Ukrainian Competition Authority Orders Divestment in a Dominance Case

On 5 September 2019, the Antimonopoly Committee of Ukraine (AMC) imposed a fine for abuse of dominance and ordered  to divest fertilizers business of Ostchem Group. This is the first time since 1995 that the AMC applied such remedy in a similar case. The imposed fine amounted to approx. EUR 3.8 million (UAH 107 million). 

Background of the case 

Ostchem Group includes, among others, three big Ukrainian manufacturers of nitrogen-based chemical fertilizers – Azot, Rivneazot, and Severodonetsk Azot, and also a wholesale trading company NF Trading Ukraina. The AMC found that during 2014-2017 these companies abused their dominant position in the market of nitrogen-based chemical fertilizers by: 

  • boosting up intra-group prices for natural gas, an important raw material used in the production of fertilizers, which resulted in artificial increase of production costs and, consequently,  higher prices for fertilizers; 
  • wilful suspension of production of fertilizers in March-June 2017 (during spring field work) which created deficit and insufficient delivery of the products to agribusinesses. 

The AMC indicated that the abuse of dominance would be impossible if the mentioned three manufacturers of fertilizers were not under common control. Thus, the AMC decided to order divestment of the manufacturers to be completed within 9 months. 

Possible impact on AMC’s approaches 

Divestments and other structural remedies have been very rare in the past and in most dominance cases, as well as in merger cases, the AMC tended to impose behavioral remedies. This mainly owed to lack of regulation that would govern the divestment process. 

The current case can help the AMC  develop relevant practice and approaches to dealing with divestments. So, the authority’s longstanding practice of imposing only behavioral remedies is likely to change, and structural remedies may become more often. It is also likely that the AMC will want to adopt relevant guidelines regulating the issue.

While the AMC decision is not publicly available yet, there has been lots of criticism already. Some commentators say that the AMC should have interfered earlier - at the stage when the fertilizers business was first consolidated by Ostchem Group, in particular when they acquired Severodonetsk Azot back in 2011. Others are concerned that the ordered divestment sends a wrong message to foreign investors, especially where the divestment process is not properly regulated and it is unclear whether Ostchem Group would eventually be able to get a fair consideration for its assets.

Possible impact on ongoing safeguards investigation in fertilizers

In August 2019, the Interdepartmental Commission on International Trade (ICIT) started a safeguards investigation against imports of fertilizers, irrespective of the country of origin. The investigation was in response to the complaint of domestic manufacturers of fertilizers, including the ones from Ostchem Group, who claimed that the increased imports  could cause significant harm to the domestic industry. 

The AMC decision indicates, however, that Ostchem Group dominated in the market and did not face significant competition, be it from local producers or importers. The AMC findings and decision may become an important evidence in the ICIT investigation. It may also happen that ICIT eventually arrives at a different conclusion and the views of the two authorities are in clash with each other. 

For further information please contact Igor Svechkar, Alexey Pustovit, or Pavlo Verbolyuk.

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