is bad, of course, but unfortunately, there is no other option for natural monopolies.
– Is it correct to say the artificial monopolies – oligopolies – are supported with corruption ties of monopoly owners?
Oleh Nivyevskiy
Essentially, the anticorruption activities do not equal the antimonopoly ones. Monopolies can exist, there can be reasons for them in certain conditions, and there is no anticorruption here. The question is rather whether they are abusing their position. A monopoly cannot be overcome by anticorruption; it can be corrected, but it is not the cure for the disease.
– You are suggesting to grant the Antimonopoly Committee the law enforcement function, specifically, to use force. How the control over Antimonopoly Committee’s operation will change? How to guarantee it will not turn into a legal racket in a matter of years?
Aghiya Zahrebelska
First of all, the Antimonopoly Committee is under the control of the president and reporting to the parliament – this is what the Law on AMCU says. As regards the law enforcement powers, I would like to clarify here this can be implemented in two ways: by granting investigative powers to the Antimonopoly Committee or by better spelling out the interaction between the Antimonopoly Committee and the body with the investigative powers so that it would conduct searches or other actions qualifiable as the investigative ones together with the Antimonopoly Committee.
As for protection, usually, when a body is granted an additional right or power, it should go hand in hand with an obligation. If we grant the Antimonopoly Committee the powers identical to those of investigators, we will also have to impose on it the obligations that will be identical to those of these bodies. We will have to have due regard to the mistakes the society has already faced, where it all breaks down and does not work, and to make good for them through the judicial control, oversight by the society, personal responsibility, compensation for damages, transparency and independence.
– There is a popular public opinion that, rather than privatising, we should be putting in order state-owned enterprises. What do you think about it?
Oleh Nivyevskiy
There is a consensus that the private sector better copes with its functions than the public one. The work of companies in Ukraine clearly proves this. State or monopoly structures may exist but the private sector shows greater efficiency. I will again give an example of a grain enterprise, DPZKU: there were many discussions around but now it is constantly in red and cannot be sold and there is a hanged Chinese loan.
When we ask who works better – a private or a state structure – the answer is unequivocal: it is the private one. As for ‘scattering’, it is necessary to talk privatisation here. These two concepts should not be confused.
[1] Це сказав сенатор Д. Шерман, який не був президентом США. (прим. перекл.)