ARMENIA'S COMPETITION COMMISSION: GROWING

C O N F I D E N T I A L SECTION 01 OF 02 YEREVAN 000192 SIPDIS SIPDIS E.O. 12958: DECL: 02/06/2016 TAGS: ECON EFIN PREL EAID ETRD AM SUBJECT: ARMENIA'S COMPETITION COMMISSION: GROWING STRONGER SLOWLY REF: 05 YEREVAN 1229 YEREVAN 00000192 001.2 OF 002 Classified By: A/DCM Robin Phillips for reasons 1.4 (b,d). -------------- SUMMARY -------------- ¶1. (SBU) Founded in 2001 to regulate monopolies and combat anti-competitive behavior, the Armenian Commission for the Protection of Economic Competition (the Commission) plays a limited role in managing the Armenian marketplace. The Commission's caseload and enforcement action increased significantly in 2005, but from a low starting point. Last year, the Commission collected fines totaling more than USD 365,000 from companies found guilty of violating the law on competition, up from fines of approximately USD 1,000 in ¶2004. Nearly ninety-five percent of the fines collected in 2005 came from the Greek-owned telecommunications company ArmenTel, who enjoyed a government sanctioned monopoly in the telecommunications market until July 2005 (reftel). Despite the Commission's increased activity, it has yet to demonstrate a willingness or ability to take on the more entrenched sectors of the Armenian economy controlled by Armenia's well-connected oligarchs. End Summary. -------------- COMMISSION NUMBERS ON THE RISE -------------- ¶2. (SBU) The Commission for the Protection of Economic Competition was established in 2001 as an independent structure designed to defend and encourage economic competition and protect consumers' interests. The Commission has received technical assistance from USAID, the Organization for Security and Cooperation in Europe (OSCE), and the Armenian-European Policy and Legal Advice Center (AEPLAC). In 2005, the Commission considered 108 cases (up from 28 cases in 2004) and levied fines of USD 365,000 compared to approximately USD 1,000 in the previous year. Most of the cases (58) were administrative; 29 cases were sanctions for failure to submit information in response to specific requests from the Commission, and 21 were conventional antitrust cases. The two highest profile cases this year were against Armenia's largest telecommunications company, ArmenTel (accounting for nearly 95 percent of the total fines collected in 2005),and a Greek-owned subsidiary of Coca-Cola, which is contesting the Commission's fine in court. -------------- ARMENTEL FINED FOR ABUSING DOMINANT POSITION -------------- ¶3. (SBU) The Commission has given particularly close scrutiny to ArmenTel, a local telecommunications company which has enjoyed a government-sanctioned monopoly on land line wire-based phone services since Armenian telecommunications were privatized in 1997. In July 2005, a new telephone company, VivaCell, entered the mobile telephone market ending Armentel's monopoly in this sector (reftel). According to Commission Spokesman Armine Udumyan, in previous years the Commission levied fines of approximately USD 10,000 against ArmenTel for creating an artificial deficit of the phone chips used with prepaid calling cards (Easy Cards) and for requiring that customers seeking to buy network access cards also purchase expensive cell phones. In 2005, the Commission fined ArmenTel one percent of its 2004 revenue (USD 345,000) for a massive failure of the mobile phone network which occurred when a second operator, Vivacell, entered the market (reftel). The European Bank for Reconstruction and Development (EBRD) in its 2005 Transition Report singled out this case as evidence of the Commission's improved efficacy. -------------- COCA-COLA HELLENIC BOTTLING PROTESTS IN COURT -------------- ¶4. (C) The Commission ruled that Coca-Cola Hellenic Bottling CJSC (Coca-Cola) abused its dominant position in the soft drink market by removing Coca-Cola drink coolers from stores where there were also Pepsi drink coolers. Jermuk Group, the country's largest mineral water producer, recently began importing Pepsi products and Coca-Cola Company Director Vladimir Mikhaylov told us that the case was a result of political pressure from the owner of Jermuk Group, National Assembly member Ashot Arsenyan. The Commission fined Coca-Cola one percent of its 2004 revenue (approximately USD YEREVAN 00000192 002.2 OF 002 120,000). Coca-Cola has sued to have the Commission's decision overturned on the grounds that it was based on an illegal, retroactive application of the law. Mikhaylov told us he was concerned, however, that the court might be under political pressure to uphold the decision and might be biased because the fines, when paid, would become part of the state budget. -------------- POLITICALLY CONNECTED BUT CAUTIOUS -------------- ¶5. (C) Both the Commission Chair and Deputy Chair held positions of significant political influence prior to joining the Commission. The Chair was a Deputy Minister of Trade and Economic Development before joining the Commission in 2004 and the Deputy Chair, who has served on the Commission since its founding, was the Minister of Privatization from 1997 to ¶2000. According to Dr. Michael Nicholson, a USAID-funded expert who has been working with the Commission since 2003, "the largest hurdle for the Commission is a lack of political will on behalf of the administration." Nicholson told us that the commissioners "do exhibit autonomy to the extent politically feasible" but that they would need additional support from the administration to take on more entrenched interests. In Nicholson's opinion, it will likely take "external pressure from either Washington or Brussels," to persuade the administration to provide the Commission with the level of support it needs. -------------- COMMENT: -------------- ¶6. (C) While the Commission had a significantly larger caseload and participated in more enforcement actions in 2005 than in previous years, Commission activities still only affect a very small portion of the Armenian marketplace. Armentel, a company that appeared to be out of favor because of the loss of its mobile telephone monopoly, remained the Commission's primary target both for investigation and collections. The Coca-Cola Company Director's suspicion that political pressure was the driving force behind the case against his company, also casts doubt on the Commission's independence. We will continue to advocate for an open and competitive economic environment in Armenia and USAID's on-going technical assistance will likely strength the Commission. A clear sign of the Commission's maturity, however, will be when it decides to act against one of Armenia's entrenched, politically-connected, oligarchs. EVANS