Category: Uncategorized

Regulatory Framework

Following the Revolution of Dignity in the beginning of 2014, it was natural to expect significant changes and reforms in Ukraine. However, a year later, practitioners admit that there has been no notable progress made in competition law, although some steps towards a more transparent competition policy were made.

In particular, the Ukrainian Parliament adopted, in the first reading, the draft law requiring the Ukrainian competition authority (the AMC) to publish all its decisions made upon review of merger and antitrust notifications, in unfair competition cases, and in cases involving violations of competition. The draft also requires the AMC to publish notices on its resolutions to initiate in-depth investigations (the Ukrainian analogue of Phase II). It is expected that such notices will bring more interested parties into discussions about transactions which may have an effect on competition in Ukraine and will ensure that such parties are heard.

Another draft law that was recently submitted to the Parliament aims at making the fining policy of the Ukrainian competition authority more predictable. As background, many of the AMC fining decisions made during the last decade are not publicly available. Those that are in the public domain do not contain any analysis explaining the method of calculation of the fines imposed, and fines in similar cases may vary quite significantly. The draft law requires that guidelines be implemented for calculating fines, and that those calculations be published. There are still ongoing discussions regarding the concept and effectiveness of the proposed solution, but the document stands a good chance of being supported by the Parliament.

Enforcement Policy

For the last year the Ukrainian competition authority has been understaffed. The AMC is a collegiate body consisting of nine State Commissioners – but only five were performing their duties during this period. As a result, there have been no really notable cases, as the authority was mainly focused on finalizing existing investigations. 

The most discussed of these existing investigations relates to an alleged food retail cartel. The AMC concluded that the exchange of information between the retailers and a marketing agency raised competition concerns and led to fixing prices. There was no final decision in the case. And while it is still unclear to what extent the discussed exchange was permissible, the authority has nevertheless started checking other industries for similar arrangements, making any information exchange a grey area in Ukrainian competition law. 

Among the other issues of particular interest for the authority are bonuses in distribution enabling large companies to maintain their market positions, and marketing services and payments that encourage retailers and pharmacies to concentrate on specific products – thereby eliminating competition and maintaining high product prices. So far, in most such cases, the AMC has preferred to issue recommendations encouraging parties to refrain from potentially anticompetitive practices rather than to complete investigations establishing that a violation did take place.

As regards merger control, the situation with Ukrainian notification requirements remains unchanged. Historically, the Ukrainian merger control regime has been heavily criticized for low thresholds and a lack of sufficient local nexus (many non-Ukrainian deals where just one party has assets or sales in Ukraine in excess of EUR 1 million have been caught). Thus, the authority continues to claim its jurisdiction over transactions that lack effect in Ukraine. One of the latest trends is the increasing number of remedies applied to mergers where at least one of the parties has an appreciable market position in Ukraine. In some cases absent an established or expected effect in Ukraine, transactions were cleared subject to behavioral undertakings from the parties – for instance that they shall refrain from anticompetitive practices. The authority also tends to set a three year reporting obligation with respect to certain product groups in most such clearance decisions. Transactions involving Russian businesses or assets owned by Ukrainian oligarchs associated with the former regime are subject to higher scrutiny. Very often clearances in such deals have been delayed even though they were not problematic from the competition law perspective.

Finally, a new management of the Ukrainian competition authority is expected to be appointed soon that should change the focus of the regulator, as well as its approach.

By Alexey Pustovit, Partner, Asters

This Article was originally published in Issue 2.2. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

3G for 3 Players

Ukraine used to be one of few countries in Europe, if not the only one, that did not have the capacity to offer 3G/4G technology to the consumers of telecom services.

Until recent times only one operator – Trimob LLC, a subsidiary of Ukrtelecom – held a 3G license in Ukraine. Thus, service is provided only in the few largest cities, and most Ukrainian consumers use low-tech 2G technology. In February 2015 the Government held a long-awaited public tender and issued 3G licenses to three major Ukrainian telecom operators – MTS, Kyivstar, and Astelit (operating under the “life:)” trademark). MTS and Kyivstar have each just paid the equivalent of approximately EUR 107 million to the State budget for their licenses; and life:) paid the equivalent of approximately EUR 131 million for its license. Conversion will cost these operators around an additional EUR 63 million. 

The Ukrainian Government reported this public tender as effective, transparent, and successful.

Plans for 4G and National Broadband Internet 

4G licenses have not yet been granted to any telecom operator in Ukraine, because there is at the moment no spectrum available to them. The spectrum required for offering high-quality 4G services is currently only available to state security and defense authorities – so-called ”special users.” After the parliamentary elections in October 2014, a new parliamentary majority executed a Coalition Agreement, undertaking, in particular, to ensure the development of telecommunication networks of the 4th and 5th generations in 2015. Another ambitious initiative taken by the new parliamentary majority is the implementation of nationwide broadband Internet. 

Adaptation of National Laws with EU Acts

One of the most significant achievements of recent years was the signing of the Ukraine-European Union Association Agreement in 2014, in which Ukraine agreed to comply with a range of requirements, including those in the telecom sector. In particular, Ukraine is expected to ensure a competitive market, transparent functioning of competent state agencies, protection of market players against discrimination, and effective allocation and use of frequencies and national numbering resources. In addition, Ukraine has to ensure that relevant national laws and regulations in the telecom sector (among others) are gradually made compatible with the EU acquis. Thus, we expect to see active work adapting Ukrainian legislation to the European legal framework. 

Deregulation

Another remarkable trend in Ukraine is the deregulation of business activities in various areas, including the telecom sector. The government is planning to implement a range of measures aimed at bringing the regulation of the telecommunications market in Ukraine up to international standards. In particular, the market should get ready for spectrum refarming, technological neutrality implementation, and mobile number portability. Furthermore, a range of licensing procedures will be abolished or substantially simplified to make doing business in the telecom sector in Ukraine easier. The economics ministry, which is in charge of implementing these initiatives, is also planning to: (i) introduce a notification procedure for business activities in the telecommunications area that will replace the current requirement that companies first obtain licenses to provide telecommunications services; (ii) simplify the procedure for obtaining spectrum use permits; and (iii) reduce government interference in the telecommunications market.

Public Sector Digitalization

The Ukrainian government has recently intensified cooperation with global vendors of software and hardware and solutions for data protection, cyber security, and other advanced technology products. Application of cutting-edge solutions is aimed at improving the efficiency of the Ukrainian public sector, which faces a great challenge, most particularly in the context of the ongoing Russian aggression.

To Invest or not to Invest?

Summarizing the above, the Ukrainian telecommunications market is going through significant changes. Some of these changes have been triggered by the necessity of bringing Ukrainian legislation into compliance with relevant EU acts, while others were triggered by the development and introduction of new technologies. So, Ukraine, as an emerging market, offers good opportunities for investors to get a high yield from the telecom field.

By Oleg Alyoshin, Partner and Volodymyr Igonin, Counsellor, Vasil Kisil & Partners

This Article was originally published in Issue 2.2. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The Ukrainian M&A market has been significantly affected by a military conflict in the country’s eastern and southern regions and the annexation of the Crimean Peninsula, as well as the unstable economy and political climate.

Numerous corporate defaults, in particular that of Mriya, the Ukrainian agricultural flagman, and resulting debt restructurings have intensified investors’ concerns about the quality of local assets and capital injections in Ukraine. In order to reduce the monetary burden and pressure on the financial system, the government has launched negotiations regarding sovereign debt restructuring, which may have a further adverse impact on foreign investors’ activity. 

Market Trends

The decreasing number and volume of deals has been and continues to be the main market trend. Intra-group transfers of assets (including reregistration of title to assets in the territory of the Crimean Peninsula) and industry consolidations by local business groups represented the majority of projects. Numerous production companies which faced difficulty in sales of manufactured products have contemplated forming or actually formed strategic alliances and joint ventures in order to maintain profitability. The format of deals has changed, and transactions are commonly arranged and handled with limited due diligence, structuring, and drafting, often absent advice from external counsel. Some businesses have not been able to continue activity and generate revenue, and assets, both good and distressed, can be acquired at a significant discount.  

Deals Overview

Many projects have a confidential nature, such that the parties keep the execution and even the existence of the deal private.

The agriculture, pharmaceuticals, food production and processing, and banking sectors demonstrate the highest activity. Some of the notable transactions included the acquisition of the Bank of Cyprus by Alpha Bank, the acquisition of Pravex Bank from Intesa Sanpaolo by Group DF, the acquisition of the Odessa Champagne Vines Factory from Gruppo Campari by Vinfort, the acquisition of Retail Insurance from Investohills Capital by EMF Capital Partners, and the acquisition of 5% shareholding in Ukrlandfarming, the Ukrainian agricultural giant, by Cargill. The IT industry, as it has a lesser link with geographical location and country risks, continues to attract significant investment, with a high number of deals. Examples include the acquisition of a controlling stake in the Portmone supplier of services for electronic delivery and settlement of invoices by the Europe Virgin Fund, the acquisition of the SoftTechnics mobile applications and games producer by Intersog, and equity investments in Gill Business Systems by InVenture Partners, Intel Capital, and Finsight Ventures.

Legal Framework

An economic downturn, the suspension of activity by major exporters located in Ukraine’s eastern region – a territory covered by military action – a decrease in foreign investments, and capital outflow have materially affected the Ukrainian currency market, resulting in the significant depreciation of the hryvnia, the local currency, against major foreign currencies, including the dollar and the euro. In order to stabilize the situation, the National Bank of Ukraine – the central banking authority – has introduced a number of administrative measures, such as a temporary prohibition on the repatriation of dividends, withdrawal of investments, and payments made abroad by Ukrainian entities for acquisition of foreign assets. The restrictions on profit repatriation in particular have forced many companies with operations in Ukraine to investigate suitable investment opportunities, especially in the agricultural and food processing sectors. 

Oleksiy Demyanenko, Partner, Asters

This Article was originally published in Issue 2.2. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Background

On 21 May 2015 the National Assembly of the Republic of Bulgaria adopted at first reading an Act amending and supplementing the Consumers Protection Act (the “Act”).

The Act implements primarily the provisions of Directive 2013/11/EU  (the “Directive”) and facilitates the application of Regulation (EU) No 524/2013  (the “Regulation”). 

The Directive aims to introduce a minimum set of criteria for the Alternative dispute resolution (ADR) bodies while the Member States may build on these criteria. Thus, a comprehensive network of ADR entities, competent to resolve almost any type of consumer to business agreement breach dispute, is to be established. However, there are several types of dispute that are not covered by the Directive, for instance, non-economic services of general interest, health care, further and higher education. 

All Member States should have the Directive’s provisions implemented at national level and entered into force by 9 July 2015. 

The Regulation, which is directly applicable in all Member States starting 9 January 2016, applies to out-of-court dispute resolution concerning contractual obligations originating from online sales or service agreements between consumers and traders. The Regulation provides a European online dispute resolution platform (“ODR platform”) which facilitates the “independent, impartial, transparent, effective, fast and fair out-of-court resolution of disputes between consumers and traders online”. The ODR platform does not intend to resolve a dispute, but rather to channel the dispute to a relevant ADR entity in case both parties agree. The ODR platform should become operational in January 2016. 

The two interlinked and complementary legislative instruments aim to provide a high level of out-of-court, fair, quicker, low-cost consumer protection by Member States. By virtue of these acts, the EU aim to promote the use of ADR schemes in disputes involving consumers’ complaints throughout the EU. 

Changes in the Bulgarian Consumer Protection Act 

The suggested new provisions and the amendments to the existing ones, in general terms, set the primary criteria for ADR entities and ADR procedures. 

The ADR procedures should apply to disputes between consumers and traders, however, disputes between traders, as well as trader-against-consumer complaints, shall not fall in the scope of the new provisions of the Consumers Protection Act. 

The ADR entity can be comprised of either one physical person or it can be a collegial body. The Minister of Economy should establish general conciliation committees and sector conciliation committees with the Consumers Protection Commission to act as ADR entities. 

On the one hand, general conciliation committees should resolve domestic and cross-border disputes between consumers and traders related to sale and service agreements, including in connection with guarantee liability of the traders and consumers’ right to complain of goods or services. 

On the other hand, sector conciliation committees should assist in the resolution of domestic and cross-border disputes between consumers and traders related only to the energy, water and sewerage services, electronic communications and postal services, transport and financial services.

The ADR procedures are optional and it is up to the involved parties whether to file a complaint with the ADR entity or with the court. In case the parties have recourse to ADR procedure, the outcome of which is not binding, the parties are not subsequently prevented from initiating court proceedings in relation to that dispute as a result of the limitation expiry or prescription periods during the ADR procedure. 

The ADR procedures should be available and easily accessible online and offline to both parties. 

Impact on Businesses 

It is expected that these new EU regulations will promote cross-border online sale throughout the EU by way of better protection to EU customers who purchase products and services online from traders established within the EU. 

As a result of the new legislative updates, all businesses which sell goods or services online will be required to provide on their website information about their email address and link referring to the ODR platform. All traders should provide information to the consumers also about the ADR entities by which those traders are covered, as well as when those traders commit to or are obliged to use ADR entities to resolve disputes with consumers. 

In view of the above, businesses will have to amend and supplement not only their internal policies and procedures for complaint handling, but also their websites and terms and conditions. 

By Anna Rizova, Managing Partner, and Dessislava Iordanova, Senior Associate, Wolf Theiss Attorneys-at-Law