Competing with the Government

In 2007, the working group of the Committee for Protection of Competition of the Kazakhstan Ministry of Industry and Trade developed amendments to the competition law aimed at limiting public participation in entrepreneurship (so called “Yellow Pages Rules”).  As a result, the Competition Law of 25 December 2008 was incorporated new Chapter 4 (Public Participation in Entrepreneurial Activities).

Unfortunately, the lawmakers committed a minor but fatal mistake – instead of recognizing the presence of private business on the relevant commodity market as the only ground for refusal to incorporate a public company they wrote that “the refusal is possible only if the incorporation of such entity entails foreclosure”.  That is why the Yellow Pages Rules became inoperative.

The problem is that under the methodology applied by antitrust authorities the emergence of another competitor (even if government-linked) in the market is deemed as a pro-competitive event, i.e. by no means such event can lead to foreclosure, therefore, there is no reason for denying incorporation of such entity.

In June 2009, Business & the Power newspaper (No. 266) published my article in which I tried to prove the declarative nature of law provisions.  Practice has shown that, indeed, since that time the number of public companies has increased.

In the middle of the last year, a number of progressive entrepreneurs once again pushed forward the idea of necessity of the Yellow Pages Rules for business development.  Due to that initiative, on 24 April 2015, the Parliament adopted the Law On Amendment of Certain Legislative Acts of the Republic of Kazakhstan Concerning the Limitation of Public Participation in Entrepreneurial Activities.  Regrettably, the analysis of this Law has shown that, for the most part, the Yellow Pages Rules remain inoperative.

First of all, the Law prohibits incorporation of those public companies which can be classified as small-size businesses, and that is a positive innovation.  However, this prohibition can be evaded due to the growing trend of allowing the incorporation of public companies, in particular, when such incorporation is explicitly provided by laws, presidential decrees and government resolutions.

Secondly, with respect to the incorporation of public companies which can be classified as mid-size and large businesses the Law makes the same old mistake, i.e. antitrust authorities refuse to issue consent for incorporation of an entity if it can lead to foreclosure.  Therefore, public companies will continue to multiply because, according to modern market research methods, their expansion will intensify, rather than limit, competition.

Thirdly, in relation to the existing public companies the Law provides that antitrust authorities must annually analyse commodity markets and submit to the Government a list of public companies subject to alienation.  However, this provision does not require mandatory privatisation of those companies which operate in competitive markets, leaving it to the discretion of the Government, and such approach is rather soft compared to the original wording of the Competition Law which determined strict deadlines for obtaining favourable opinion of antitrust authorities for continued activities of public companies in the relevant commodity markets.

Lastly, I have to repeat the conclusion made in my article of 2009 – the good intention to limit public participation in entrepreneurial activities still remains a mere intention.

Bikebayev Aydin for the newspaper "Business and power» № 15 (537) 30 April 2015

http://and.kz/userfiles/books/xb&v_15_2015.pdfd20150430075421.pdf