Thursday, October 25, 2007

Agency for Protection of Competition Demonstrates Its Activity

Introduction.

As my permanent readers know I periodically recur to the issues related to development of competition law in Moldova and activity of the newly created National Agency for Protection of Competition. A lot of different opinions have been expressed since February this year when the Agency's Board members were approved. For several months there were almost no information on its activity. However, autumn showed that the Agency is not going to remain a mystery anymore. In September-October period the Agency adopted several prominent decisions that have attracted significant attention and raised a lot of questions.

Orange.

The first decision that attracted media's attention was the declaration of Orange-Moldova as a mobile operator holding a dominant position in the market. The former Voxtel company renamed in spring 2007 into Orange - an internationally known brand name - according to the official data takes a market share of 64.5 % as to the number of clients and 70 % of the number of transactions.

Further developments.

After Orange it looked that the Agency was going to examine the cases of other companies that took dominant positions in their respective markets like Union Fenosa or Moldtelecom. However, this wasn't the case. Instead of being engaged in getting things put in order in noncompetitive market (fixed telephony, energy, etc.) in the end of October the Agency fastened its eyes on some other areas that resulted in a number of "loud" decisions and actions:

1. Sun Communications.

The Agency took a decision to fine the Sun Communications company, the largest cable TV operator in Moldova, to the sum of 2.5 mln lei (about USD 220 thousand). According to the General Director of the Agency (cited by the Infotag news agency) the Sun Communications with the help of the Acces-TV company intended to oust its competitor - the CTC-Alfa company out of the Chisinau market.

A 30-thousand fine was imposed on Acces-TV. The amount of penalties was determined following the companies' profits.

The Sun Communications' representative stated that the Agency's accusations harmed the image of the company. At the moment the decision is studied by lawyers and the Company reserves its right to appeal against it to a competent judicial authority.

2. The supermarket "Bomba".

The "Bomba" supermarket is one of the leading retail chains of electric household appliances. It was fined by the National Agency for Protection of Competition to the sum of 9 mln lei (about USD 780 thousand). According to the Infotag agency the ground for the Decision was the fact that the company having got the authorization to open only one outlet in Chisinau in fact has opened 7 shops in the capital and 1 in Balti thereby violating the Law on Protection of Competition. The Agency also mentions the lack of an agreement between the main shop, to which the authorization was granted, and other shops of the chain.

The just mentioned decision was followed by some accusations in media that it had been "stimulated" by a big Ukrainian retail company being alleged to clear the market away.

3. The Union of Sugar Producers of Moldova.

Within the same period of time the Union of Sugar Producers of Moldova (hereinafter - the Union) accused the Agency of attempts to discredit the organization and put it under pressure, as well as of blockading the organization's activity for 5 months. According to the Union's statements the Agency has not examined since May 18 its application to review the new version of the organization's articles of associations.

Despite the fact that the application was annexed with all documents provided by law the Agency required to present additional documents, financial and statistical reports that had nothing with the application's subject-matter. The Deputy General Director of the National Agency stated for the media that the Agency may demand the liquidation of the Union because the presented documents contain certain evidences of violation of fair competition rules, in particular, the amendments to the articles of association that provide creation of a special aid fund for enterprises.

According to the Union the actions by the Agency are provoked by the Union representatives' participation in examination of the new version of the Law on Protection of Competition, who repeatedly pointed out that the amendments elaborated by the Agency do not conform to democratic and market principles.

Reflections and Conclusions.

So, as you see the activity of the Agency so far has been fairly controversial. And it has prompted a number of questions and ruminations about the prospects and problems related to the Agency's future activity:

1. Lack of information.

So far, I think the main problem about the Agency has been the lack of information about its activity and decisions adopted by it. The general public still knows very little about the above mentioned controversial decisions. No access to the texts of decisions, no information about the facts and grounds following which those decisions have been adopted and evidences that support the facts.

The involvement of competition authorities into companies' activities may have a very significant impact upon the whole economy. This impact may be both positive and negative. Taking into consideration that the very notion of fair competition and antitrust regulation is very new and uncommon for Moldova any action of the Agency may have a deep resonance in society and cause very negative reaction even if the actions of the Agency would be legal and sound.

And this is actually what has happened. The Agency's decisions were quite shocking both because of the amount of penalties imposed on companies (that are really huge for Moldova, and the Agency has not still explained why the penalties are so big and how they have been calculated) and because of the lack of information about the facts and evidences.

Therefore, the Agency must explain in details almost every step it takes. Only in such conditions there will be enough confidence in legality of the Agency's actions and a high level of transparency will be secured. At the moment the transparency is probably the Agency's weakest point.

2. Inconsistency.

The second problem that follows the first one is inconsistency in the Agency's activity. After the declaration of the Orange's dominant position it could be expected that the Agency would attend to the natural monopolies' activities.

As I previously stated it wasn't the case. Instead of this the Agency placed the emphasis on particular cases of alleged violations. I'm not saying it should not have done this. What I say is that it looks (at least for me) a bit inconsistent. And consistency is crucial at the moment for the Agency as it is only in the process of building its reputation. By the moment the Agency seems to have started with a series of scandals what is probably not the best way of creating a trustful image.

3. The prospects for the nearest future.

The way the Agency started its activity may lead to two different conclusions: it was either lack of experience (what is normal and can be changed in the nearest future) or their actions were a result of negligence and lack of professionalism (what is much worse).

I'm not saying here about the allegations that the Agency lacked impartiality when adopting the above decisions. I cannot assert it without any strong evidence. However, the activity of the Agency must be improved in order to avoid such allegations in future (or at least to diminish grounds for them). I also hope that the Agency will not turn into another source of collecting funds for the public budget by imposing huge penalties. We do not need another "tax inspection".

What is evident is that in the nearest future the role of the Agency may become very important in regulating the Moldovan market. The business community will face the necessity to follow the Agency's instructions that may be both complicated and strict. A number of disputes and litigations may as well arise as a result of the Agency's decisions. That will definitely send a challenge to lawyers working in the field of business law. The legal professionals in Moldova are not still used to notions and regulations of competition/antitrust law and the ones who will get used to them will definitely have certain market advantages...

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4 Comments:

At Thursday, October 25, 2007 7:52:00 PM, Blogger Artur said...

Good point. Another question is that the Agency coul be used as an instrument against the bussiness sector that don`t support the politic power. I saw some articles in media about those companies directors, they are "former" donors for the communist party...

 
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