Monopoly Breakup in Ukraine
CMS Cameron McKenna,
Kyiv, Ukraine, Won, Sep 23, 2019
On 5 September 2019, the Antimonopoly Committee of Ukraine (AMCU) found the OSTCHEM group, a producer of nitrogen fertilisers, guilty of abuse of the monopoly (dominant) position, ordered its break up, and imposed a fine of UAH 107 million (ca. EUR 3.9 million) on OSTCHEM's trading company NF Trading Ukraina LLC (NF Trading).
This is the AMCU's first action of this kind since 1995.
The AMCU ruled that OSTCHEM, including its producing companies Azot PJSC, Rivneazot PJSC, Severodonetsk Azot Association PrJSC and its trading company - NF Trading, abused the monopoly (dominant) position in the market of nitrogen fertilisers during the period 2014 to 2017.
Specifically, the AMCU cited the following actions as abuse of monopoly (dominant) position:
- systematic overpricing of intra-group re-sales of natural gas, the primary raw material in the production of fertilisers, which led to an unjustified increase in production costs and higher end prices of nitrogen fertilisers; and
- suspension of production of nitrogen fertilisers from March to June 2017 during Spring field work season, which resulted in a shortage of fertilisers for farmers.
In the AMCU’s opinion, if the three main domestic fertiliser producers in the group were actually competing and not acting as a single undertaking, this abuse of dominance would not have been possible.
The AMCU noted that given the excessive duration of the violation over several years and its negative impact on the agricultural market, there should be a forced breakup of the group to prevent similar violations in the future.
As a result, the AMCU ordered OSTCHEM to carry out a forced breakup of its group within nine months of its decision.
Representatives for OSTCHEM stated that the group is considering a court challenge to the AMCU decision. If this occurs, this will be the first legal test of an AMCU ruling.
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