Wednesday, October 31, 2007

Agency for Protection of Competition Demonstrates Its Activity - follow-up

Just a follow-up to my previous post.

Viorica Carare, the General Director of the Agency, told to journalists that within half a year during which the Agency exists it received 60 claims and there have been decisions taken on 31 of them.

What regards the most famous of them (Bomba supermarket and Sun Communications) she said that she had nothing to add to the information that had been previously communicated. So, this is the very problem that I told recently. We know absolutely nothing about the Agency's activity and the way how it takes its own decisions what has led to a number of very negative reactions in media. And the head of the Agency still considers that there's no necessity to provide any additional information...

And yesterday (on October 30) there was a press-conference organized by the Foreign Investors Association of Moldova. It was stated during the press-conference that the Association had always stood for creation of the Agency for Protection of Competition. However, because of the lack of experience of the Agency's employees it has taken a series of illegal decisions and goes beyond its authority.

For instance, in summer the Agency obliged all notaries to get its approvals when authorizing all contracts of sales of shares in limited liability companies what contradicted to legislation that required such control only over the companies with a dominant position in the market.

The FIA also mentions that when determining a company's dominant position the Agency uses its own methodology that has no legal power because it has not been passed through an expert evaluation and published in the Official Monitor.* And the most serious is that the Agency tries to legalize those abuses by lobbying amendments into the Law on Protection of Competition...

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* the Official Monitor (Monitorul Oficial) - the official edition where all legal acts adopted by all public authorities in Moldova are published. Under Moldovan laws all legal normative acts should be published in the Official Monitor to enter into force.

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6 Comments:

At Thursday, November 01, 2007 1:35:00 AM, Blogger Alexander said...

FIA's reaction is nothing to be surprised of. Recall who is its chairman. You should mention these kind of things -- without them the analysis is far from complete...

 
At Thursday, November 01, 2007 1:39:00 AM, Anonymous Alexander Culiuc said...

previous comment is mine.

 
At Thursday, November 01, 2007 11:54:00 AM, Anonymous Anonymous said...

Alexander

Wouldn't the validity of the points of criticism raised by said chairman be the real issue here?

Henrik

 
At Thursday, November 01, 2007 12:12:00 PM, Blogger Alexei Ghertescu said...

Alexander, you're just partly right.

Probably, I should have mentioned that the President of the FIA is Mr. Joachim Schreiber who is also the Chairman of Administrative Board of Tirex Petrol (at least according to the FIA's web-site: http://www.fia.md/organization/). And the Agency on Protection of Competition has launched an investigation on alleged cartel agreemenet between the companies selling petrol (including Tirex Petrol). I should have probably mentioned that Sun Communications is also the member of the Foreign Investors Association.

So, all these facts may be evidence of a biased position of the FIA.

However, the FIA statements that I cited are not about someone's interests but about the general analysis of the Agency's activity that I agree with.

We still do not know anything about how the Agency operates and takes its decisions. And it's truth what was said about notaries. I faced myself a situation when a notary demanded an approval of a contract of sale of a share in an LLC. And the notary just didn't listen to any arguments that that particular contract was not subject to the Agency's approval according to the Law on Protection of Competition...

That is why I think that it's not so important to say about who are the FIA's memebers and it's much more important to notice what was said by them. In this particular situation...

 
At Monday, November 05, 2007 7:26:00 AM, Anonymous Alexander Culiuc said...

Henrik, you're right. However, Bayesian statistics tells you that if the validity of a statement is not certain (and it isn't in this case), you should weight it by taking into account other relevant information. The fact that Tirex heads FIA's board and that Sun is a very active member is relevant info and should have been presented.

Alexei, the fact that you agree with FIA’s analysis does not allow you to withhold relevant information. Are you writing an analytical piece (i.e. full disclosure is a must) or are you trying to get readers on your side at any cost?

Henrik, I agree that I should have added more substance to my comment. I’ll do it here. To me, understanding why the Agency has attacked Sun, but not Moldtelecom, is key to resolving the debate surrounding this institution. MTC's business practices vis-a-vis other telco companies, which are both its clients and competitors, are a clear example of blatant abuse monopoly power. My guess is that it MTC tops the ranks of anti-competitive behavior in Moldova (although I must admit I know much less about the country’s other oligopolistic industries).

So does the fact that the Agency hasn't touched MTC provide the strongest case for accusing the Agency of unfair conduct? Maybe. But, as far as I know (and please correct me if I’m wrong), the Agency must receive a formal complaint from a firm in the industry to start an investigation into alleged anti-competitive behavior. So could it be that there are no telco’s willing to file a complaint against MTC? If that is the case, then the situation is really bad -- MTC is so good at bullying the rest of the industry, that nobody is ready to step forward (since MTC may kill them before the Agency would come out with a verdict). In this case the Agency itself is not to blame – it’s the legislation that guides its operation that should be revised. In the US, FTC and DoJ can start investigations at will. But giving the Agency such discretionary power would be quite dangerous in Moldova (CCCEC is a case in point). In other words, refining and implementing anti-trust regulation in Moldova may be a losing (well, definitely uphill) battle…

I cannot comment much on the other cases (Bomba, sugar, etc.). However, this summer in Moldova I’ve seen on TV an excerpt from a press conference by association of oil importers (I know it’s called slightly different) which, I think, was related to their fight with the Agency. A senior person from the Association said “You must understand how the economy works. If one gas station raises the prices, the rest also need to raise prices, or otherwise they would incur losses”. Now, you don’t need to know much economics to understand that the guy hasn’t got a clue about basic economics (and I mean really basic), and that his explanation is pure bullshit. And if this explanation is bullshit, could it be that the Agency’s explanation for high oil prices (cartel agreement) is correct?

I’m not trying to take sides here, just trying to put things in perspective. I’m sure the Agency lacks qualified personnel (anti-competition regulation in the US and the EU is very econ-heavy, and there is not a single economist in Moldova with the necessary expertise), is stretching itself too thin over too many cases (esp. given limited human capacities), and is very likely to be used as a weapon against “politically-incorrect” firms. But none of this means that all the cases the Agency has initiated are groundless, or that the Agency holds a monopoly on ignorance and biased positions.

Full disclosure (I guess I should practice what I preach): Viorica Carare was my professor at ASEM and, for two years, I was part-time university assistant at the Chair of Management that she headed at the time.

P.S. Wow… A full page of text… Maybe I should translate this and publish on my own blog…

 
At Monday, November 05, 2007 5:08:00 PM, Blogger Alexei Ghertescu said...

Alexander,
"The fact that Tirex heads FIA's board and that Sun is a very active member is relevant info and should have been presented"
Is it? The essence of the cited statements made by FIA is not related to both companies.

Certainly, the interest of the FIA could be aroused by the fact the those two companies are its memebers. And then the real purpose of the press-conference was not to attract attention to the Agency's activity (as such) but rather to protect its own members "under the mask" of apprehension of the current situation.

However, I agree with those statements not because I want to agree with them or because I represent either of the parties. In my previous comment I explain my reasons...

As to your second point on MTC. There is another Agency (National Regulatory Agency in Telecommunications and Informatics) that used to engage with MTC's activity. Probably (but it's just an assumption) the Agency on Protection of Competition decided not to intervene and to let the specialized Agency on telecommunications to deal with them. Or, what is more possible, it simply didn't want to deal with MTC...

As to the argument that the Agency can not proceed without a written complaint from another company let me correct you slightly. Under the Law on Protection of Competition the Agency may launch an investigation either upon a complaint from a third company or a public authority or upon its own
initiative relying on the documents and information it has got. So, even without any complaint the Agency has the right to intervene...

 

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