OREANDA-NEWS. October 20, 2008. "Antimonopoly Requirements to State and Municipal Aid" workshop of antimonopoly bodies of the North-West Federal District took place in the Kaliningrad region "Antimonopoly Requirements to State and Municipal Aid", reported the press-centre of FAS Russia.

The workshop was attended by the Heads and staff members of the Offices of the Federal Antimonopoly Service (FAS Russia) from ten regions of the North-West Federal District, Nizhny Novgorod and the Central Office of FAS Russia. A special session of the workshop was held with participation of representatives of the governmental agencies and self-government bodies of the Kaliningrad region.

Opening the workshop, Andrei Tsarikovsky, Deputy Head of FAS Russia, named strategic objectives of the Federal Antimonopoly Service: developing competition, increasing transparency of support offered to businesses, and improving efficiency in using budget funds in state and municipal procurement.

Current antimonopoly policy in both EU and Russia involves control over state aid: the main common issues include selectivity (creating favorable conditions for particular companies), advantages (benefits from the granted preferences), and use of public resources, which together can distort competitive environment by putting recipients of state and municipal aid in advantageous conditions in comparison with their competitors.

The Federal Law "On Protection of Competition", which came into force on 26th October 2006, introduces the concept of state and municipal aid; specifies the procedures for governmental control over granting and using such aid; and determines the legal effects of violating the antimonopoly legislation on state and municipal aid.

A new 17.1 Article of Federal Law "On Protection of Competition" became effective on 2nd July 2008, which sets the requirements for transferring the ownership rights and (or) the right of use of state and municipal property through competitive tenders. This legislative amendment is aimed at protecting competition and increasing efficiency of using state and municipal property.

As emphasized by many workshop participants, inspections in the regions had revealed that some regional and municipal authorities did not follow the changes to the current antimonopoly legislation. Ignorance of the Law "On Protection of Competition" with regard to state and municipal aid results in antimonopoly violations and administrative sanctions.

At the workshop, FAS Russia demonstrated statistical data on the antimonopoly violations committed by the authorities at all levels. In 2007 FAS Russia recognized 2597 antimonopoly violations in the Russian Federation, more than the one third were committed by the authorities rather than by the monopolists or mala fide economic agents. Over 7 % of the violations were related to state or municipal aid.

In 2008 the regional offices of FAS Russia inspected the legislative acts and regulations passed by the authorities and found that six out of each 100 acts included some provisions violating the antimonopoly legislation. In the follow-up of the inspections, in 2008 FAS Russia initiated 149 antimonopoly cases, issued 59 determinations and filed 7 lawsuits on revoking unlawful normative acts and regulations.

The antimonopoly bodies exercised preliminary control over legitimacy of state and municipal aid by processing the petitions submitted by the authorities. In the first six months of 2008 the bodies of FAS Russia processed 1055 petitions and granted 551 petitions.

In the first six months of 2008, the Kaliningrad region gained the first position among all Russian provinces for the number of officially agreed acts on state and municipal aid. However, the local self-government bodies petitioned for approval only executing the Decree of the Government of the Kaliningrad region on the procedures for paying the subsidies from the regional budget to support the agriculture.

Inspections by the Kaliningrad OFAS Russia demonstrated that municipalities were actively offering aid to organizations operating in other industries. Such kind of aid was of more "covered" nature - certain categories of companies were granted preferences by the local self-government bodies in form of targeted, uncompetitive offering of premises and other property owned by municipalities, rental discounts for the land plots, credits, and municipal guarantees for credits. Changing the form of aid, however, does not affect the outcome: organizations that enjoy favorable attitude of the authorities have better business conditions in comparison with their competitors.

Studies, carried out by the Kaliningrad OFAS Russia, showed that most municipal support was enjoyed by the municipal companies - commercial organizations, that often operate on particular markets competing with private businesses for the clients. According to the Antimonopoly Office, private entrepreneurship in the housing and utilities sector was hampered, in particular, by active support and preferences enjoyed by municipal utility companies.

Regional and municipal authorities often offer selective support to the investors. Typically only those companies that make large investments and meet a number of additional criteria can count on the aid from the authorities. It requires the antimonopoly bodies to control over state and municipal aid in order to prevent destruction of competitive environment and market monopolization.

The Antimonopoly Service is especially concerned about target assignation of municipally owned estate property to economic entities. As mentioned above, new amendments to the Federal Law "On Protection of Competition" effectively forbid such practice. Nevertheless, until very recently such property has been offered without competitive tenders in many regions. For instance, one of municipalities in the Kaliningrad region leased out a heat-supply network to a commercial organization without a competitive tender, although the federal legislation specifies public-private partnership agreements as a special form of legal relations for such situations to ensure maximum effective use of public property.

Another municipality in the Kaliningrad region earmarked the premises for a pharmacy outlet of a pharmaceutical company, which, according to the Antimonopoly Office, is the monopolist in retail sales of pharmaceuticals in some districts.

The workshop participants learned about current judicial practice for precluding unlawful state aid. For example, on 24th December 2007, the Nizhny Novgorod Regional Arbitration Court ruled to invalidate the instructions of the Veliky Novgorod Authority, which reduced the land rent for two city hotels by 50 %. The Novgorod OFAS Russia established that such support contravened the acceptable objectives of municipal aid and was in breach of the legal procedures. The position of the antimonopoly body was confirmed by the Court.

The workshop participants also discussed enforcement problems related to ambiguity of some concepts, "confusion" in various legislative acts regulating relations between businesses and the authorities, and practical issues of organizing the system of control over state and municipal aid. In this connection, they analyzed the proposed amendments to Chapter 5 of the Federal Law "On Protection of Competition", which set the minimum threshold for state and municipal aid that does not require an approval by an antimonopoly body, and clarify the grounds and procedures for granting state or municipal preferences.

The authorities offering aid to commercial organization should take into account the forthcoming changes to the Code of the Russian Federation on Administrative Violations, which will introduce administrative liability for unlawful state and municipal aid (a 15000 to 30000 roubles fine or disqualification for up to three years).