Oleksandr ZAVADA: "Our task is not to let us fool ourselves"

Obviously the SAC leadership must be aware of its reputation, for its chairman, Oleksandr Zavada, joined The Day's round table wishing to explain things and make his Committee more understandable and open. Of course, the journalists present wanted to know about monopolization on the domestic market and administrative interference in the economy in the first place.

"DUAL STATUS IS NO OBSTACLE"

Q: Over the past several years Ukraine's competitive space has been narrowing, which is only natural considering that the government, while adopting regulatory acts, is most actively involved in business, elbowing private business out of the market. How can SAC resist this government monopoly, being formally part of the government machine?

A: I will start with being part of the machine. Our status and membership are formed jointly with the Verkhovna Rada. Previously, the head of the Committee was appointed by Parliament. Under the new Constitution this post is appointed by the President with the Verkhovna Rada confirmation. Changes must be made in the laws and bring various regulatory documents into conformity with the Constitution, but because of constant delays in the legislative process we cannot solve a number of organizational problems. Thus, the SAC is de jure subordinated to the Cabinet, but the law says that when making decisions on antimonopoly infractions the state agents, that is, the officials making up the Committee, should act independently. A paradox, one of many that can exist only in Ukraine. Just imagine: being accountable and independent when making decisions! Subordination to the Cabinet allows us participation in all projects and documents prepared by and within the Cabinet.

Q: This is a plus, but the minuses?

A: Everybody wants to boss us around, and there is nobody when we need help. This dual status is no obstacle in exerting maximum influence on the situation. However, when it comes to making basic decisions, our recommendations can be totally disregarded.

Now about competition in the economy. There are two aspects. One is structural and the other normative. In the structural respect our competition is higher than that in France or Russia, but our culture of competition is low. In terms of competition our domestic managers often act contrary to their own interest.

In the normative aspect we really tend to create monopoly intermediaries, but the situation is not irreversible. It is much more difficult to destroy an existing monopoly structure, so I believe that we already have a critical mass of competition, because competitive market operators are showing their displeasure, primarily by applying to SAC and we defend them as much as our competence allows. If their grievance is political they turn to the Verkhovna Rada or pressure the Cabinet.

Q: Do we have so-called unnatural monopolists? If so, where do they operate for the most part?

A: Yes, we have, more than I'd care to recall. In the first place government agencies with monopoly status like the State Traffic Control Inspectorate, Security Division of the Interior Ministry, or Ecological Service under the Ministry of Ecological Safety.

Q: In other words, Ukraine discarded the natural course of privatization, private ownership development and effective state management. Instead, the levers of state administration were privatized, which is the main obstacle in the road of fair competition, right?

A: Ironically, frequent changes in the executive leadership prove a positive factor, since no one has had time to complete this type of privatization.

Q: Frequent Cabinet changes under the same Chief Executive give rise to many questions. You have mentioned the legislative aspect. Why do you think they pass bad laws? Is it incompetence, evil intent, or lobbying? Which lobbies would you call the most influential in Verkhovna Rada?

A: Most lobby pressure comes from the oil and gas sector, metallurgy, agriculture, and banks. But there are also regional lobbyists. We try to cooperate with all of them, as well as with every faction. However, I can't think of a single project closed because of such pressure. Of course, we have had to steer a middle course, otherwise I would not have occupied this post for six years. But again, these concessions had nothing to do with transgressions or their consequences. The transgressions had to be stopped and their consequences corrected. The Savings Bank is a good example. We opened a case in Kyiv, and in the end had all of the 18,000 bank offices across Ukraine lower their costs five times over.

IT'S POLITICS, NOT THE MARKET

Q: As a man responsible for competition, do you remember anyone winning this competition starting from scratch in business? We would like to write about such people, but we can get no information and digging up files shows that all successful businesses are rooted in the Komsomol or party elite. In other words, people with a very good head start financially.

A: You're right, finding such true beginners takes a lot of research. However, our Committee does not look for finance sources, although I think that there are such businessmen.

Getting back to monopolies and ways to fight them, we are faced with two most important problems: effective property management and the government regulation of prices and other business activities. Let me cite some figures to show just how important these problems are. Ukraine has Hr 90 billion worth of accounts receivable and Hr 120 billion in terms of accounts payable. Where does all this comes from? It appears that we want to create special preferential conditions for certain industries, something no other industries have, but the economy refuses to accept this approach and bills remain unpaid. A most typical example: housing and municipal services, meaning Hr 5 billion (30% financed by the state budget - Ed.). Here profitability is "programmed" (i.e., calculated in advance, whereas every ordinary business calculates its profits proceeding from the results of its performance - Ed.), set at 30% against Ukraine's average of 3%. Here we have two aspects. First, municipal expenses that no one bothers to check on and which are often made up to be entered into accounting reports. Second, the 30% from the budget. Somewhere in America a municipal project given such financing would bust its seams with running water and central heating. In Ukraine the only response is nonpayment. Add here costs based on dollar equivalents. How is one to explain that railroad costs have grown 1.5 times?

All told, we estimate unjustified expenses (e.g., those borne by Ukrainian enterprises for the benefit of monopolists - Ed.) at Hr 50 billion. In other words, we could have channeled precisely this amount into the real economy and allow enterprising people to start effective businesses. Under the circumstances starting an effective business is simply impossible. Technically. In Lviv, consumers pay Hr 2.75 per cubic meter of water, and in Ternopil it is 40 kopiykas. How can a business in Lviv compete with one in Ternopil? Back in 1995, SAC raised the question of modifying the price regulating vehicle and a month later its monopoly price regulating program was officially recognized as "unsatisfactory." This was another way of saying that we were getting out of line. At the same time, a businessman setting profitability at 50% or 100% sets red lamps flashing at SAC. And this with every generating company having its profitability at 200%! In a word, what is happening now is best described as monopoly prices being legitimized by executive authorities. Derzhkomzviazok [State Telecommunications Committee] is the best example. After we tried to interfere with their costs a departmental directive was hastily registered with the Ministry of Justice, binding us hand and foot. Now they are free to skim the cream and all our recommendations were disregarded by the Cabinet.

We try to protect the consumer and tell about our work to raise the cultural level of competition, but there is only so much we can do. And the example I cited shows that the decision made was a purely political gesture. There aren't many cases like this one: Naftohaz (Oil & Gas), Liky Ukrainy (Medicines of Ukraine, Ukrpolihrafvydav (Ukrainian Printing & Publishing), and several others. Of course, I am worried by this, but we have to go on working and we do, preparing drafts and carrying out inspections, although most of our decisions are sooner or later overruled.

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Has the State Antimonopoly Committee done much over five years of continuous struggle for a fair competition? After talking to Oleksandr Zavada the overall impression was that it has: thousands of bills considered and transgressions prevented or corrected. At the same time The Day's journalists present at the round table had no idea about how much we all depend on the appetite of our monopolists in the municipal, telecommunications, and transport spheres. The fact that SAC, unlike all of us, has the authority to combat this but cannot do so means that the lion's share of work is still ahead.