17.09.2010

Problems Related to the First Year of the Application of the Competition Law 2008

On 25 December 2008, the Kazakhstani President signed the Law on Competition, which superceded two other laws, the Law on Unfair Competition 1998 and the Law on Competition and Restriction of Monopolistic Activities 2006. The new Law of 2008 turned out to be another benchmark in the regulation of anti-trust matters and contained a number of novelties, which had a material impact on the commercial environment in Kazakhstan. In particular, the key authorised body on the protection of competition, the Competition Protection Committee, which had been earlier a part of the Ministry of Industry and Trade, was reorganised into a separate body, the Competition Protection Agency, which was directly subordinated to the President of Kazakhstan and, furthermore, received authority to regulate the affairs of other government bodies.

One of the most significant legal novelties of the 2008 Competition Law was its trans-border effect, which is still one of the Law’s vague and problematic provisions. According to section 4.2 of the Law, its provisions shall also be applicable to actions of market entity performed outside the Republic of Kazakhstan if such actions, apart from other consequences, directly or indirectly affect the shares or participatory interests in Kazakh companies, or restrict competition in Kazakhstan. Based on this, the Law on Competition is also applied to transactions given effect outside of the country.

In the meantime, neither the Law nor clarifications issued by the Kazakh Antimonopoly Agency define any clear and comprehensive definition of the direct or indirect impact on the foregoing Kazakh assets or restriction of competition in Kazakhstan. In this case, it is especially problematic to determine whether merger clearance is required for the acquisition of a foreign company, which has no Kazakh subsidiaries or branch/representative offices, but has a sale turnover in Kazakhstan. The practice of the Antimonopoly Agency shows that in order to decide whether it is necessary to obtain anti-trust clearance, the potential acquirer would provide all of the information, as if the buyer had applied for such consent. Accordingly, the ambiguity of the Competition Law on this matter results in an onerous procedure of collecting and processing a large volume of information, which can ultimately be useless. Moreover, most of the relevant responses from the Antimonopoly Agency are conditional and formulated as being subject to changes in the case of the submission of any additional information.

Another problem with the Competition Law relates to the conditions when the Kazakh anti-trust approval should be sought. The term “economic concentration” includes 5 definitions, comprising, inter alia, the acquisition of the rights to direct of another person or appointment/election of the same individuals to the managerial bodies of two and more companies. In the meantime, the conditions/thresholds that trigger the approval of economic concentration by the Antimonopoly Agency are applicable only to 2 out of 5 types of concentration and may not pertain to the appointment of a person to the managerial bodies of several companies.

The most time-consuming part of collecting the information for receiving Kazakh anti-trust approval relates to the information on the acquirer and its group. Mostly antitrust laws worldwide that outline a group of persons use the term ‘control’, which is determined as the voting right attached to more than 50% of the voting shares/interests or the right to elect/nominate more than 50% of the members of the board of directors/executive body. This principle is used in general legal practice and, in particular, is set forth by the Russian Federal Law on the Protection of Competition. Under the Kazakh Law on Competition, however, 25% of voting rights or more are viewed as the basic feature of a group of persons, regardless of whether such shareholding is major, but not controlling.

Using the attributes of a group of persons for receiving Kazakh merger clearance, the acquirer is obliged to provide information on all members of such group, but not only of those manufacturing and selling the same or surrogate commodities in Kazakhstan, i.e. which are competitors of a target company. Such information does not affect the decision taken by the Antimonopoly Agency, as both companies operate in different market segments and do not compete with each other. This requirement of the Law for the collection of absolutely irrelevant information appears to be obscure.

In our opinion, another shortcoming of the Kazakh Competition Law is the absence of a deadline for the consideration of the anti-trust application for Kazakh anti-trust approval. Regardless of the fact that Article 54 of the Law limits the consideration period by 50 calendar days, the Antimonopoly Agency may suspend the period when it requires any additional information from other governmental authorities or market entities. Furthermore, the number or deadline of consideration of such enquiries is not limited. The practice of our firm shows that the periods of consideration of 2 analogous applications[1] was 3 and 6 months respectively. These provisions of the Competition Law do not encourage the Antimonopoly Agency to consider anti-trust applications in a prompt manner, but make the procedure of seeking Kazakh merger clearance a prolonged bureaucratic process.

The above facts prove that the Competition Law still contains a number of outstanding issues so the anti-trust authority should try to eliminate them in a way that will facilitate the development of the Kazakhstani competitive market and that satisfies the interests of its participants. The Antimonopoly Agency will have to accomplish the difficult task of changing and developing the vague and divergent provisions of the Law in order to outline the clear and definite “rules of play” and the scope of the permitted/forbidden actions.

[1] The consent was sought by 2 buyers who were going to purchase over 25% of shares in the same company.

Best Regards,

Corporate Law Department

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