Competition Practice Newsletter (Issue 3, 2014)

Improved competition and antimonopoly policies planned for the electrical and railway transportation industries

The Ministry of Energy and the Ministry of Transport have prepared plans to improve competition and antimonopoly policy in the electric power and railroad industries, respectively.  These plans will implement the "road map" Development of Competition and Improvement of Antimonopoly Policy, which was approved by Decree of the Government Number 2579-r on 28 December 2012.

The plan for the electricity sector includes;

• enactment and clarification of procedures to define dominant position in the electric energy and power market;
• amendments to the rules for the wholesale market for electric energy and power; and
• preparation of a project concept to create models of competitive retail markets.

The action plan for improved antitrust policy in railway transport provides:

• improvement of the technological models to manage freight traffic through the introduction of effective fleet control technology for multiple operators of rolling stock;
• implementation of measures to create local carriers;
• development of competition in the passenger transportation sector in order to improve the quality and accessibility of passenger rail services;
• modernization of public railway infrastructure by attracting private investment; and
• a legal framework to assure the security of railway transport functions.

News from the courts

The Supreme Arbitrazh Court rules against the Moscow Notary Chamber in its challenge to an FAS instruction on unannounced inspections.

The court found that the notaries of Moscow were not able to prove the illegality of an instruction by the Federal Antimonopoly Service (FAS) that had ordered them to submit to an inspection of their activities with respect to an alleged cartel agreement on rendering legal and technical services.

The court pointed out that the FAS order was not appealable by the notaries because the order was not in violation of antitrust laws, did not prejudice any alleged specific violators, and did not cause any negative consequences for the examiners.

Earlier in 2013, the Moscow Arbitration Court and the Ninth Arbitration Court of Appeal had invalidated the FAS order for an unscheduled inspection of notary chambers in the Moscow region to identify any evidence to support an allegation of an unlawful cartel. The Federal Arbitration Court of the Moscow region overruled the lower courts' decisions and dismissed the case due to lack of a legal grounds for appeal.

At the beginning of April 2014, the FAS initiated the first case against notary chambers in several regions in Russia, accusing them of violating Article 11 of the Federal Law 135-FZ of 27 June 2006, On protection of competition (hereafter, the Competition Protection Law.)

Cassation court sides with FSC EES in fines mitigation dispute against the FAS.

The Federal Arbitrazh Court of Moscow District has affirmed the mitigation of fines imposed by the FAS upon FSC EES OSJC, reducing them from RUB 249 million to RUB 100,000.

In April 2011 the antimonopoly authority cited FSC EES for a breach of Article 10 of the Competition Protection Law, arising from a sub-lease  of power grid facilities, owned by Gasprom Energo LLC, which is a part of integral national power system.

The courts indicated that antimonopoly authority referred to the incorrect market in calculating the fines, and ordered a reduction  under the provisions of Article 14.31 of the Administrative Code. 

Cassation court upholds the FAS decision on concerted acts in the soft cable compound market.

The Federal Arbitrazh Court of Moscow District has ruled in favor of the FAS and inferior courts, dismissing the cassation appeals by Sibur-Neftekhim OJSC, SIBUR Holdings, Sibur LLC, Sayanskkhimplast OJSC, Soda OJSC, and Bekborn LLC.

In 2004 the antimonopoly authority had found that the companies in the wholesale market for cable compounds had concluded an unlawful agreement, in violation of Article 11 of the Competition Protection Law, which led to price fixing and division of the commodity market in terms of quantity sales and customers.

The Federal Arbitrazh Court ruled that the companies' arguments were groundless.

Court of Appeal upholds the FAS ruling on the Alaska pollack cartel.

The Ninth Arbitrazh Court of Appeal has agreed with the position of the inferior court and the FAS, which found 21 fishery companies from the Russian Far East guilty of establishing a cartel to restrict the fish capture level.

The FAS found that the 21 companies were guilty of a violation of Article 11 of the Competition Protection Law and assessed administrative fines of more than RUB 120 million, under Article 14.32 of the Administrative Code.  

The companies involved in the case included Ayan, Votokriprom LLC, Dalvest LLC, Sovgavanryiba LLC, Pelagial LLC, Sofko LLC, Transflot JSC, Sakhalin Leasing Fleet JSC, Dalryiba JSC, and Nakhotkinskaya JSC.

Notable actions by the FAS

FAS warns major Russian airlines about ticketing systems.

The FAS has issued warning notices to eight major airline companies, stating that they must enhance their airline ticketing systems by 15 May 2014.  The affected airlines are Aeroflot, Rossiya Airlines, Orenburg Airlines, Vladivostok Air, S7 Airlines, Globus Airlines, UTair Aviation, and Transaero Airlines. 

The antimonopoly authority believes that aircraft operators should be willing to decrease fares for regular flights as the flight date approaches, as well as to increase them, based on the dynamic changes of consumer demands and available seats.  In effect, on the day of the flight, the carriers effectively refuse to compete on price.  

The FAS believes that these practices by the major airlines limits competition in the passenger air travel market, leads to the maintenance of high prices, slows growth in air transportation, and prejudices the public interest. The FAS alleges that these practices are a violation of Point 3, Section 1, Article 10 of the Competition Protection Law.

FAS finds Stroygazconsulting actions in “Gazprom invest” tender procedure to be reasonable.

This case involved a tender procedure for a RUB 17 billion gas pipeline construction project. While examining the motion, the FAS commission noted that the procedure for comparing participation applications was absent from the documentation in the request for proposal.  This omission violated paragraph 13 of Part 10 of Article 4 of the Federal law on procurement of goods, works, and services for certain types of legal entities.

The FAS has issued an order dismissing the alleged violations, canceling the final protocol for the competition, and returning the applications so that participants may make changes to their documentation.  The order also extends the due date for applications.