Representatives of government, business and experts suggest a move in order to avoid the situation when the state itself creates anticompetitive market conditions. They say it is crucial to create competition in the markets where it previously did not exist because of natural monopolies. Predictability of regulatory policy and state guarantees for investors is key.
Kyiv, September 28, 2016. Fair competition in the market is one of the key factors influencing the willingness to invest in a particular country. One of the key challenges for Ukraine is to continue work on the creation of competitive environment in the energy market. In addition, it is its obligations under the Energy Community and Association Agreement with the EU. The main role in this process should be allotted to the National Commission for state regulation of energy and public utilities (NKREKP) and the Antimonopoly Committee of Ukraine (AMCU). This was stated by representatives of government, business and experts at a discussion held at Ukraine Crisis Media Center. “When there is a will of the state and it is aimed at market liberalization, when fair, equal, clear rules have been set and there is a strong competitive agency that is able to protect them and fair trial, then the risks for potential investors coming to Ukraine significantly reduce,” said Mariya Nizhnik, First Deputy Head of the Antimonopoly Committee of Ukraine, state commissioner at the Antimonopoly Committee of Ukraine.
The role of the Antimonopoly Committee is to advocate the interests of all market players – to give permission for concerted actions and mergers, to control state aid to business entities and stop violation of competition rules. Maria Nizhnik noted that, according to AMCU statistics, almost eighty per cent of the cases relate to abuses in the market and creating barriers to access adjacent markets. “The main types of violations – abuse of monopoly position and anticompetitive concerted actions of business entities,” she said. Ukraine still has a problem when the state itself creates anticompetitive market conditions. A step to solve this problem should be the law on monitoring state aids to business entities. Anna Artemenko, State Commissioner at the Antimonopoly Committee of Ukraine, noted that it is part of the Association Agreement and provides for introduction of a new law institution to monitor any type of state support for ensuring competitive neutrality. From August next year, the authorities will have to inform AMCU on all such programs, and the Committee will provide its assessment. “If an entity knows that a competitor receives state support, it may appeal to the committee, and we will check the legal grounds on which the support was provided,” said Ms. Artemenko. Full implementation of Euro standards will have finished by 2023.
Currently, the most difficult challenge for AMCU is to create competition in the markets where it previously did not exist because of the existence of a natural monopoly. “It is important that competitors should complain as soon as they notice something suspicious in the market. From my experience I know that in order to understand the market situation, it is necessary to have information from market players,” said Jose Manuel Hernandez, First Secretary of the European Commission Delegation to Ukraine. It is necessary for AMC to have enough resources to handle all complaints. “Communication in this area is, probably, the main problem. Some recommendations will significantly accelerate the emergence of competition. The regulation is not effective if business does not understand its purpose,” noted Oleksiy Goncharuk, Head of the Better Regulation Delivery Office (BRDO). Regarding NKREKP, it is important that the regulator, on receiving expanded powers, clearly followed regulatory legislation so that its actions were consistent and reasonable. Mr. Hernandez said that the reform process required coordination between various departments to adjust different legislative requirements and adapt them to European standards.
According to Andriy Favorov, Energy Resources of Ukraine Trading, a positive situation is currently observed in the gas market. “According to some of our European partners, this market is even more competitive than in many Eastern European countries. So, one can say that industrial consumers currently receive gas at market prices. There are more than 20 players who offer different conditions,” he said. However, Oleksandr Ovdienko, Head of Ukrainian Gaz Market Association, does not share this opinion, citing the example of “Naftogaz” which is a monopoly but has government support – does not pay VAT on imports, has foreign currency loan under the state guarantees, etc.
In other energy markets, including coal and electricity, there is, in fact, no competition. “Energoatom, the largest producer, operates at a regulated rate, which is determined by the Commission, so does Ukrhydroenergo – [rates] for renewable energy sources are also determined administratively, and there is thermal energy, which “competes” for fund balance,” explained Andriy Favorov. Ukrinterenergo has an exclusive right to transport electricity from Europe. Regarding electricity market, Ms. Nizhnik noted that in 2015-2016 AMCU had investigated the situation and provided recommendations to the authorities according to the results. “The main recommendations concerned the incentive regulation of natural monopolies, elimination of cross subsidies, creation of equal conditions for access to networks, separation of natural monopoly from potentially competitive markets, settlement of issues in joining the network and improving payment discipline,” she said.
Work on the issues requires close cooperation between AMCU and NKREKP, and it has already been settled, noted Mariya Nizhnik. In addition, on September 29, these agencies will sign a memorandum on cooperation. “It will be a very important event. In addition, this memorandum will outline the procedure for cooperation between the two institutions; it will give consumers the opportunity to see where they can submit a complaint and when to expect results,” she said.
Oleksandr Ponomarenko, Director of Fuel and Energy Department, Ministry of Energy and Coal Industry of Ukraine, focused on the need to think not only about the competitive environment, but also about predictability of regulatory policy and state guarantees for investors. “The main thing that interests an investor is legislative stability. Many companies gave up oil and gas production after rental rates sharply raised. Similarly, many companies offer cooperation on alternative energy and ask questions about tariffs to sell electricity and for how long we will give them that guarantee,” he said.