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Speech by the EEC Minister for Competition and Antitrust Regulation Nurlan Aldabergenov at the EEC meeting in Ust-Kamenogorsk

Speech by the EEC Minister for Competition and Antitrust Regulation Nurlan Aldabergenov at the EEC meeting in Ust-Kamenogorsk

11/1/2012
United We Stand, Divided We Fall.

Flash! newspaper ​

The Customs Union of the three states – Belarus, Kazakhstan and Russia – evolves and acquires a clear shape. The Common Economic Space is now really uniting enterprises and industries in various areas, and brings together the peoples who were locked in their national flats 20 years ago. Figuratively, this important process can be compared with how one makes door openings that are needed so much to enable communication. The ties between neighbours and states move to a totally new level of quality.
 
The Eurasian Economic Commission, being the supreme regulatory authority of the three states which was set up by the presidents of Belarus, Kazakhstan and Russia late in 2011, met on October 11, 2012 in the Altai High-Tech Park, Ust-Kamenogorsk. Previously, such events had been held in Karaganda and Novosibirsk, and now the regional center of East Kazakhstan was honoured to welcome the guests and host such a large-scale forum. B. Saparbaev, the Akim (head) of the East Kazakhstan Region, addressed the visitors with welcoming remarks, stressing the solemnity of the moment and the importance of developing and expanding the economic ties between Kazakhstan, Russia and Belarus, including our region that is among the leaders in the Republic in terms of industrial potential and electricity generation. This time, the meeting addressed fuel and energy issues dealing with competitiveness, and informed the general public about the unification of the antitrust laws of the CU and CES member-states. After a short speech, the Akim of East Kazakhstan Region left, saying that he should go to Astana, but, in general, that had no impact on the working process. The process was facilitated skillfully by the EEC Minister for Competition and Antitrust Regulation Nurlan Aldabergenov, which described the current situation in the Customs Union, challenges and possible solutions in his extensive report.

– Creating a common competition policy in the CES, which will embrace antitrust and price regulation, including control over governmental regulation of prices, as well as government and municipal procurements, will become the key to success, stressed N. Aldabergenov.

It should be noted that the Eurasian Economic Commission has the status of a supranational governing body and is not subordinate to any government of the three states. However, its decisions and laws are binding for Kazakhstan, Russia and Belarus. Practical examples of how the EEC exercises its powers and authorities are already available: the EEC stopped the so-called ‘calico-flax’ war between Russia and Belarus that started to supply cheap fabrics to Russia; the EEC forced the Russian government to cancel their anti-competitive decree. After that, supplies of high-quality Belarusian products to the Russian market continued smoothly. So, it is not by chance that today’s meeting of the Commission was organized under the motto “Common competition policy is a necessary condition for effective operation of the Common Economic Space.”

Fortunately, the examples of rejecting products supplied by our CU neighbours are much fewer than those of successful penetration to each other’s markets. Here are some figures. In 2011, mutual trade between the three states increased by 32% vs. 2010, from $94 billion to $125 billion, and trade between Kazakhstan and Belarus during the same period was up by 22% (from $19 billion to $23 billion). The process started even before January 1, 2012, when the Customs Union was launched officially. It is building up gradually now.

– Much has been done, and much still needs to be done, – said Nurlan Aldabergenov. – In particular, the excise rates in our states, for example on oil products, differ very much. For example, Kazakhstan charges an excise of $66 per 1 ton of gasoline, while Russia charges $225 and Belarus charges $142. Gas and diesel fuel prices also differ, with Kazakhstan having the lowest prices. A similar situation exists in some other areas of economy. Electricity sales volumes and prices shall be monitored closely in Kazakhstan and Russia, on the cross border markets, to prevent possible anti-competitive practices and agreements. We think that unequal conditions of competition between business entities in the three states should be eliminated; and this requires harmonizing our legal frameworks and starting practical work to formulate a common competition policy.

By the way, the energy sector in Belarus and Russia is entirely controlled by the state, while in our country foreign companies, such as AES from the United States, are still allowed to operate in this strategically important sector. They are being squeezed out of the market, but not actively enough. However, their actions cause damage to the country’s economy in general and to the economy of East Kazakhstan in particular. For example, the Ust-Kamenogorsk Hydroelectric Power Plant and the Shulbinsk Hydroelectric Power Plant offer, probably, the lowest electricity rates in the CIS region – 3.30 tenge per kW/h; however, in Ust-Kamenogorsk electricity rates are 8.17 tenge per kW/h, and the power station owners point out to a strong shortage of electricity, but supply it to Kostanay and other regions. East Kazakhstan covers that shortage with supplies from the Ekibastuz State District Power Plant at its rate of 6.5 tenge per kW/h. According to the information of the Agency of Kazakhstan for Regulation of Natural Monopolies, such actions by AES result in annual damage of 650M tenge, and rates for the region’s population can be considerably lower – 7.73 tenge per kW/h. However, the capitalists are much more concerned about their profits and do not think on a nation-wide scale, so we believe it's high time that the entire energy sector of Kazakhstan were nationalized. Annually, the supervisory agencies uncover numerous anti-competitive agreements between energy companies.

In his report, Nurlan Aldabergenov notes that once all EEC laws related to competition are finalized, the energy systems of Belarus, Russia and Kazakhstan will be united into a single powerful grid. In this case, a shortage of electricity in any, even the most remote district of Belarus can be covered with surpluses from, let’s say, Pavlodar or East Kazakhstan.

– We have West Kazakhstan Region that experiences a shortage of electricity, — said the EEC Minister. — Arranging transit of the required amount of electricity, being 229 million kW/h, from Ekibastuz through the territory of Russia by connecting to their grids will provide electricity cost savings of 640M tenge. It's more than $4M! As a result, average electricity rates in West Kazakhstan Region can decrease from 8.92 tenge per kW/h to 8.42 tenge per kW/h. In general, integration has more pluses than minuses. Let’s take, for example, air fares on the routes with high and low competition. An air ticket from Almaty to Istanbul costs 27,000 tenge (a return ticket costs 54,000 tenge), while a ticket from Ust-Kamenogorsk to Novosibirsk costs 27,388 tenge! The distance in the latter case is considerably shorter (554 km), but flights are operated by one carrier only. The result is overpricing. The Moscow - Minsk route (650 km) is serviced by 5 carriers, and the price is reasonable – 15,000 tenge. The delegates of the three states who spoke during the round-table discussion unanimously agreed that competition in this sector should be welcomed, and routes between the states should be improved, and direct flights between cities should be launched. And all this should be addressed in the near future. A special Open Sky programme is being developed for this purpose. A rather interesting fact was voiced: notwithstanding the apparent crisis, passenger and cargo traffic had been growing steadily, up by 23% in 2010, by 46% in 2011, and by 39% for the nine months of 2012. Traffic from Kazakhstan to Russia, Belarus and Ukraine, as well as from these countries to Kazakhstan increased. The conclusion is simple – we are becoming closer.
 
The speakers from Russia conclusively demonstrated that targeted work of the government with mobile network owners brought certain results: the latter reduced their rates in 5-10 times. Now, intra-network rates in Russia are among the lowest ones in the world, being only 5 to 15 kopecks per minute (15 to 45 tiyin). Roaming services also became considerably cheaper. Kazakh Beeline and K-Cell operators offer roaming rates much higher than those offered by Russian mobile operators. The Kazakh party acknowledged that leveling rates was a persistent need and reassured that it would address it.
By the way, closer inter-state ties between our three states will result in many goods becoming much cheaper. Growth of parallel import will automatically reduce prices of car spare parts by 60-80%, prices of sporting goods by 30-45%, prices of perfumery by 60%, prices of cameras by up to 20%, prices of car seats by up to 40%, and this list can be extended... The EEC economists have already done a huge amount of work and calculated all impacts of good neighborly competition. The only thing we need to do is to approve common laws for the entire territory of the Customs Union.

– The Senate of Kazakhstan has already ratified a number of laws related to the Customs Union, which are needed for the Common Economic Space and comply with all necessary regulations, with some more laws, including the Law on Competition, still under consideration, – said the deputy of the Senate of the Parliament of Kazakhstan Alexander Sudyin. – I think they will also be ratified in the near future. We closely deal with the legal support of the integration processes within the Eurasian Economic Space and are committed to ensuring that the new Union would provide favourable and equal conditions for everyone. In this respect, we share absolutely the same point of view with the Russian and Belarusian side. I believe that only united we will be able to cope with any external economic expansion and any signs of the global crisis! That’s why we need the EurAsEC and the Customs Union with its common economic space. United we stand, divided we fall!

Russia and Belarus are also unifying their legislations. The Parliaments of the two countries are working to do this. Exactly one year is available to complete all this. In October 2013, the heads of states shall adopt a document that will formalize compliance with these requirements and complete harmonization of the legal frameworks of the three states. Based on this, a commission will be created to investigate cases of abuse of a dominant position, unfair competition, anticompetitive agreements, as well as any other facts that will negatively affect the cross border markets. So, all abusers will be strictly controlled!

– Free movement of goods, elimination of barriers, and similar approaches to the competition policy will be the most important and fundamental principles of the new legal framework in the field of competition, — stressed the EEC Minister N. Aldabergenov. — These three pillars will provide a solid foundation for our Customs Union. No one should be prejudiced, even when it concerns minor things.

The forthcoming gasification of many areas in Kazakhstan is another example of our fruitful cooperation. The blue fuel from Krasnoyarsk and Siberia will come to us through the Altai Territory and, as industry experts and EEC economists estimate, will cover approximately 1 million people in the Republic of Kazakhstan. Currently, this project is at the stage of feasibility study, but in 1.5-2 years it will reach its practical phase, i.e. gas pipeline construction will start. The project designers intend to supply natural gas to Asia-Auto plant that was designed to be gas-fed, and they also intend to build a wide network of gas filling stations in East Kazakhstan Region (similarly to Russia and North Caucasus). The Belarusian side will help with leading-edge technology and will supply its best gas meters – the CU partners have accumulated a huge experience in this field.

– Currently, 250 joint ventures with the Russian Federation and the Republic of Belarus have been created and are operating in East Kazakhstan, — said the Deputy Minister of Economy of Belarus Anatoly Filonov, to whom I talked for the first time. – Our country helps establish and equip assembly plants, such as the plant in Semei, where tractors, combines and other agricultural machines are assembled. We have a great interest in your region and in Kazakhstan in general. A joint venture already operates in Pavlodar, supplying high-quality lifts from Mogilev. I believe that Kazakhstan people will not have any complaints about our lifts. Please believe that it is only the beginning of our neighbourly cooperation. We are ready to share everything we know and can with our friends…

It should be noted that, in 2011 alone, trade between East Kazakhstan Region and the Customs Union member-states amounted to $1.4 billions, with exports of $381 million and imports exceeding $1 billion. This year, in 2012, these figures were exceeded already by October. It is likely that these figures will continue growing in the future; it can be forecasted for sure. However, everything will not go smoothly and without friction until the countries unify their legislation. Kazakh businessmen who spoke at the Commission’s meeting voiced certain complaints about their national and foreign public authorities. For example, a representative from Pavlodar oil refinery pointed out to the fact that a fuel export ban still persisted in Kazakhstan (since June 1, 2008), while Russian refineries were allowed to export fuel freely. The oil refinery had 94 thousand tons of AI-92 gasoline and 80 thousand tons of diesel fuel at its depots, but was unable to sell excessive products to Russia. In reply, Kazakh officials promised to study the situation in detail and, if possible, resolve the issue.

Igor Shatsky, the Director of the Branch of the National Economic Chamber “Atameken” in East Kazakhstan, in detail told about many aspects of mutual trade that up until that time had been a barrier for businessmen and hindered mutual approximation. For example, transit transportations through the territory of Russia are liable to VAT, similarly to transportation of goods from Russia to Kazakhstan. Consequently, transportation costs are included in the price of goods at the time of customs clearance, which makes goods more expensive. Ultimately, consumers suffer. Igor Shatsky says that very often double VAT is charged. The tax authorities make VAT refund as difficult as possible and in case of slightest suspicions deny a refund.

– The situation is not easy, — says Mr. Shatsky. — And our task is to attract attention to this scope of issues. Such difficulties make many businessmen reject a number of contracts and expansion of their ties. It's high time for us to beat an alarm! The lawmakers and public officials should revise their regulations, decrees and, in general, the rules of play, if we want to exist within the Common Economic Space in a mutually beneficial way and without frictions! A number of procedures related to drawing up of customs declarations and other international trade documents shall be simplified. We submitted our proposals to the lawmakers and ministries, and we believe that they will hear us in the near future.
Besides, Igor Shatsky draw the attention of the Russian and Belarusian delegates to several important issues related to discrimination of Kazakh goods in Belarus and Russia.


It was discovered, that Kazakh confectioners manufactured products under the brands inherited from the Soviet era. However, those brands had their holders of rights in the Russian Federation. In this connection, it was almost impossible to obtain a Russian permit to import Kazakh chocolate.
– For many confectionary products from Kazakhstan, access to the Russian market is almost closed, — stressed I. Shatsky. — To smooth over the differences, we need to accelerate signature of an agreement on mutual recognition of trademarks.

As far as Belarus is concerned, only a limited number of companies there are authorized to import alcohol. This market is still closed for Kazakh producers. The list of alcoholic drinks that are not subject to the exclusive right of the state is very limited: five brands of elite French champagne, 13 brands of French and Armenian 10-years-old cognac; 7 brands of whiskey, and 4 brands of rum and gin.

– We think that such restrictions are to the prejudice of our rights as a CES and CU member and violate the terms of the agreement on the creation of a common customs territory between the three states! — says Igor Shatsky. — So, there is a paradox: they make friends with us, but drink Armenian cognac! Kazakhstan also has good elite brands to offer. Where is freedom of competition?
The members of the common economic commission, as well as representatives of Kazakh, Russian and Belarusian ministries listened to all the wishes and comments voiced by the businessmen and agreed that those should be taken into consideration when new laws are drafted, while some issues should be addressed routinely. In particular, the Deputy Minister of Economy of Belarus A. Filonov reassured that upon his return to Minsk he would immediately contact the committee responsible for alcohol supplies and would try to resolve the issue in favour of Kazakh wine-makers.

Summarizing the results of the round-table discussion, the EEC Minister N. Aldabergenov said:
– Certain frictions still take place, but these are routine work. The main thing is that there are no fundamental disagreements between the countries. There are will and a strong desire for unity… I think that all possible barriers preventing business entities and manufacturers from entering the markets of the CES member-states will be removed, and discrimination and other residual negative things will be eliminated. The adoption of a model law on competition will make it out and will satisfy all the parties.
The next meetings of the Commission will be held this autumn in Volgograd and will be visited by industrialists from Kazakhstan, Russia and Belarus, as well as in Minsk, where intellectual property issues will be addressed. Integration processes are going on at a great pace, and time is really precious now…

Sergey VASILIEV​


From the editor. While various national patriots are claiming that the sovereignty of Kazakhstan has been violated, and threaten that they will convene a referendum on the issue of Kazakhstan's accession to the CU, CES and the future Eurasian Union (where were they when, contrary to the results of the referendum, the USSR was destroyed on March 17, 1991), and accuse the government almost of betraying the national interests of Kazakhstan, the process takes its normal course. To support their loud political demands, the national patriots provide the results of a survey suggesting that most people support not the Eurasian Union of Kazakhstan, Russia and Belarus, but a union of Turkic states. However, it is not clear whom they surveyed. They may have asked themselves. As long as there is political will of the three states to integrate, the process is gradually becoming irreversible. The establishment of the Eurasian Parliament is being already discussed. There is no other way in the world of the future. Alone, we will be crashed. Today's kings of the world clearly demonstrated how they can crash countries in Libya and now in Syria.

As regards our daily life, we start feeling the pluses of the union. Excellent Belarusian sausages appeared in shops. Doktorskaya sausage resembles the famous soviet sausage, and other cooked and smoked sausages also have excellent quality. Besides, they are cheaper. So, it sells like hot cakes. That is why TOO Rubicom, Pavlodar, did not reply anything to our enquiry regarding the quality of Doktorskaya sausage; there is nothing to reply. Belarusian manufacturers make their products from natural meat with minimum quantities of additives and preservatives, while our sausages are filled with additives. Now, we have to either improve quality or leave the market; the people quickly understood what tastes better.​
Belarusian cosmetics were also accepted well in the Kazakh market. Life became easier for our vegetable growers. Russian people buy almost all our potato and carrots. Good-quality and cheap vegetables sell well in Russia. Life is going on. People are searching ways to survive in the global world. And it’s absolutely clear who will dominate in the future.​