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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

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

3 November, 1998 - 00:00


How does the Ukrainian man in the street feel about government structures
like the State Antimonopoly Committee? Most likely he just does not give
a damn. Or if he is interested in economics, the attitude will be sarcastic:
they are supposed to be struggling to uphold competition. Instead, monopolies
are getting stronger. There is a good old Soviet saying: "People steal,
and the country gets richer."

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.

* * *

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.

 

 

 

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