OREANDA-NEWS. September 28, 2009. The Federal Antimonopoly Service (FAS Russia) found that "Moskovskaya Regionalnaya Kompania Po Realizatsii Gaza [Moscow Regional Gas Supplier]" Ltd. ("Mosregiongaz" Ltd.) violated Part 1 Article 10 of the Federal Law "On Protection of Competition" (abusing dominant position), reported the press-centre of FAS Russia.

"Mosregiongaz" Ltd. violated the law by imposing unfavourable conditions of a long-term contracts gas supplies to "Zavod Vtorizhnykh Metallov I Splavov [Secondary Metal and Alloy Works]" CJSC ("Zavod VMS" CJSC) and "VOLOKOLAMSK" TRADING COMPANY" CJSC in breach of the pricing procedures established by normative legal acts.

The case was initiated on 21st January 2009 upon a petition of "Zavod VMS" CJSC that "Mosregiongaz" Ltd. had included some conditions in the contract infringing the interests of the "Zavod VMS" CJSC. Repeated proposals to reconsider the contract conditions were ignored by the gas supplier. "Zavod VMS" CJSC has continuous production cycle so it was impossible to stop gas intake. To ensure uninterrupted gas supplies for continuous metallurgical melting cycle, "Zavod VMS" CJSC was forced to sign a contract under unfavourable conditions, which caused significant expenses for payment for taken gas and penalty coefficients.

"Zavod VMS" CJSC did not have a possibility to judicially challenge the conditions of the offer sent by "Mosregiongaz" Ltd. without interrupting gas consumption because the Rules for gas supply establish that gas intake (continuation of gas intake) by a customer upon expiry of a 30-day period and (or) the term of the contract, concluded for the previous period, is considered as a consent of the party that received the offer for a gas supply (transportation) contract under the conditions set by the supplier (a gas transportation or a gas distributing company).

"Mosregiongaz" Ltd. has dominant position on the market of selling natural gas, with the market share over 65 % within the boundaries of the Moscow region, and is included in the Register of economic entities whose market share is over 35 %. It allowed the company to dictate contract conditions to consumers in breach of the antimonopoly legislation.

Gas pricing procedures are determined by the current legislation of the Russian Federation. In accord with Article 8 of the Law "On Gas Supply in the Russian Federation", the Government of the Russian Federation establishes the principles of setting gas prices and rates for gas transportation services via gas-transportation and gas-distribution networks. Including in a contract a condition on applying additional penalty sanctions for exceeding a monthly volume of gas to be supplied within a month along with the coefficients specified by the Rules for gas supply is unacceptable and breaches the pricing procedures established by normative legal acts.

FAS Russia issued a determination to "Mosregiongaz" Ltd. to amend long-term gas supply contracts signed by "Mosregiongaz" Ltd. with "Zavod VMS" CJSC and "VOLOKOLAMSK" TRADING COMPANY" CJSC to comply with the existing legislation, by removing conditions that set penalty coefficients for exceeding monthly supplies for the whole period of the gas supply contract. The company was also instructed to send proposals to all its counteragents about changes to the gas supply contracts (excluding the above conditions).

Earlier, at the stage of transition of "Mosregiongaz" Ltd. to long-term gas supply contracts, FAS Russia drew attention to inadmissibility of imposing unfavourable contract conditions (the Protocol of the Meeting on conditions of the long-term contracts offered by gas suppliers of "Gazprom" OJSC to gas consumers). "The warning was ignored by gas suppliers. As a consequence, FAS Russia and its regional offices initiated a series of cases and had to apply turnover fines", said Anatoly Golomolzin, Deputy Head of FAS Russia.

Court findings confirm legitimacy and validity of the standpoint of the antimonopoly bodies. In particular, the Presidium of the Supreme Arbitration Court of the Russian Federation (VAS RF) examined the decisison of the Karachaevo-Cherkessia OFAS Russia regarding "Kavkazregiongaz" Ltd. of 14th April 2009 forbade imposing unfavourable contract conditions and ruled that the legal nature of additional penalty coefficients, used in payments for the gas consumer in excess of the contract volume, constitute a pricing element. On 2nd July 2009 VAS RF confirmed validity of a similar decision made by of the Chelyabinsk OFAS Russia regarding "Chelyabinskregiongaz" Ltd.

The Supreme Arbitration Court of the Russian Federation also sustained the decision of the Chelyabinsk OFAS Russia regarding "Chelyabinskregiongaz" Ltd. of 2nd July 2009 and the decision of the Karachaevo-Cherkessia OFAS Russia regarding "Kavkazregiongaz" Ltd. of 14th April 2009.

"A difficult economic situation, decreasing demand, non-payment problems require a different behaviour from a monopolist: instead of using additional penalty coefficients they should undertake certain measures to stimulate gas consumption and overcome the non-payment problems", - says Anatoly Golomolzin, Deputy Head of FAS Russia.

According to Deputy Head of FAS Russia, "sellers outside "Mosregiongaz" Ltd. give an example of such market behavior. For instance, not only "Uralsevergaz" CJSC and other suppliers do not apply increasing coefficients, but, on the contrary, they offer additional discounts depending on the period of payment for scheduled gas".

Reference:
Part 1 Article 10 of the Federal Law "On Protection of Competition" prohibits actions (lack of actions) of an economic entity with dominant position that have resulted or ca result in preventing, restricting, eliminating competition and (or) infringing the interests of other persons, including imposing unfavourable contract conditions upon a counteragent or irrelevant to the subject matter of the contract, or breaching the pricing procedures established by normative legal acts.