Practice Area Description

Competition issues are regulated by the Kazakhstani Law of 25 December “On the Competition”.

Kazakhstan’s antimonopoly authority is its Agency for the Protection of Competition. The industry regulators engaged in developing competition are Kazakhstan’s Information and Communications Agency, the Agency for the Regulation of Natural Monopolies and the Agency for the Regulation and Supervision of the Financial Market and Financial Institutions.

Kazakhstan is unique in that the State regulates tariffs for services, goods and works not only in the case of natural monopolies, but also of companies occupying a dominant (monopoly) position in the fields of rail transport, the electricity and thermal energy sectors, oil and gas transportation, civil aviation, port operations, telecommunications and the postal service. The Information and Communications Agency and the Agency for the Regulation of Natural Monopolies are responsible for regulating tariffs in these sectors.

Tariff regulation is governed by the Law of 9 June, 1998 No.272-I “On Natural Monopolies and controlled market” and the Law of 7 July, 2006 No. 173-III “On the Competition”.

By competition protection we mean:

  • prevention and suppression of cartels;
  • prevention and suppression of any abuse of a dominant position;
  • prevention and suppression of anticompetitive actions by public authorities;
  • control of economic concentrations;
  • control of unfair competition.

Cartels

The purpose of antimonopoly legislation worldwide is to protect competition and restrict any actions by market participants which could materially affect competition.

Anyone establishing a business will need to check whether its intentions with regard to the implementation of specific projects, including joint projects with other businesses, could be classed as anticompetitive agreements (concerted practices).

Businesses need to be aware that Kazakhstan’s laws prohibit any form of agreement (including an oral agreement) or concerted practice between market participants, under which term legislation includes all individuals and legal entities.

Let us take a few examples of anti-competitive agreements between market participants. When entering into price-fixing or market-sharing agreements with their competitors, it does not always occur to entrepreneurs that such agreements will be treated by the antimonopoly authorities as anti-competitive agreements and that they will bear liability, including in some cases criminal liability.

Furthermore, it should be noted that anticompetitive agreements can include the restriction of access to the market in a particular commodity or the exclusion of other market participants (whether as buyers or sellers), the application of discriminatory conditions to equivalent agreements with other market participants, price-fixing and other activities.

Anti-competitive Actions by Governmental Authorities

Competition is affected by many factors, including encouragement from public authorities for the development of new businesses. At the same time, certain actions by public authorities can have a negative effect on the development of competition.

Such actions may include a restriction on new businesses being created in a particular sector and actions which discriminate against certain market participants (or place them at a disadvantage)  compared with their competitors, etc..

Where anticompetitive actions on the part of governmental authorities are exposed, those affected have the right to protect their rights and interests as provided by law.

Unfair Competition

No entrepreneur is immune to unfair competition. It is therefore up to antimonopoly legislation, and, in particular, legislation against unfair competition to protect the interests of market participants.  

Unfair competition can, for example, include the unlawful use of an entity’s name, trademark, service mark and/or other commercial emblems or “passing off” – where a competitor presents their goods with the intention that they will be mistaken for those of another company. 

Unfair competition also covers the dissemination of information known to be false regarding goods (works or services, as the case may be) and other information known to be false in order to discredit the goods (works or services, as the case may be), name or reputation of a company. Anyone disseminating such information is liable under the legislation of the Republic of Kazakhstan.

At Sayat Zholshy & Partners we have extensive experience of successfully representing our clients in disputes relating to the charge of having entered into concerted practices, appeals against actions by public authorities and advising on the compliance of client activities with the requirements of competition legislation.

Dominant (Monopoly) Position in the Market

In the case of companies which have been notified of their inclusion in the State Register of entities occupying a dominant (monopoly) position in the market for specific goods, works or services, and which wish to appeal, we can help them do so either via the Agency for the Protection of Competition or through the courts.

The antimonopoly agency lists in the State Register those companies with an individual market share exceeding 35%. However, there are often cases where companies with a share of less than 15% have been listed as their shares have been taken in aggregate with those of other companies. Furthermore, market analysis and market share calculations are frequently simply inaccurate. As a result, the Register may include entities which do not actually occupy a dominant (monopoly) position in the market either individually or in aggregate with other entities. 

Kazakhstan’s current civil, procedural and antimonopoly legislation includes provisions enabling entities to assert their rights and interests, primarily by way of appeal (made in line with the proper procedure) against and revocation of decisions by the relevant officials and actions taken by the antimonopoly regulatory authorities inconsistent with legislative provisions.
Sayat Zholshy & Partners has positive experience in the revocation of decisions by public authorities as a result of appeals made both through the courts and outside the courts.

Economic Concentration

If an individual or company wishes to purchase 25% or more of the shares (through a stake in the charter capital) of another legal entity, it is necessary to check whether the resulting economic concentration will require the agreement of the antimonopoly agency. In certain conditions preliminary consent from the antimonopoly agency is required for such a transaction. Breach of this provision may result in the antimonopoly agency having the transaction declared invalid. Where a transaction is declared invalid, one of the consequences is restitution, i.e. the parties are returned to their original positions, which at times can mean the loss of the purchased business and/or funds invested.

Economic concentrations may arise not only through an acquisition of shares (through a stake in the charter capital), but also through the reorganization (merger and acquisition) of a market participant with a dominant (monopoly) position in the relevant commodity market, the acquisition by a market participant of rights allowing it to dictate market conditions in its own sector, the same people serving on the executive boards or boards of directors (supervisory boards) of two or more market participants, etc.
Entrepreneurs frequently disregard these legal provisions and expose their business to serious risks. In this regard, it is necessary not only to give serious thought to how one is going to implement one’s business idea, but also to review this plan in the context of the requirements of antimonopoly legislation.

Those engaged in business also need to take into account the fact that Kazakhstan’s antimonopoly provisions cover not just entities with special status, but also any business activities conducted by individuals or legal entities.
We at Sayat Zholshy & Partners will help you prepare, file and process the relevant application for consent from the antimonopoly agency to an economic concentration in the proper manner. 

Tariff Regulation

The legislation of the Republic of Kazakhstan is intended to regulate the activities of natural monopolies. In addition, the Agency for the Regulation of Natural Monopolies regulates prices for the goods (or works or services) of market participants occupying dominant (monopoly) positions in the markets related to rail transport, the electricity and thermal energy sector, oil and gas transportation, civil aviation and port operations.

The Agency for Information and Communications regulates prices for the goods (or works or services) of natural monopolies and market participants occupying dominant (monopoly) positions in the telecommunications and postal services market.

In practice, the antimonopoly authorities often have a very biased understanding of the purposes and objectives of antimonopoly regulation. This is evidenced from their regulation of the activities (mainly the setting of tariffs — i.e. the pricing of services) of natural monopolies and market participants occupying dominant (monopoly) positions in the market. They ignore the rights and legal interests of these organizations as entities running a business activity and needing to attract investment. 

In addition, the antimonopoly agencies are unduly prone to interpret as breaches of antimonopoly legislation procedures and practices adopted by market participants in the sale of their services which are generally accepted and/or common in the global arena.

The protection of clients’ interests in this area is thus of practical significance to the business of Sayat Zholshy & Partners.

In preparing M&A transactions, our lawyers pay great attention to compliance with the requirements of antimonopoly legislation. This involves structuring transactions (particularly when acquiring a business with a significant share in the relevant market) in such a manner as to rule out or minimize the risks of objections from antimonopoly authorities. Alternatively, one stage of the transaction may involve the preparation and submission – with the appropriate supporting documentation - of an application for consent to an economic concentration. In this case, we continue to provide legal advice while the application is being considered by the relevant authority.

Contacts

Head Office in Almaty:
10th Floor, Koktem Business Center, 180 Dostyk Avenue, 050051, Almaty, Republic of Kazakhstan
+7 727 2222 711
info@szp.kz

Office in Astana:
Office 1306, 13th floor, Marden Business Center, 14 Beibitshilik Str., 010000, Astana, Republic of Kazakhstan

+7 7172 76 90 06
aberdalin@szp.kz