FEDERAL ANTIMONOPOLY SERVICE New Antimonopoly Law of the

FEDERAL ANTIMONOPOLY SERVICE New Antimonopoly Law of the Russian Federation Moscow 2006

Legal frameworks for competition policy created by FAS Russia in 2006 Federal Law № 135 -FZ “Оn Protection of Competition”; Federal Law № 94 -FZ “On Placement of Orders for Delivery of Goods, Execution of Works and Provision of Services for Public and Municipal Needs” ; Federal Law № 38 -FZ “On Advertising”; Federal Law № 36 -FZ “On Peculiarities of Electric Energy Industry Functioning in Transition Period”; Land Code in the part of Articles 30. prim and 38. prim; Water Code in the part of Articles 16 and 40; Resolution of the Government of the Russian Federation № 75 “On the Procedure of Conducting by a Subject of Local Governance of the Open Tender for the Selection of the Managing Organization for Ruling over Tenement-house” 2

Key provisions of the Federal Law № 135 -FZ of July 26, 2006 «Оn Protection of Competition» 3

Exterritoriality of the application (Article 3) Agreements/contracts, achieved by Russian or foreign individuals or organizations outside of the Russian Federation, those concerning assets, stocks (shares) of Russian undertakings or rights related to Russian undertakings in case they effect competition in Russia are the subjects of the Law. 4

Commodity and commodity market (Article 4) Any objects of civil rights, works, services including financial services, intended for market turnover are included into definition “Commodity”. Geographic market also includes territories outside of the Russian Federation (global/regional markets). 5

Dominant position (Article 5) The market share for the definition of a dominant position is reduced from 65 (previous Law) to 50 percents; The definition “collective dominance” is introduced; The dominance of a subject of natural monopolies is presumed; Dominance of a company possessing the market share less than 35% might be established by Federal Laws; Financial organizations. 6

Vertical agreements (Article 4) The definition “Vertical agreement” is introduced; Vertical agreements for contracts on commercial concession as well as for agreements, concluded by companies with the market share up to 20%, are permitted; Exemptions for vertical agreements are introduced. 7

Monopoly types of prices (Article 6 and 7) The criteria for the existence of monopoly price are fixed. Two methods to prove the existence of monopoly price are determined: - analysis of prices on the comparable commodity market; - analysis of the justification of cost and profit for production and realization of a commodity. 8

Recognition of a group of persons (Article 9) Fixed list of reasons for including persons into the same group. Prohibitions fixed by the legislation for companies are applicable for group of persons as well. 9

New provisions on the control over anti-competitive agreements (Articles 4 and 8) Definitions “Agreements” and “Concerted practices” are determined as specific types of anti-competitive behavior. Rules of legality of concerted practices are introduced Coordination of economic activity is defined as coordination of business activity of undertakings by third party that is not included into the same group of persons. 10

Rules of non-discriminatory access (Article 10) The Government of the Russian Federation is empowered to set rules of nondiscriminatory access to commodities, works, services of the subjects of natural monopolies. 11

Conditions of legality (Article 13) Common conditions of legality of actions, agreements, transactions restricting competition, are introduced. These conditions are similar to EC conditions of legality of agreements and concerted practices restricting competition (Article 81, point 3 of the Rome Treaty). 12

Conditions of legality (Article 13) • Cover agreements, concerted practices, transactions, abuse of dominant position • Envisage fulfillment of the following conditions: Undertakings do not have the opportunity to eliminate competition completely; Do not impose restrictions excessive for reaching the goals of agreements, concerted practices, transactions, abuse of dominant position on the participants; Promote the improvement of production, realization of commodities or stimulation of technical, economic progress or increase of competitiveness on the world market; Consumers obtain benefits (advantages) appropriate to the benefits (advantages) obtained by the participants of agreements, concerted practices, transactions. 13

Actions of public authorities (Chapter 3) Prohibitions for acts and actions of public authorities that restrict competition are completely preserved. 14

Antimonopoly requirements to tenders (Chapter 4) • Prohibitions for anticompetitive actions when holding all types of tenders are set. • Subjects of natural monopolies, public authorities, public non-budget funds are obliged to select financial organizations by holding open tenders or open auctions 15

Prohibition of state aid granting (Chapter 5) • Common prohibition of the selected granting of advantages to undertakings by public authorities is introduced; • Types of permitted state aid are defined; • Procedure of permitted state aid granting is defined; • Consequences for the violation of the procedure of the state aid granting as well as of prohibited state aid granting are defined. 16

Functions and responsibilities of the antimonopoly authority (Chapter 6) New function is determined – realization of the state control over economic concentration in the sphere of use of natural recourses; Responsibility to place decisions concerning the interests of undetermined circles on web-sites is fixed; Responsibilities to issue decisions on undertaking of actions aimed at the improvement of competition are specified; P. T. O. 17

Functions and responsibilities of the antimonopoly authority (continuation) Responsibility to control the activity of tenders’ organizers under conditions of termination of state regulation of prices (tariffs) for some commodities is fixed; Responsibility to present to the Government of the Russian Federation and place on web-site the report on competition in the Russian Federation is fixed. 18

State control over economic concentration (Chapter 7) New criteria of merger control are introduced; Rules of transition to the notification principle of the state control over economic concentration realized by a group of persons are established; The procedure of consideration of applications and notifications by the antimonopoly authorities is set directly into the law; 19

Administrative burden on economic entities is reduced : Threshold values for notification of transactions are increased till 3 billion rubles (88 million euro), for applications on transactions – till 200 million rubles (5, 9 million euro), till 150 million rubles (4, 4 million euro) for target company Approval of every transaction on acquisition of stocks is cancelled. Approval is compulsory only in case of acquisition of share holdings: blocking (25%), controlling (50%) and excluding the opportunity to block shareholder’s decisions by third parties (75%); 20

Proceeding rules (Chapter 9) Proceeding rules are stated directly into the Law; Fulfillment of any Decision of the antimonopoly authority is suspended in case of application to court or court of arbitration; Issues of joint competence with the Bank of Russia and the Federal Service for Financial Markets are determined. 21

Compulsory division of economic entity and withdrawal of revenue (Articles 38 and 51) Compulsory division can be realized only in pursuance to the Decision of the Court which was taken on the claim of the antimonopoly authority. The revenue received from monopolistic activity or unfair competition is the subject of transference to the Federal Budget. 22

Plan of law drafting activity for the period of 2006 - 2007 Amendments to the Code of the Russian Federation on administrative infringements: - fines are calculated in percents of the turnover - embryo of “leniency program” - disqualification of managers Amendments to the Article 178 of the Criminal Code of the Russian Federation: - some types of monopolistic activity are the subjects to criminal prosecution 23