• Timur Bondaryev

    Managing and Founding Partner, Arzinger

     

  • Anastasia Panchak

     Lawyer, Arzinger

Arzinger

ADDRESS:

Senator Business Centre,

32/2 Moskovska Street, 10th Floor,

Kyiv, 01010, Ukraine

Tel.: +380 44 390 5533

Fax: +380 44 390 5540

E-mail: mail@arzinger.ua

Web-site: www.arzinger.ua

 

Arzinger is an independent law firm headquartered in Kyiv which has regional offices in Western and Southern Ukraine, in Lviv and Odesa, respectively. Arzinger for over 17 years has been among the legal business leaders providing high-quality legal support to clients throughout Ukraine. Among the firm’s clients are top representatives of international and local business.

Arzinger follows high standards of legal services and is a reliable partner in view of its great experience in a wide range of industries and legal practices: M&A, corporate law, real estate and construction, antitrust and competition, white collar crime, dispute resolutions, litigation and arbitration, tax, banking & finance, anti-corruption compliance and business ethics. We serve clients operating in the energy and natural resources, life sciences, agriculture, food & beverages, telecoms & IT and other industries.

Arzinger employs highly-qualified professionals with vast hands-on experience in a wide range of legal matters, deep knowledge and understanding of the local market, international education and background. The firm has a team of over 70 seasoned legal professionals led by 8 partners. All of them are acknowledged among leading experts on the Ukrainian legal market and are recognized by reputable international and local rankings. As a result, Arzinger can offer extensive legal assistance to effectively support a variety of complex and challenging transactions, including cross-border matters. The firm renders tailor-made legal services of unsurpassed quality to meet the client’s expectations.

Arzinger cooperates closely with legal advisors from numerous jurisdictions and is a member of international professional organizations, enabling it to engage colleagues from various jurisdictions in cross-border transactions and so provide clients with top-level professional legal advice.

 

Ukrainian Antitrust Enforcement — the Year 2019 in Review

The outgoing year was, without doubt, an eventful one for Ukrainian antitrust enforcement due to the number of record fines imposed by the Antimonopoly Committee of Ukraine. Over the past year, the AMCU imposed the largest ever fines for cartel conduct, acquisition without prior merger clearance, and bid rigging. Furthermore, 2019 provided a strong signal that in addition to big fines, the AMCU is developing its approaches to structural remedies. For example, via the divestiture of business.

Here is a brief overview of high-profile cases in 2019 and our expectations for 2020.

 

Abuse of Dominance

Fertilizer case. In September 2019, the AMCU accused the Ostchem Group, including three nitrogen fertilizer manufacturers — Azot PJSC, Rivneazot PJSC, and Severodonetsk Azot Association PJSC, and its trading company — NF Trading Ukraine of allegedly abusing a dominant market position in the period of 2014-2017. The AMCU found that the companies systematically overpriced intra-group prices for natural gas and suspended the manufacture of fertilizers. The AMCU not only applied the statutory maximum fine of around EUR 3.9 mln. (UAH 107 mln.) on NF Trading Ukraine, but also issued an order to divest the manufacturers. It will be considered a landmark decision since the AMCU has not applied such a remedy since 1995.

Gas case. At the end of 2019, the AMCU fined 16 regional gas supply companies for a total sum of about EUR 10.6 mln. (UAH 278 mln.). The AMCU accused the gas companies of allegedly abusing dominance on the market of distribution and supply of natural gas to domestic consumers. The AMCU found that the gas companies overpriced local consumers and, as a result, it obliged these companies to provide  consumers with re-calculated volumes of consumption (distribution) of natural gas.

 

Anti-Competitive Concerted Practice

Tobacco case. In October 2019, the AMCU imposed the largest fine in Ukrainian history, for a total of about EUR 240 mln. (UAH 6.5 bln.) for anti-competitive practices. The AMCU found that the four largest tobacco manufacturers — Philip Morris, Japan Tobacco International, Imperial Tobacco, and British American Tobacco and its distributor — Tedis Ukraine — allegedly engaged in collusion aimed at preventing companies from entering the cigarette distribution market. This decision logically followed the AMCU case against Tedis in 2016. To recap, the AMCU imposed a fine of about EUR 15.9 mln. (UAH 429 mln.) on Tedis Ukraine for abuse of its dominant market position in the distribution of cigarettes. It is worth noting that the AMCU keeps an eye on the Ukrainian tobacco market, and new recommendations aimed at enhancing vigorous competition between cigarette distributors were issued at the end of 2019.

Petrol case. In May 2019, major fuel retailers WOG, OKKO, and Socar were fined about EUR 2.6 mln. (UAH 77 mln.) for alleged parallel pricing. The AMCU found that fuel retailers concertedly set and maintain similar prices on high-octane petrol and diesel fuel. The fuel cartel case is not a new one for Ukrainian antitrust enforcement. A reminder, in 2016 key players on the retail fuel market were fined the largest fine at that time, about EUR 7.3 mln. (UAH 204 mln.) for a similar offense. Furthermore, in 2018 the AMCU imposed a fine of around EUR 1.3 mln. (UAH 41 mln.) for parallel pricing on the LPG market actors. The Ukrainian antitrust regulator pays special attention to the fuel market; therefore, new recommendations were issued by the AMCU aimed at setting justified prices on high-octane petrol and diesel fuel at the end of 2019.

 

Gun Jumping in Merger Control

In 2019, the AMCU imposed the two highest fines in its history for acquisitions without prior merger clearance. The first fine of about EUR 1.9 million (UAH 58 million) was imposed on Senalior Investments LTD, part of the DCH industrial group. The AMCU found that the company acquired one of the biggest manufacturers in Ukraine of cast iron, coal coke, and coke chemical products without prior approval from the Ukrainian regulator. Having imposed the fine, the AMCU then approved the transaction.

The second fine of EUR 1.9 million (UAH 55 million) for a similar offense was imposed on Blossom Investments, part of the TAS investment group, for the acquisition of Dniprometiz PJSC, a leading Ukrainian manufacturer of steel wire, nails, fasteners, nettings, etc.

 

Bid Rigging

In 2019, a large part of the AMCU’s enforcement activities were traditionally focused on investigating anti-competitive practices in public sector procurement. In April 2019, the AMCU imposed the largest fine to date, EUR 28.6 mln. (UAH 869.3 mln.) on 22 companies — all participants of food service procurement tenders held by the Ministry of Defence of Ukraine. The AMCU found that companies synchronously withdrew their cheaper tenders, which allowed four firms to receive the highest price contracts for a total of about EUR 66.6 mln. (UAH 2 bln.).

 

Conclusion and Outlook

2019 in a nutshell. The year 2019 demonstrated that the AMCU follows global antitrust trends, and each new investigation is performed at a high level. The fines imposed by the Ukrainian “antitrust watchdog” reach a record high with each new high-profile case. The sum of penalties imposed by the AMCU in 2019 compared to 2018 varied significantly: EUR 8.74 mln. (UAH 277 mln.) in 2018 and around EUR 329 mln. (UAH 8.7 bln.) in 2019. The AMCU closely monitors compliance with Ukrainian state legislation regulations adopted in Ukraine in 2017. Big cases are absent to date but are expected in the near future since new major probes by the AMCU were initiated recently.

Antitrust litigation trends. Compared to recent years, Ukrainian commercial courts are demonstrating more profound knowledge of antitrust law, basics of economics and the business process. The latest trends show that Ukrainian courts adopted decisions mainly in the AMCU’s favor, which is evident when taking care of the welfare of consumers.

Competition Law Reform. The new draft law on reform of competition legislation was registered at the Ukrainian Parliament at the end of December 2019. The most progressive provisions in the bill are establishing the High Court of Intellectual Property and Economic Competition and providing it with powers to analyze the market and its boundaries, determine a dominant market position and reduce or revoke fines imposed by the AMCU. The draft also provides for other significant changes, in particular, settlement procedure, leniency program, class action defense, etc. Once the bill is adopted, Ukraine will have aligned Ukrainian competition law to EU standards. Thus, significant changes are expected soon for Ukrainian competition law enforcement.

AMCU market priorities for 2020. We expect the AMCU’s targets to be the energy, oil & gas, transport, retail, and pharmaceutical markets, airport & seaport services, as well as the agricultural sector in 2020.

Recommendations for business. In light of the above, it is increasingly important for both local and international businesses to ensure compliance with Ukrainian antitrust laws. Based on the key lessons of 2019, here are some hints on how to avoid potential antitrust laws violations. Firstly, distribution relationships should be an issue of major attention since the AMCU has been keeping an eye on this for several years. Secondly, before acquiring companies, the appropriate antitrust audit should be performed due to the AMCU’s approach of looking into merger control relationships since the time of its establishment. Last but not least, at the very early stage of investigations, a strong legal position, along with in-depth economic arguments, should be performed before the AMCU without waiting for the regulator’s final decision.