Application Appeal against a Non-Regulatory Legal Act of the Antimonopoly Authority

To: the Moscow City Arbitration Court

107802, Moscow, 10, Novaya Basmannaya St.



Applicant: OJSC Unified Trade Company

115035, Moscow, 8A/2, Ovchinnikovskaya nab., building 1



Respondent: the Russian Federation Ministry for

Antimonopoly Policy and Support of Entrepreneurship

123995, Moscow, 11, Sadovaya Kudrinskaya St.



State duty: 1,000 (one thousand) roubles





APPLICATION



Appeal against a Non-Regulatory Legal Act of the Antimonopoly Authority





1. Facts



On 11 February 2004, the Commission of the Russian MAP passed a decision on case No. 1 05/4-04 (hereinafter - the Decision) qualifying the actions of OJSC United Trade Company (hereinafter - OJSC UTC, the Applicant) as violations of Art. 5 (1) of the RSFSR Law «On Competition and Restriction of Monopolistic Activity on Product Markets» No. 948-1 of 22.03.1991 (hereinafter - the Law on Competition), manifested in abuse of dominance by OJSC UTC on the caustic soda market by:



- setting a monopolistically high price of liquid caustic soda;

- imposing unprofitable contractual terms on consumers of this produce: geographically unprofitable consignors and economically unjustified penal sanctions.



The Applicant believes that the Decision is inconsistent with the legislation and violates the Applicant's rights in connection with which it should be invalidated.



2. Inconsistency of the Decision with Requirements of the RF Legislation



According to the Decision, the actions of the Applicant were qualified under Art. 5 (1) of the Law on Competition as the actions of a dominant economic entity, which result or can result in infringement of the interests of other economic entities. In particular, the following actions were recognised as unlawful:



- imposing on a counterparty unprofitable contractual terms or contractual terms irrelevant to the subject of the contract (unjustified requirements of transfer of financial assets, other property, property rights, labour force of the counterparty, consent to conclude a contract only on condition of introducing in it of provisions concerning the products in which the counterparty is not interested, etc.);

- setting and maintaining monopolistically high (low) prices.



In keeping with items 2.12 and 2.15 of the Rules of Considering Cases of Violation of the Antimonopoly Legislation approved by Order of the RF MAP of 25.07.1996 No. 91, a decision of the MAP Commission considering a case of violation of the antimonopoly legislation should be motivated, the decision should disclose the circumstances of the case established by the Commission and the conclusions made by the Commission as a result of consideration of the case.



According to the said legal provisions, the Decision should indicate the circumstances on the basis of which:



- the position of the Applicant on the market of caustic soda is qualified as dominant;

- the Applicant has committed actions constituting abuse of dominance infringing the interests of other economic entities in the form of:



(a) setting a monopolistic price;

(b) imposing by the Applicant on caustic soda buyers of the terms on consignors and penal sanctions which are not profitable for the buyers or are irrelevant to the subject of the contract.



2.1. Evaluation of the Applicant's Position on the Caustic Soda Market



According to Art. 4 of the Law on Competition, a dominant position is an exclusive position of an economic entity or several economic entities on the market of a product that has no substitute, or fungible products (hereinafter - a certain product), enabling it (them) to exert a decisive influence on the overall terms of product circulation on a relevant product market or hamper other economic entities' market access.



The position of an economic entity shall be recognised as dominant, if its share on a certain product market is 65 percent and more, with the exception of cases where the economic entity proves that despite the exceeding of the aforementioned level, its position on the market is not dominant. The position of an economic entity with less than 65-percent share on a certain product market shall also be recognised as dominant, if it is so established by the antimonopoly body on the basis of stability of the share of the economic entity on the market compared to the market shares of its competitors, the possibility of new entries on that market, or other criteria characterising the product market. The position of an economic entity on the market of a certain product shall not be recognised as dominant, if its share does not exceed 35 percent.



Item 10 of the Information Letter of the RF Supreme Arbitration Court Presidium of 30.03.1998 No. 32 «Review of the Practice of Settlement of Disputes Connected with the Application of the Antimonopoly Legislation» says that if al organisation disagrees with the recognition of its dominant position on the product market the arbitration court shall evaluate the observance of the rules of establishing this fact by the antimonopoly authority. These rules are prescribed by the Methodological Recommendations for Identifying a Dominant Position of an Economic Entity on a Product Market approved by Order of the Russian GAK of 03.06.1994 No. 67 and the Procedures for Conducting an Analysis and Evaluation of the State of the Competitive Environment on Product Markets approved by Order of the RF GAK of 20.12.1996 No. 169 (hereinafter - Procedures No. 169).



In keeping with item 3 of Order of the RF MAP of 27.10.2003 No. 373 «On the Application of Articles 5, 17, 18, 19 of the RSFSR Law «On Competition and Restriction of Monopolistic Activity on Product Markets» No. 948-1 of 22.03.1991 Concerning the Identification of a Dominant Position of an Economic entity,» »the share of an economic entity on a product market under consideration shall be identified in accordance with the Procedures for Conducting an Analysis and Evaluation of the State of the Competitive Environment on Product Markets approved by Order of the Russian MAP of 20.12.1996 No. 169, on the basis of the product and geographic dimensions of the product market, and the volume of the product resource determined in accordance with items 2, 4, and 5 of the Procedures.»



In accordance with item 1.4 of Procedures No. 169, an obligatory stage of calculations and analytical work conducted for evaluating the state of the competitive environment on product markets is the definition of the product dimensions of the product market, which, in keeping with item 2.1 of Procedure No. 169, consists in a procedure of identifying the product (its consumer properties), its fungibles, and forming a product group (groups of products whose markets are assessed as one product market).



According to the appealed Decision, MAP made the conclusion on the market share of OJSC UTC on the basis of the assumption that caustic soda is a product without fungibles. However, in a number of cases caustic soda can be substituted by another product. In particular, it can be substituted with soda ash in the production process of pulp-and-paper enterprises, which are one of the main consumers of caustic soda. The failure to establish this fact results to an erroneous identification of the product dimensions of the market on which OJSC UTC is recognised as a dominant entity.



Therefore, an erroneous identification of the product dimensions of the market suggests that the MAP conclusions on the share, and hence, on the dominance of OJSC UTC have been made with violation of the rules of establishing these facts.



2.2. Lack of Abuse in the Form of Monopolistic Pricing



Even assuming that OJSC UTC occupies an exclusive position on the market of caustic soda, enabling it to render a decisive influence on the general terms of turnover on the relevant product market, the price of caustic soda set by OJSC UTC is not monopolistically high for the following considerations.



In accordance with Art. 4 of the Law on Competition, a monopolistically high price is the price of a product set by an economic entity occupying a dominant position on the product market, as a result of which the economic entity in question compensates or can compensate unreasonable expenses and (or) receives or can receive a considerably higher profit than possible in comparable conditions or in a competitive environment.



The rules of identifying monopolistic prices have been developed by the RF GKAP and are presented in the Provisional Methodological Recommendations for Identifying Monopolistic Prices of 21.09.1994 No, VB/2053 (hereinafter - the Recommendations). Supplement No. 2 to the said Recommendations «Theoretical Basis of Identifying a Monopolistic and Competitive Price» says that »in the process of considering the facts of monopolistic pricing, it is necessary to bear in mind that the changes of prices (considering inflation processes) and production volumes (in kind) shall be identified in comparison to their amounts that take place or can take place on a competitive market rather than their amount in the preceding period of time» (to section 4. Analysis of Elements of Monopolistically High Prices).



Item 4.10 of the Recommendations stipulates that the Russian GKAP or its territorial departments cannot pass a final decision on dominance abuse on the market by monopolistically high pricing, based on consumers' complaints and on results of a preliminary analysis. »In the process of conducting a full (in-depth) analysis of an economic entity's activity for purposes of detecting monopolistically high prices, the parameters of their formation should be specified on results of a marketing survey of the market, the dynamics of prices and production volumes, checking the justifiability of costs and profit expenditure» (item 4.11 of the Recommendations).



In item 4.12.4 of the Recommendations, the antimonopoly authority indicates the «fair» price criterion, which shall be calculated as the sum of the cost, whose reasonability is checked by all calculation items, and the profit objectively needed for the enterprise development and requires the consideration of the specific features of the enterprise's economic position and specifics of its produce pricing.» In particular, such specifics of an economic entity examined from the point of view of possible price abuses may include the objective need for funds channelled, for instance, for production extending and modernisation, personnel training and retraining, or keeping of the social sphere on the enterprise's or organisation's balance, etc.



During the consideration of the case, the MAP Commission proceeded only from the contents of the applications filed by caustic soda consumers, complaining against 1.5 - 2 times price increase as compared to the 2003 prices, and a 50-percent trade mark-up in the structure of the price offered by OJSC UTC to caustic soda buyers as compared to the purchasing price. In so doing the Russian MAP made an assumption that OJSC UTC itself is not burdened by any expenses.



These assumptions do not conform to reality. Firstly, the price of caustic soda at which OJSC UTC purchased the produce from the manufacturers and on which MAP relied in its decision was an advance payment, while the end price at which OJSC UTC was purchasing caustic soda exceeded RUR 4,000, indicated in the Decision.



In reality, pricing and profit distribution between OJSC UTC and caustic soda manufacturers were exercised according to the following pattern. At the beginning of each month OJSC UTC made an advance payment to the caustic soda manufacturers in the amount of approximately RUR 4,000 per tonne. After the end of the month OJSC UTC paid the remaining amount to the manufacturers calculated as 65% difference between the purchasing price and the final sales price. The average purchasing price of caustic soda in the first quarter of 2004 was some RUR 4,500 per tonne.

Secondly, the MAP Commission has not conducted an analysis of existence and reasonability of costs and the analysis of profit expenditure (item 4.12.4 of the Recommendations) and, in keeping with the definition of a monopolistic price presented in Art. 4 of the Law on Competition, has not established the elements of a monopolistically high price (the possibility of the economic entity to compensate for unreasonable expenses and (or) receive a considerably higher profit than possible in comparable conditions or in a competitive environment).



The structure of the price offered by OJSC UTC is the following:



purchase - 4,363.48 RUR/tonne;

salary - 96.76 RUR/tonne;

other expenses - 179.57 RUR/tonne;

credit servicing - 34.88 RUR/tonne;

expenses connected with lowering the losses causes by forced caustic soda overproduction - 186.82 RUR/tonne.

The average sales price of caustic soda in the period in question amounted to 5,447.46 RUR/tonne.



Therefore, OJSC UTC profit was 585.95 RUR/tonne.



At the same time, MAP has not taken into consideration the following circumstances determining the specifics of the caustic soda market, including the order of pricing on the market. According to the explanations made by OJSC UTC, available in the materials of administrative case No. 1 05 /4-04, the technological process of caustic soda production consists in its manufacture as a by-product of chlorine production. Chlorine is a strategic product used in such vital sectors as ensuring sanitary and epidemiological standards of drinking water - chemical purification, the petrochemical and pulp-and-paper industry, and nonferrous metallurgy.



Due to the above reason, a situation shaped out on the market of caustic soda (according to the data of Khimkurier magazine (26.01.2004), where the amount of caustic soda manufactured during the past years (975,400 tonnes in 2003) exceeded the volume of this produce consumption by the Russian consumers (671,140 tonnes in 2003), which means that in 2003 some 304,260 tonnes of caustic soda did not find its consumer. At the same time, as indicated above, the manufacturers of caustic soda could not cut its production volumes, which would be the usual business practice. At the same time, the chemical characteristics of caustic soda require special conditions of its storage, which prevents its durable cumulative storage or processing. The only possibly solution to this situation is the export of the produce.



However, the prices formed on the foreign markets (about USD 100 per tonne) are below the cost of this produce indicated, in part, in the Decision (RUR $,098). Therefore, the sale of caustic soda not demanded on the Russian market is unprofitable.



The market strategy of caustic soda manufacturers requires the finding of a source of minimising the losses from the export of caustic soda. Such source should be the manufacturers' revenue from the sale of caustic soda on the domestic market. This is why the structure of the analysed price includes expenses connected with the lowering of the losses caused by forced overproduction of caustic soda.



According to the above, the actual profit gained by OJSC UTC from the sale of caustic soda should be calculated according to the following formula:



Pr = R - (P + E), where

Pr is the profit over the reporting period;

R is the revenue over the reporting period;

P is the price received by the manufacturer for caustic soda marketed in the reporting period;

E are other expenses connected with the organisation of activity in the reporting period.



In particular, if we take the first quarter of 2004 as the reporting period, the OJSC UTC profit would equal the difference between the revenue (894,918,310.25 roubles) and the sum of the price paid to the manufacturers (735,265,599.91 roubles) and other expenses (44,343,643.29 roubles) = 115,212,616.81 roubles, which is not more than 13% of the price of sale of caustic soda to the Russian consumers, which cannot be qualified as unreasonable profit. Therefore the price set by OJSC UTC should be recognised as »fair.»



Thirdly, the MAP Commission has not taken into account that OJSC UTC actions have a favourable effect for supporting the chemical enterprises manufacturing caustic soda.



The increase of the sales price plays an important role in maintaining the viability of chemical enterprises manufacturing caustic soda. In the situation formed on the market in question before 2004, the manufacturing enterprises were selling caustic soda at prices below its production cost and had no opportunity to invest money in production modernisation. At the same time, the material and technical base of the companies requires such actions. This concerns, above all, the re-equipment of the production itself, which should enable to lower the cost of caustic soda production by employment of modern technologies. This also concerns the companies' opportunity to replant the funds necessary for the storage and transportation of caustic soda, which should meet strict requirements in connection with ecological hazard of the product.



Setting a new (higher) price for caustic soda consumers by OJSC UTC is a consequence of its buying the produce from manufacturers at a higher price than the caustic soda sales price that existed before 2004. As a result, the manufacturing companies acquired the opportunity to organise loss-free caustic soda production, which is a prerequisite of a real opportunity to modernise production and lower the risk of ecological catastrophe of the relevant production.



Therefore, the price set by OJSC UTC cannot be regarded as monopolistically high, and the MAP conclusions on violations by OJSC UTC are based on an incomplete analysis of specifics of the caustic soda market. These conclusions do not correspond to the facts. Consequently, such conclusions contradict the law.



2.3. Lack of Abuse in the Form of Imposing Conditions on Consignor Enterprises and Penal Sanctions for Improper Fulfilment of Obligations



According to the text of the Decision, the MAP Commission came to the conclusion that OJSC UTC imposed on its counterparties a number of contractual terms, specifically, on appointing caustic soda consignors and on penal sanctions for improper fulfilment of obligations. MAP has qualified these conditions as unprofitable for consumers merely on the basis applications filed by some of the OJSC UTC counterparties without conducting a relevant economic analysis and only because these applicants were offered different consignors than those from which they received produce in 2003.



The Law on Competition does not stipulate which particular contractual terms can be recognised as unprofitably imposed. Apparently, if the point at issue is dominance abuse, a contractual term offered for some reasons by the supplier can be regarded as unprofitable for a consumer, if the former has an opportunity to make a more profitable condition to the buyer.



Therefore, during the application of this provision of the Law on Competition contractual terms should be evaluated from positions of reasonability of the offered contractual terms, and also the seller's economic, organisational and other opportunity to offer different conditions.



However, MAP has not investigated the circumstances due to which OJSC UTC offered the particular consignors to their counterparties which were indicated in the MAP Decision. Moreover, MAP did not establish the existence of an objective opportunity to ensure the consignment of caustic soda from the companies requested by the buyers.



In reality, OJSC UTC itself is also interested in the organisation of an optimal logistic pattern of caustic soda marketing and lowering buyers' transport outlays. Therefore, the conclusion made by MAP on alleged imposition by OJSC UTC of the term on unprofitable consignors is unlawful and groundless.



As for the penal sanctions for improper fulfilment of obligations, it should be mentioned that penal sanctions constitute measures of civil responsibility, and it is altogether incorrect to talk about their profitability or non-profitability for an economic entity. MAP in its Decision makes a conclusion that such sanctions cannot be justified with economic expediency, but the reasons why this conclusion has been made are not indicated in the Decision. MAP has not conducted any analysis of applying measures of civil responsibility in contractual relations.



Moreover, the MAP Commission disregarded the fact that by legal nature the penal sanctions envisaged by the contracts are forfeit. According to Art. 333 of the RF CC, if the amount of forfeit is incomparable to the consequences of violation of an obligation, the court may reduce the forfeit.

Therefore, this part of the MAP Decision is, firstly, unjustified and secondly, MAP is in fact trying to substitute the court, which should also be recognised illegal.



3. Violation of the Applicant's Rights by the Appealed Decision



The appealed decision violates the Applicant's rights. The violation of civil rights and lawful interests of OJSC UTC is manifested, firstly, in the interference of a federal executive authority in entrepreneurial activity of a commercial organisation, which contradicts the basic principles of civil law, as per Art. 1 of the RF CC.



As a result of issuance of unreasonable acts, the Respondent has violated the Applicant's lawful rights and interests, restricting its constitutional right to free utilisation of its means and assets for purposes of entrepreneurial and other business activity not prohibited by law (Art. 34 of the RF Constitution) by unjustified interference in the private sphere.



Secondly, the Decision passed by MAP has damaged the Applicant's business reputation as the Decision has recognised OJSC UTC as a violator of effective law. The Ruling of the Russian Federation Supreme Court Plenum No. 11 of 18.08.1992 (in edition of Rulings of the Russian Federation Supreme Court Plenum No. 11 of 21.12.1993 and No. 6 of 25.04.1995) stipulates that citizens' right to protection of honour, dignity and business reputation is their constitutional right, and business reputation of legal entities is one of the conditions of their successful activity. As follows from the same ruling, the information on the violation by a legal entity of effective law or moral principles damages its business reputation.



The Applicant is a legal entity operating on the market of caustic soda. At present, thanks to the Applicant's efforts, a situation has formed on this market providing for the organisation of profitable activity of caustic soda manufacturers, enabling them to ensure simple reproduction, including plant replacement. At the same time, the appealed Decision of the Russian MAP recognising OJSC UTC as a violator of the antimonopoly legislation inflicts damage on OJSC UTC business reputation and destabilises its relations with counterparties.



In keeping with Art. 13 of the RF CC, a non-regulatory act of a public authority inconsistent with the law or other legal acts and violating civil rights and legally protected interests of a legal entity may be invalidated by the court.



In connection with the above, and guided by Art. 34 of the RF Constitution, Art. 13 of the RF CC, Art. 6, 12, 27, and 28 of the Law on Competition, Art. 197-199 of the RF APC, the Applicant requests the Moscow City Court of Arbitration:



1. To invalidate the Decision of the Russian MAP passed on 11.02.2004 on case No. 1 05/4-04.

2. To refund from the budget the state duty paid.



Attachments:



1. A postal receipt on sending a copy of the application to persons involved in the case - 1 page.

2. A copy of the Russian MAP Decision of 11.02.2004 on case No. 1 05/4-04 - 8 pages.

3. Documents on the payment of state duty - 2 pages.

4. A copy of the OJSC UTC state registration certificate - 1 page.

5. A copy of the memorandum on appointment of the OJSC UTC General Director pf 09.06.2003 - 1 page.

6. A copy of power of attorney of 29.04.2004 No. UTC/80 - 1 page.

7. A claim enforcement application - 2 pages.



Representative

of OJSC United Trade Company

on power of attorney of 29.04.2004 No. UTC/80 N.I. Pinigina











THE NINTH ARBITRATION COURT OF APPEAL



in the name of the Russian Federation



RULING



City of Moscow

27 October 2004 No. 09AP-2276/04-AK





The operative part of the decision was announced on 20 October 2004





The Ninth Arbitration Court of Appeals in the composition of:

Chief justice V.A. Sviridov,

Judges V.G. Bliznets and E.V. Yakutov,

the record of the court proceedings kept with the use of a computer by secretary I.I. Rasputina,

with the participation of:

on behalf of the Applicant: A.P. Nikitin under the authority of power of attorney of 21.09.2004; A.V. Kukin under the authority of power of attorney of 11.05.2004;

on behalf of the Respondent: S.Yu. Vershinin under the authority of power of attorney of 24.03.2004, certificate No. 1016;

O.A. Savinova under the authority of power of attorney of 07.07.2004;

T.I. Kharinoshvili under the authority of power of attorney of 19.05.2004;

S.V. Doronin under the authority of power of attorney of 14.05.2004;

A.G. Averkin under the authority of power of attorney of 14.05.2004;

A.G. Tsyganov under the authority of power of attorney of 22.09.2004;

O.G. Mishakov under the authority of power of attorney of 14.05.2004;

I.V. Bashlakov-Nikolaev under the authority of power of attorney of 11.06.2004.



Having considered at a court session the appeal filed by the Federal Antimonopoly Service against the decision of the Moscow City Court of Arbitration of 14 July 2004 on case No. A40-4970/04-68-67 (judge N.A. Narimanizde),



on the claim of OJSC United Trade Company to the Federal Antimonopoly Service on invalidation of the Decision,



HAS ESTABLISHED:



OJSC United Trade Company (hereinafter - the Joint-Stock Company) has applied to the Moscow City Court of Arbitration with a claim to invalidate the decision of the Federal Antimonopoly Service (hereinafter - the Antimonopoly Authority) of 11.02.2004 on case No. 1 05/4-04 on the violation of the antimonopoly legislation.



By decision of 14.07.2004 the arbitration court satisfied the presented claims motivating it with the argument that the decision of the Antimonopoly Authority did not conform to effective law.



The Antimonopoly Authority disagreed with the court decision and filed an appeal requesting to cancel this decision and dismiss the presented claims. The Applicant referred in its claim to the fact that the conclusions made by the court did not conform to the circumstances of the case, the court has improperly applied provisions of substantive law. Specifically, the first instance court made an erroneous conclusion that the Respondent has failed to prove the fact of a monopolistically high price of caustic soda set by the Joint-Stock Company. The court has also failed to evaluate the evidence presented by the Antimonopoly Authority.



In its response to the appeal, the Joint-Stock Company supported the decision made, considering that the first instance court has properly applied provisions of substantive law, established the violation of the order of passing the decision which was passed without conducting an expert evaluation, which resulted in improper identification of the Joint-Stock Company's share on the market of caustic soda. It requested to leave the court decision without change and to dismiss the claim.



At the session, a representative of the Antimonopoly Authority fully supported the arguments presented in the appeal, presented its position disclosed in the appeal and written explanations to it, requested to cancel the decision of the first instance court as it finds it unlawful and unjustified, to issue a new legal act dismissing the presented claims.



The Applicant supported the decision of the court at first instance, disagreed with the reasoning presented in the appeal, considers the appeal unjustified, requested to leave the decision of the court at first instance without change and to dismiss the appeal.



The lawfulness and validity of the decision were examined from the point of view of Art. 266 and 268 of the RF APC. The Court of Appeals, having heard the explanations of the parties, examined and evaluated the evidence available in the materials of the case, considers that the decision should be left without change for the following considerations.



According to the materials of the case, the case of violation of the antimonopoly legislation No. 1 05/4-04 was initiated on the basis of the applications to the Russian MAP by OJSC Krasnoyarskenergo, OJSC Shchekinazot, OJSC Kuibyshevazot, OJSC Azot, OJSC Volzhsky Orgsintez, OJSC Siassky Pulp and Paper Plant, OJSC Arkhangelsk Pulp and Paper Plant, OJSC Solombalsk Pulp and Paper Plant, OJSC Neusidler Syktyvkar, OJSC Kotlass Pulp and Paper Plant, OJSC AVTOVAZ, RAO Bumprom, OJSC Russian Aluminium Management, OJSC TD Viskoza, OJSC Kazan Synthetic Resin Plant, OJSC Lukoil-Neftekhim, OJSC Polyplast, OJSC Nizhnekamskneftekhim, LLC Continental Management Timber Company.



The above persons in their applications pointed to the violation of the antimonopoly legislation during the conclusion of contracts of supply of caustic soda with the above companies, specifically, by the setting of caustic soda prices by the Joint-Stock Company 1.5 - 2 times higher than the 2003 prices set by the manufacturing enterprises. In addition, the Joint-Stock Company offered to a number of consumers consignor enterprises that had a more remote geographic location as compared to their traditional suppliers, which entailed additional expenses on the transportation of caustic soda.



On 11/02.2004, the Commission of the Russian MAP (hereinafter - the Commission) passed a decision on case No. 1 05/4-04, qualifying the actions of the Joint-Stock Company manifested in monopolistically high pricing of liquid caustic soda, as well as imposing unprofitable consignors and inclusion of economically unjustified penal sanctions in the caustic soda supply contract, as a violation of Art. 5 (1) of the RSFSR Law «On Competition and Restriction of Monopolistic Activity on Product Markets» No. 948-1 of 22.03.1991 (hereinafter - the Law) in the form of setting and maintaining monopolistically high prices and imposing unprofitable contractual terms on a counterparty.



No instruction to terminate the violation of Art. 5 (1) of the Law shall be issued to the Joint-Stock Company, as Decision of 11.02.2004 on case No. 1 05/4-04 of violation of the antimonopoly legislation envisages the issuance of an instruction to conclude direct mutually profitable contracts between economic entities manufacturing caustic soda, the marketing organisations comprising a single group of entities with the said manufacturers, and consumers of this product, taking by the Antimonopoly Authority jointly with relevant executive authorities of the necessary actions to charge from the Joint-Stock Company the profit illegally gained as a result of violation of the antimonopoly legislation in favour of the RF budget, as well as the preparation by the Antimonopoly Authority of claims to the court of arbitration on the liquidation of the Joint-Stock Company, in keeping with Art. 12 of the Law.



In accordance with Art. 198 of the RF APC, citizens, organisations and other persons are entitled to appeal to court with a claim for invalidation of non-regulatory legal acts , unlawful decision and actions (omissions) of the public authorities, bodies of local self-government, other bodies and officials, if they assume that the appealed non-regulatory legal act, decision and action (omission) do not consist with the law or another regulatory legal act and violate their rights and lawful interests in the sphere of entrepreneurial and other business activity, illegally impose some duties on them, create other barriers to exercising entrepreneurial and other business activity.



Therefore, the Joint-Stock Company has lawfully applied to the arbitration court with a claim against the Commission's decision.



The first instance court dismissed the claimed under the pretext that the appealed decision did not conform to requirements of the RF antimonopoly legislation.



In accordance with items 2.12 and 2.15 of the Rules of Considering Cases of Violation of the Antimonopoly Legislation approved by Order of the RF MAP of 25.07.1996 No. 91, the decision of the commission considering a case of violation of the antimonopoly legislation should be motivated, the decision should disclose the circumstances of the case established by the commission and the conclusions made by the commission as a result of consideration of the case.



The conclusion made by the court at first instance on the violation of these rules by the Respondent is groundless, as the decision of the Antimonopoly Authority contains the circumstances that were established and that were referred to by the Respondent during the decision-making. Insufficient justification and violation of the procedures for settling the issues significant for antimonopoly proceedings the presence of which has been established by the court does not constitute evidence of a violation of requirements to the contents of a decision of the Antimonopoly Authority.



However, the court at first instance has justly arrived at the conclusion concerning the violation of procedures of examining a number of issues significant for passing a decision and disagreed with the conclusions of the Antimonopoly Authority.



Art. 5 of the Law prohibits actions (omissions) of an economic entity (group of entities), occupying a dominant position, which result or can result in prevention, restriction or elimination of competition and (or) infringement of the interests of other economic entities, including such actions (omissions) as: withdrawal of goods from circulation, the purpose or result of which is the creation or maintaining of a shortage on the market or a price increase; imposing unprofitable contractual terms on a counterparty or terms irrelevant to the subject of the contract (unjustified demands of financial assets, other property, property rights, the counterparty's labour force, consent to conclude a contract only on condition of including in it of provisions concerning the goods in which the counterparty is not interested, etc.); creating conditions of access to the product market, exchange, consumption, purchase, production, sale of a product, placing one or several economic entities in unequal positions compared to another or other economic entities (discriminate conditions); erecting barriers for other economic entities' access to the market (exit from the market); violation of the pricing procedures prescribed by regulations; setting, maintaining monopolistically high (low) prices; reduction or termination of the output of products, which are in demand or ordered by consumers, despite the existence of a loss-free possibility of their production; unjustified refusal from concluding a contract with individual buyers (customers), despite the existing possibility of production or supply of the product in question.



In exceptional cases the actions (omissions) of an economic entity stipulated by item 1 of this article can be recognised as lawful, if the economic entity proves that the favourable effect of its actions, including in the socioeconomic sphere, exceed the negative consequences for the product market in question.



Therefore, to recognise an economic entity as abusing its market dominance, it is necessary to establish the existence of competition and evaluate its status.



The analysis and evaluation of the competitive environment on product market is conducted in accordance with the Procedures for Conducting an Analysis and Evaluation of the State of the Competitive Environment on Product Markets approved by Order of the RF MAP of 20.12.1996 No. 169 (hereinafter - the Procedures) registered with the Justice Ministry on 10.01.1997, No. 1229.



Passing a decision on the Joint-Stock Company's dominance on the product market, the Antimonopoly Authority proceeded from the opinion of liquid caustic soda consumers which have applied to the Russian MAP.



At the same time, in keeping with item 2.2 of the Procedures, the identification of the product dimensions of a market should be based on the buyers' opinion (both physical and legal persons) on fungibility of products comprising one product group. This opinion can be found out as a result of a total or sample buyers' poll and supported with data of a merchandising review. The poll should be conducted by buyer groups differentiated according to the methods of participating in the trading (wholesale, small wholesale buyer, buyer of a one-off product item).



The materials of the case include an analysis conducted by the RF MAP department for competition policy in the agro-industrial, forestry, chemical, and natural resources complexes, according to which the conclusion about a lack of fungibles of caustic soda has been made exclusively on the basis of opinions of consumers most of which are applicants on case No. 1 05/4-04 and are not backed with any evidence. The Company's petition for conducting an expert evaluation has been dismissed by the Commission without indicating a reason, despite direct regulations requiring an expert evaluation.



In addition, the aforementioned analysis has been made on the basis of the opinion of caustic soda consumers, which is also substantiated by the opinion of the Russian Engineering Academy «Forestry Engineering Technologies», issued in May 2004.



The Antimonopoly Authority's reference to this opinion in substantiation of lawfulness of the appealed decision is inconsistent, as the decision was passed on 11.02.2004 and the opinion was issued in May 2004 and concerned the consumers of pulp-and-paper produce, whereas caustic soda is used in the other industrial sectors as well.



The Respondent's reference to the formula of the cross elasticity index in the issue of caustic soda fungibles is unjustified, as the Antimonopoly Authority compared the change of the caustic soda price with the change of its sales volumes, while item 2.4 of the Procedures envisage a different comparison: the change of the price of one product with the change of the sales volume of another product.



During the calculation of the Applicant's share on the caustic soda market, the Respondent failed to take into consideration the output volumes of solid caustic soda - a product that has the same chemical properties as liquid caustic soda. It is obvious that fungibility with other products has not been confirmed either. The establishment of thee circumstances has a considerable impact on identifying the Applicant's share on the product market.



The Respondent's decision is based on the fact that the Applicant's share on the caustic soda market is 100%. However, the analysis of elements of monopolistic prices of caustic soda conducted by OJSC ITKOR indicates that the Applicant's share is 80%, i.e. the assessments are different. Therefore, the Respondent has not properly identified the Applicant's share on the relevant product market with account taken of all circumstances significant for this issue.



Under the circumstances, the court of appeals supports the conclusion of the first instance court on improper identification of the Joint-Stock Company's share on the market of liquid caustic soda.

According to item 2.4 of the Provisional Methodological Recommendations for Detecting Monopolistic Prices of 21.04.1994 No. VB/2053, a monopolistically high price is the price set by an economic entity occupying a dominant position on a product market as a result of withdrawal of goods from circulation for purposes of overpricing to gain excess profit and/of compensate for unreasonable costs at the expense of infringement of economic interests of other economic entities or individuals.



Facts formally indicating the elements of a monopolistic price may in fact be a consequence of the market situation rather than market dominance abuse by an economic entity in conditions of free pricing (item 3.1 of the Provisional Recommendations).



Item 4.3 of the Provisional Recommendations stipulates that the analysis of the elements of monopolistically high prices should be conducted in two stages: preliminary analysis; and the stage of comprehensive (in-depth) analysis of an economic entity's activity.



The results of a preliminary analysis do not provide the grounds for passing a final decision by the Russian MAP concerning dominance abuse on the market by setting monopolistically high prices, and do not provide the grounds for issuing an instruction to an economic entity either (item 4.10 of the Provisional Recommendations).



In pursuance of this item, the Russian MAP jointly with the pricing authorities and representatives of bodies of power and management should analyse, on the one hand, the presented materials, and on the other - the arguments of produce consumers and in each particular case pass a joint balanced decision concerning the level of the so-called «reasonable price» which would ensure a maximum satisfaction of consumers on the market along with a justified observance of the produce manufacturers' financial interests.



In this case, the Antimonopoly Authority failed to take into account the specific parameters of enterprises' economic position in each particular case, including additional outlays on production extension and modernisation, particularly the pricing of their produce.



It is evident from the materials of the case that in support of its position on the setting of monopolistically high prices of caustic soda by the Joint-Stock Company the Respondent made reference to the analysis of the elements of monopolistic prices of caustic soda conducted by OJSC ITKOR.



The court of appeals considers this reference unjustified, as the aforementioned analysis does not cover the caustic soda production costs of all manufacturers.

In keeping with Art. 4 of the Law, the expenses of an entity accused of monopolistically high pricing should be analysed.



The aforementioned analysis of the elements of monopolistic prices covered the cost of caustic soda production, but did not indicate the reasons why any expenses of the Applicant were qualified as unreasonable, the Respondent did not examine the Applicant's costs and outlays.



The conclusions presented in the analysis of the elements of monopolistic prices of caustic soda about an improper distribution of caustic soda and chlorine production outlays by the manufacturers are arbitrary and inconsistent with requirements of the regulations. This circumstance is confirmed by a letter from OJSC Caustic of 07.07.2004 with remarks to the analysis of the elements of monopolistic prices of caustic soda prepared on 09.02.2004 by OJSC ITKOR on assignment of the Russian MAP.



In accordance with item 4.12.4 of the Provisional Recommendations, the existence of an objective necessity of funds for production extension and modernisation constitutes sufficient grounds for a fair price increase. Considering that the Respondent recognises the need to conduct a re-equipment of the manufacturers, the increase of the purchasing price paid by the Applicant to caustic soda manufacturers is justified. Therefore, the increase of the price of caustic soda is also justified.



The appealed decision stipulates that the Applicant imposed unprofitable terms of supply contracts to caustic soda consumers, specifically the geographically unfavourable consignors and economically unjustified penal sanctions.



At the same time, the Law does not specify which particular contractual term can be recognised as unprofitably imposed. Contractual terms should be evaluated from the point of view of reasonability of the offered conditions, as well as the buyer's economic and organisational opportunities to offer different condition.



The Russian MAP ha not examined the circumstances due to which the Applicant offered to its counterparties different consignors from those indicated in the Respondent's decision without finding out whether there was a possibility to ensure soda shipment from the enterprises requested by the buyers.



Moreover, the Respondent claims in the appealed decision that the penal sanctions for improper fulfilment of obligations cannot be justified with economic expediency without indicating the reasons for such an assertion. The Russian MAP has not conducted an analysis of the application of civil liability during the conclusion of the contracts, as in the event of disagreement with such contractual terms the buyers eliminated such terms by drawing up a memorandum of differences.



This suggests a conclusion that the appealed decision of the Antimonopoly Authority concerns the rights and lawful interests of the Joint-Stock Company in the sphere of entrepreneurial and other economic activity does not meet the requirements of Art. 5 and Art. 27 of the Law.



The Antimonopoly Authority has failed to prove the circumstanced constituting grounds for adoption of the appealed decision, as the Antimonopoly Authority is trying to justify its decision by referring to documents received after the decision was made.



Therefore, the court at first instance has made justified conclusions on inconsistency of the appealed decision of the Antimonopoly Authority with the law and other regulatory acts, which provides the grounds for its invalidation in accordance with articles 8, 12, 13 of the RF CC, articles 5, 12, 27, 18 of the RSFSR Law «On Competition and Restriction of Monopolistic Activity on Product Markets.»



Considering the above, the appeal shall be dismissed.



Considering the above and guided by articles 110, 266, 268, 269, and 271 of the RF APC,



HAS RULED:



to leave the decision of the Moscow City Court of Arbitration of 09 August 2004 on case No. A40-8432/04-2-45 without change, and dismiss the appeal.

Chief justice V.A. Sviridov,

Judges V.G. Bliznets, E.V. Yakutov



The Ninth Arbitration Court of Appeals











DECISION



on case No. 1 05/4-04 of violation of the antimonopoly legislation



11 February 2004 Moscow



The Russian MAP Commission for considering the case of violation of the antimonopoly legislation consisting of:



Commission Chairman - Deputy Minister A.G. Tsyganov, Commission members: head of the department for competition policy in the agro-industrial, forestry, chemical, and natural resources complexes - T.I. Kharitonashvili, head of the chemical industry department - S.Yu. Vershinin, deputy head of the chemical industry department - O. A. Savinova, leading expert of the legal department - D.A. Morozov, head of the Saratov Territorial Agency of the Russian MAP - N.I. Remezov,

having considered case No. 1 05/4-04 of violation by OJSC United Trade Company of Art. 5 (1) of the RSFSR Law «On Competition and Restriction of Monopolistic Activity on Product Markets» No. 948-1 of 22.03.1991, manifested in monopolistically high pricing of caustic soda and polyvinylchloride suspension on the Russian Federation market,



HAS ESTABLISHED:



The case of was initiated on the basis of the applications filed to the Russian MAP by OJSC Krasnoyarskenergo (Krasnoyarsk), OJSC Shchekinazot (Tula region), OJSC Kuibyshevazot (Togliatti), OJSC Azot (Kemerovo), OJSC Volzhsky Orgsintez (Volgograd region), OJSC Siassky Pulp and Paper Plant (Leningrad region), OJSC Arkhangelsk Pulp and Paper Plant (Arkhangelsk), OJSC Solombalsk Pulp and Paper Plant (Arkhangelsk), OJSC Neusidler Syktyvkar (Syktyvkar), OJSC Kotlass Pulp and Paper Plant (Arkhangelsk region), OJSC AVTOVAZ (Togliatti), RAO Bumprom (Moscow), OJSC Russian Aluminium Management (Moscow), OJSC TD Viskoza (Saratov), OJSC Kazan Synthetic Resin Plant (Kazan), OJSC Lukoil-Neftekhim (Moscow), OJSC Polyplast (Moscow), OJSC Nizhnekamskneftekhim (Republic of Tatarstan), LLC Continental Management Timber Company (Moscow) against the violations of the antimonopoly legislation by OJSC United Trade Company during the conclusion of caustic soda supply contracts with the said companies.



The applicants include major enterprises of the chemical, pulp-and-paper, aluminium, automobile industry and power engineering.



All applicants complained that the prices of caustic soda set by OJSC United Trade Company were 1.5 - 2 times higher than the manufacturing companies' 2003 prices.



OJSC United Trade Company has also offered to some consumers the consignors - manufacturing enterprises with an inconvenient (more remote) geographic location compared to their traditional suppliers. Such actions on the part of OJSC United Trade Company entail considerable additional expenses on the transportation of caustic soda.



Specifically, JSC Kiubyshevazot, OJSC Shchekinazot, and OJSC AVTOVAZ complained in their applications that OJSC United Trade Company appointed as caustic soda suppliers companies manufacturing this produce which do not suit the consumers.



The Russian MAP analysed the materials provided by the applicants, caustic soda manufacturers, OJSC United Trade Company, the Russian State Customs Committee, and the Russian Goskomstat on caustic soda purchase volumes and prices and established the following.



Eight companies are the main manufacturers of caustic soda in the Russian Federation.



The output volumes and shares in caustic soda production of these companies in 2002 are presented in the table (based on materials of the Russian Goskomstat).



Volume as per 100%, thou t

Company Volume Share, %

Total 1146.3 100

JSC Caustic (Sterlitamak) 222.1 19.4

OJSC Caustic (Volgograd) 176.8 15.4

OJSC Khimprom (Volgograd) 93.7 8.2

OJSC Sibur-Neftekhim 84.6 7.4

OJSC NAC Azot 75.4 6.6

OJSC Kirovo-Chepetsk Chemical Plant named after B.P. Konstantinov 60.3 5.3

Others 433.4 37.8





According to data of Khimkurier magazine of 12.01.2004, the largest caustic soda manufacturers upon the results of 11 months of 2003 were:



JSC Caustic (Sterlitamak) - 19.6% output share;

OJSC Caustic (Volgograd) - 18.1% output share;

OJSC Sayanskhimplast - 10.7% output share.



Until the beginning of 2004 the above enterprises were competing economic entities on the relevant market.



According to the information provided to OJSC Volzhsky Orgsintez, OJSC Lukoil-Neftekhim, OJSC Krasnoyarskenergo (relevant materials are attached to the case filed), before 2004 they were purchasing caustic soda at special renders held by the companies, i.e. had an opportunity to choose the produce and the supplier on mutually beneficial terms.



According to the data of OJSC Institute of Placement and Wholesale Market Studies, the export of caustic soda in 2002 was 121,070 tonnes (10-14% of the output), and import - 1,720 tonnes (less than 1%).



According to the presented data, the joint share of OJSC Caustic (Volgograd), JSC Caustic (Sterlitamak), OJSC NAC Azot (Tula region), OJSC Sibur-Neftekhim (Nizhny Novgorod), OJSC Khimprom (Volgograd), and OJSC Kirovo-Chepetsk Chemical Plant named after B.P. Konstantinov (Kirovo-Chepetsk), OJSC Sayanskhimplast (Sayansk) on the caustic soda market exceeds 65%.



The Russian MAP came to the same conclusion as a result of analysis of the caustic soda market conducted in accordance with the Procedures for Conducting an Analysis and Evaluation of the State of the Competitive Environment on Product Markets approved by Order of the RF MAP of 20.12.1996 No. 169 (in edition of the Russian MAP Order No. 71 of 11.03.1999).



Among the documents provided by applicants as materials of the case there is letter No. 35/ks of 17.12.2003, stating that starting 2004 the caustic soda manufactured by OJSC NAC Azot, OJSC Caustic (Volgograd), and OJSC Khimprom (Volgograd) will be marketed by OJSC United Trade Company.



The letters of OJSC United Trade Company addressed to consumers, in particular, letter No. 270/ks of 22.12.2003, said that OJSC United Trade Company was the owner of the entire volume of caustic soda manufactured on the territory of the Russian Federation.



OJSC United Trade Company representatives said at the Russian MAP Commission session devoted to consideration of the said case of violation of the antimonopoly legislation that starting 2004, that their company was the only owner of the entire commercial volume of liquid caustic soda produced on the Russian Federation territory.



This statement is supported by contracts concluded by OJSC United Trade Company with caustic soda manufacturers, as well as their marketing organisations, for the purchase of the entire commercial volumes of caustic soda (copies of the contracts are available in the materials of the case).



Therefore, the actions of OJSC United Trade Company have resulted in this company's dominance on the caustic soda market in the Russian Federation.



In 2002-2003 the price of caustic soda was fluctuating, but remained within the band of RUR 3,000 - 4,000 (VAT and transport expenses not included), and in 2003 the price even went down a little.





The information-analytical centre Kortes confirms the price data:



The manufacturers' trade prices, RUR/t (VAT included), 04-11 April 2003



Manufacturers Brand, type Regulations Price, RUR/t (VAT included) Note

OJSC NAC Azot RD, liquid. 100% GOST 2263-76 4320 The MKhK Trading price

OJSC Khimprom, Novocheboksarsk RD, liquid. 100%, 1 s. GOST 2263-76 3360 The Khimprominvest price

OJSC Sibur-Neftekhim RD, v/s GOST 2263-76 45604080 < 50 t> 50 t

OJSC Caustic, Volgograd RD, 100% GOST 2263-76 4560

OJSC Khimprom, Volgograd RD, 1 s GOST 2263-76 4440

OJSC Ufakhimprom RD, v/s GOST 2263-76 4200

JSC Caustic, Sterlitamak RD, liquid. 100%, 1 s GOST 2263-76 4650

OJSC Khimprom, Kemerovo RD, liquid. 100%, 1 s GOST 2263-76 4800

OJSC Usolieknimprom RD, v/s GOST 2263-76 4800

JSC Khimsoda, Irkutsk region RR, 100% GOST 11078-78 3600





According to the information of the Russian State Customs Committee, the export price of this product in 2002-2003 was stable and varied between USD 85 to USD 100. The level of export prices remained unchanged at present.



These data are also supported by the leading international company, ICIS - LOR Grup.



As a result of monopolisation of the caustic soda market by OJSC United Trade Company in 2004, the domestic prices exceeded the level of world prices 1.5 - 2 times.



The following factors can have a negative effect on the marketing of caustic soda:



- increase of the prices of railway transportation.

- growth of energy prices.



These factors can considerably enhance the cost of the produce and therefore lower its competitiveness both on the domestic and world markets.



In 2003, the price of energy has in fact increased slightly.



In its letter No. 7618-05/1 of 18.11.2003, OJSC United Trade Company informed Siassky Pulp and Paper Plant that in connection with the growth of prices of electric energy and steam the price of caustic soda starting 01.12.2003 will be set at 2,700 RUR/t, VAT and railway tariffs not included. In the 3rd quarter of 2003 Siassky Pulp and Paper Plant was purchasing the product from OJSC Sibur-Neftekhim at the price of 2,259 RUR/t (VAT not included).



OJSC United Trade Company sent a similar letter (a reply to letter No. 990/1420 from LLC Ilim Pulp EXIM of 27.11.2003) to LLC Ilim Pulp EXIM - a representative of OJSC Kotlass Pulp and Paper Plant.



The materials of the case contain the evidence that during the 2004 contracting campaign OJSC Sayanskhimplast made an offer to OJSC United Trade Company to purchase caustic soda at the price of 2,200 RUR/t (VAT not included) (fax No. 22-6849 of 15.12.2003).



However, already on 17.12 2003 and 18.12.2003 OJSC Sayanskhimplast informed OJSC Russian Aluminium Management (fax No. 22-6926), COJSC Azot (fax No. 22-6954) that on 15.12.2003 OJSC Sayanskhimplast and OJSC United Trade Company have signed a caustic soda supply contract and all supplies of this product manufactured by OJSC Sayanskhimplast will be handled by OJSC United Trade Company.



The inflation parameters in 2003 and the energy price increase could not cause a double increase of the caustic soda price starting 01.01.2004 (which is indirectly confirmed by the aforementioned letter of OJSC Sibur-Neftekhim). The calculations of the cost of caustic soda production also serve as the evidence of the impossibility of such a dramatic price rise (the materials are provided by OJSC Sibur-Neftekhim in supplement to the company's letter No. 543-317 of 23.01.2004).



During the 2004 contracting campaign the caustic soda consumer companies addressed their traditional product suppliers with proposals to prolong (conclude) the contracts.



OJSC Sibur-Neftekhim in its letters refused to conclude direct contracts referring to a change of the marketing policy and suggested applying with this question to OJSC United Trade Company.



JSC Caustic (Sterlitamak) refused to conclude contracts referring to the purchase and sale contract concluded with OJSC United Trade Company (this contract No. 101.11.03.1.SB was concluded between the companies on 28.11.2003) and suggested applying to OJSC United Trade Company.

Under this contract, 100% of caustic soda produced by JSC Caustic (Sterlitamak) was to be sold to OJSC United Trade Company.



The refusal of OJSC Caustic (Volgograd) had the same motivation.



OJSC United Trade Company offered to caustic soda consumers to conclude contracts for supply of this product in 2004 at the price of 6,000 RUR/t, VAT and transport expenses not included (the offers are available in the materials of the case).



The information on the purchases of caustic soda by OJSC United Trade Company available in the materials of the case shows that the company purchases the product at the price of 4,000 RUR/t, VAT and transport expenses not included.



The materials of the case also have photocopies of invoices for the shipment of caustic soda, according to which OJSC United Trade Company purchases the product at the price of 4,000 RUR/t, VAT and transport expenses not included.



The buyer under invoice No. 00130861 of 19.01.2004 is OJSC United Trade Company, the seller - JSC Caustic (Sterlitamak), the consignee - Khimvolokno production association (Svetlogorsk), the price is 4,000 RUR/t (VAT not included), volume - 28,262 t.



Under invoice No. 00130771 of 16.01.2004 the buyer is OJSC United Trade Company, the seller - JSC Caustic (Sterlitamak), the consignee - OJSC Grodno Azot (Grodno), the price is 4,000 RUR/t (VAT not included), volume - 25,927 t.



The facts of purchase of caustic soda at such price were confirmed by representatives of OJSC United Trade Company at the Russian MAP Commission session, which is reflected in the minutes of the session.



According to the information presented by OJSC Caustic (Volgograd) representative L.A. Sukhorukova at the Russian MAP Commission session, the cost of liquid caustic soda production in the 4th quarter of 2003 totalled 4,098 RUR/t.



The cost of liquid caustic soda production at OJSC Sibur-Neftekhim was on a similar level.

Therefore, in marketing the produce, OJSC United Trade Company introduced a 50-percent mark-up, which results in setting a monopolistically high price of caustic soda.



It should be mentioned that OJSC United Trade Company is not burdened with any additional expenses on caustic soda production and transportation. This is confirmed by the analysis of the contracts concluded between OJSC United Trade Company, manufacturers and consumers of caustic soda.



This suggests the conclusion that the growth of prices is not caused by economic necessity, but is a consequence of dominance abuse on the market by OJSC United Trade Company.



According to the materials of the case (letters from JSC Kuibyshevazot, OJSC Shchekinazot, and OJSC Avtovaz), OJSC United Trade Company unilaterally appoints the manufacturer company that will supply the produce, which also constitutes an imposition of unprofitable contractual terms on a counterparty and leads to unjustified excess of transportation expenses and losses for consumers.



Penal sanctions envisaged by the produce supply contracts imposed by OJSC United Trade Company introduce the buyers' obligation to pay 100-percent cost of the produce to the seller in the event of the buyer's refusal from the purchase of the produce less than 15 days before the beginning of the reporting month.



Such penal sanctions cannot be justified by economic expediency and constitute an imposition by OJSC United Trade Company of unprofitable contractual terms on consumers.



It is noteworthy that the materials of the case contain a report on negotiations concerning the prospects for caustic soda marketing in Russia. These negotiations were conducted in Moscow on 03.11.2003 between OJSC UTC (representatives: K.B. Selivanov, A.A. Zverev - financial director of Sovlink, a participant of the SUAL-Renova group) and JSC MKhK EvroKhim (representatives: Ye.V. Kail, A.V. Norkin).



The purpose of the negotiations was the attainment of agreement to take actions aimed at the monopolisation of the caustic soda market and multiple price increase on the domestic market during 2004.



The aforementioned actions of OJSC United Trade Company and the manufacturers of caustic soda have compelled a number of consumer enterprises to purchase caustic soda from OJSC United Trade Company at imposed prices and on unfavourable terms in order to avoid suspension of production. Suspension and subsequent re-launch of production would result in considerable financial losses, as nearly all enterprises use an uninterrupted technological production process.



E.g. OJSC Volzhsky Orgsintez currently purchases caustic soda at the price of 6,000 roubles (invoice (down payment) No. 000166 of 28.12.2003), the consignor is OJSC Caustic (Volgograd), and the seller - OJSC United Trade Company.



OJSC Russian Aluminium Management involuntarily had to refuse from long-term mutually beneficial contractual relations with OJSC Sayanskhimplast and agree to supply of caustic soda at the price of 6,200 roubles (VAT and transport expenses not included) for the period of January-February 2004 (letter of guarantee addressed to OJSC United Trade Company No. 01-181-00219/04 of 29.01.2004).



OJSC Kazan Synthetic Rubber Plant also had to involuntarily refuse from mutually beneficial contractual relations with JSC Caustic (Sterlitamak) and agree to supply of caustic soda by OJSC United Trade Company at the price of 6,000 roubles (VAT and transport expenses not included) for January 2004 (produce supply contract No. rd/2-048). The consigner of the produce is JSC Caustic (Sterlitamak).



The applicants expressed their mutual opinion at the Russian MAP Commission session that a dramatic increase of caustic soda prices would result in a considerable deterioration of the economic position of consumer companies and inevitably lead to a significant increase of the price of produce manufactured with the use of caustic soda.



Specifically, according to the opinion of OJSC Krasnoyarskenergo, the growth of caustic soda prices would inevitably trigger an increase of the tariffs on electric energy, which in its turn would entail an enhancement of the prices of nearly all the end produce.



The prices of school stationery, food packaging produce, automobiles manufactured by OJSC AVTOVAZ, newspaper paper, and other produces would go up.



According to the information provided by caustic soda consuming enterprises, with an annual consumption of this product of 1,100 thousand tonnes the overall losses of the industry would run into some 2.7 billion roubles. In the event of purchase of liquid caustic soda by OJSC Trading House Viskoza at the price set by OJSC United Trade Company (6,000 RUR/t) the purchaser would sustain losses in the amount of 13 million roubles a year. The losses of OJSC Volzhsky Orgsintez would be as high as an annual 73 million roubles. On the whole, the pulp-and-paper industry would lose about 278 million roubles a year.



A number of companies (OJSC Arkhangelsk Pulp and Paper Plant, LLC Ilim Pulp Exim - a subsidiary of OJSC Kotlass Pulp and Paper Plant, OJSC Siassky Pulp and Paper Plant) categorically refused from concluding contracts with OJSC United Trade Company. These companies are dissatisfied with the produce supply terms and the price. The reserves of caustic soda at these companies are enough for 2-3 working days.



It should be mentioned that these companies are local economic mainstays, with all the entailing negative socioeconomic implications.



Before the conclusion of the contracts under consideration, the caustic soda manufacturers were competitors, and their activity on the market satisfied consumer requirements. However, the conclusion of contracts envisaging 100-percent sale of the commercial caustic soda output has resulted in the elimination of rivalry between caustic soda manufacturers aimed at better satisfaction of consumer requirements and ensuring free market pricing in conditions of free economic competition.



2. The Russian MAP Commission for consideration of case No. 1 05/4-04 (concerning polyvinylchloride suspension) has conducted a pricing analysis of polyvinylchloride suspension and came to the conclusion that OJSC United Trade Company did not set a monopolistically high price of this product.



3. The Russian MAP Commission for consideration of case No. 1 05/4-04 of the violation of the antimonopoly legislation, having considered the materials of the case, qualified the actions of OJSC United Trade Company during the conclusion of caustic soda supply contracts for 2004 and the marketing of this produce as a violation of item 1 of Art. 5 of the RSFSR Law «On Competition and Restriction of Monopolistic Activity on Product Markets» No. 948-1 of 22.03.1991.



4. Dismiss the petition of the OJSC United Trade Company for involving legal entities in the case and requesting them to provide additional evidence, as well as the petition for conducting an expert review on case No. 1 06/5-04 and No. 1 05/4-04.



Guided by item 1 of Art. 27 of the RSFSR Law «On Competition and Restriction of Monopolistic Activity on Product Markets» No. 948-1 of 22.03.1991 and item 2.12 of the Rules of Considering Cases of Violation of the Antimonopoly Legislation,



HAS DECIDED:



1. To qualify the actions of OJSC United Trade Company manifested in setting monopolistically high prices of liquid caustic soda, as well as imposing on consumers of this produce geographically unprofitable consignors and inclusion in caustic soda supply contracts unreasonable penal sanctions, as a violation of Art. 5 (1) of the RSFSR Law «On Competition and Restriction of Monopolistic Activity on Product Markets» No. 948-1 of 22.03.1991, namely the setting and maintaining monopolistically high prices and imposing unprofitable contractual terms on a counterparty.



Not to issue an instruction to OJSC United Trade Company to terminate the violation of Art. 5 (1) of the RSFSR Law «On Competition and Restriction of Monopolistic Activity on Product Markets» No. 948-1 of 22.03.1991, as the decision on case No. 1 06/5-04 of the violation of the antimonopoly legislation of 11.02.2004 envisages the issuance of an instruction to conclude direct mutually beneficial contracts between economic entities - caustic soda manufacturers, marketing organisations comprising one group of entities with the said manufacturers, and consumers of this produce; taking the necessary actions by the Russian MAP jointly with relevant executive authorities to charge the profit illegally gained by OJSC United Trade Company as a result of violation of the antimonopoly legislation in favour of the Russian Federation budget; as well as preparation of a claim by the Russian MAP to the arbitration court on the liquidation of OJSC United Trade Company on the basis of Art. 12 of the RSFSR Law «On Competition and Restriction of Monopolistic Activity on Product Markets» No. 948-1 of 22.03.1991.



Commission Chairman A.G. Tsyganov



Commission members: T.I. Kharitonashvili, S.Yu. Vershinin, O.A. Savinova,D.A. Morozov,N.I.Remizov















To the Moscow City Arbitration Court

107996, Moscow, 10, Novaya Basmannaya St.



Applicant: OJSC Unified Trade Company

115035, Moscow, 8A/2, Ovchinnikovskaya nab., building 1





The public authority whose

non-regulatory acts are appealed:

the Federal Antimonopoly Service

(as legal succession, determination on the case of 08.06.2004)

123995, Moscow, 11, Sadovaya Kudrinskaya St.





Case A40-22062/04-72-139



RESPONSE



to the Appeal against the Non-Regulatory Legal Act of the Antimonopoly Authority





The Federal Antimonopoly Service has examined the application filed by OJSC United Trade Company (hereinafter - OJSC UTC, the Applicant) on appealing the non-regulatory legal act of the antimonopoly authority (hereinafter - the Appeal) and considers that the appealed decision of the Russian MAP on case No. 1 05/4-04 of 11.02.2004 (outgoing No. AC/1814 of 13.02.2004) of the violation of the antimonopoly legislation (hereinafter - the Russian MAP Decision) conforms to the law and does not violate the rights and lawful interests of the Applicant, and the appeal filed by OJSC United Trade Company should be dismissed for the following reasons.



According to Art. 13 of the Russian Federation Civil Code (hereinafter - the RF CC), a non-regulatory act of a public authority inconsistent with the law or other legal acts and violating civil rights or legally protected interests of a legal entity may be invalidated by the court.



According to item 6 of the Joint Decision of the RF Supreme Court Plenum and the RF Supreme Court of Arbitration Plenum No. 6/8 of 01.07.1996 «On Some Issues Related to the Application of Part One of the Russian Federation Civil Code,» the grounds for issuing a court decision on invalidation of a non-regulatory act are simultaneously:



- its inconsistency with the law or another legal act,

- the violation by this act of civil rights and legally protected interests of an individual filing a relevant court claim.



The Decision of the Russian MAP has been passed lawfully and reasonably, and lawful acts of the Russian MAP aimed at the termination of the violation of the antimonopoly legislation cannot be qualified as a violation of the Applicant's rights.



1. The Decision of the Russian MAP does not violate the Applicant's rights and lawful interests.



The Applicant claims that the appealed Decision violates its rights. The alleged violation of the civil rights and lawful interests of OJSC UTC is manifested in the interference of a federal executive authority in entrepreneurial activity of a commercial organisation, which contradicts the basic principles of civil law prescribed by Art. 1 of the RF CC. The Russian MAP decision has restricted the Applicant's constitutional right to free use of its means and property for purposes of entrepreneurial and other economic activity not prohibited by law (Art. 34 of the Russian Federation Constitution), and damaged the Applicant's business reputation.



However, these arguments of the Applicant do not conform to the legislation and the circumstances of the case and do not constitute grounds for invalidating the Decision of the Russian MAP.



The appealed Decision was passed upon the results of consideration of the case of violation of the antimonopoly legislation.



According to Art. 12 (1) of the RSFSR Law «On Competition and Restriction of Monopolistic Activity on Product Markets» No. 948-1 of 22.03.1991 (hereinafter - the Law on Competition), the antimonopoly body is authorised to initiate cases based on the elements of a violation of the antimonopoly legislation, pass decisions and issue instructions upon the results of their consideration.



According to item 8 of Art. 12 of the Law on Competition, the antimonopoly authority is authorised to establish the fact of economic entities' dominance.



The Decision of the Russian MAP was passed in accordance with requirements of the Law on Competition, is aimed at the termination of the violation of the antimonopoly legislation by the Applicant, and therefore cannot be qualified as acts violating its rights.



Art. 34 of the Russian Federation Constitution does not allow economic activity aimed at monopolisation and unfair competition.



In keeping with part two of item 2 of Art. 1 of the Russian Federation Civil Code, the rights of a legal entity can be restricted by federal law for purposes of protection of the fundamentals of the constitutional order, morality, health, rights and lawful interests of other persons, ensuring national defence and state security. Such restrictions are prescribed by part two of item 1 of Art. 10 of the Russian Federation Civil Code (RF CC) which prohibits the use of civil rights for purposes of restriction of competition, as well as dominance abuse on the market. A ban on the setting and maintaining monopolistically high prices and imposing unprofitable contractual terms on a counterparty is envisaged by item 1 of Art. 5 of the Law on Competition - and these are the sort of violations established with respect of OJSC UTC in the Russian MAP Decision.



Therefore, a lawful and justified Decision of the Russian MAP cannot be recognised as violating the Applicant's rights and lawful interests.



2. The Decision of the Russian MAP is lawful and justified.



The Applicant believes that in violation of items 2.12 and 2.15 of the Rules of Considering Cases of Violation of the Antimonopoly Legislation, approved by Order of the RF MAP No. 91 of 25.07.1996 (hereinafter - the Rules of Considering Cases), the Decision of the Russian MAP does not indicate the circumstances on the basis of which:



- the Applicant's position on the caustic soda market is qualified as dominant;

- the Applicant committed actions constituting dominance abuse and infringing the interests of other economic entities in the form of:



(a) setting a monopolistic price;

(b) imposing on caustic soda buyers by the Applicant of the terms on consignors and penal sanctions, which are unprofitable for the buyers or irrelevant to the subject of the contract.



2.1. The Applicant claims that the conclusion on OJSC UTC share on the market was made in the MAP Decision on the basis of the assumption that caustic soda is a product that has no fungibles.



However, in the Applicant's opinion, caustic soda can be substituted in the pulp and paper industry by another product, and the failure to establish these circumstances is the evidence of improper identification of the product dimensions of the market on which OJSC UTC has been recognised as a dominant entity. In this connection, the Applicant believes that an improper identification of the product dimensions of the market shows that the MAP conclusions on the share and, hence, on the dominance of OJSC UTC are made with violations of the rules of establishing these facts.



These arguments cannot be accepted for the following reasons.



The Russian MAP Commission came to the conclusion on OJSC UTC dominance on the caustic soda market under the following circumstances.



The results of the caustic soda market analysis conducted in accordance with the Procedures for Conducting an Analysis and Evaluation of the State of the Competitive Environment on Product Markets approved by Order of the RF MAP of 20.12.1996 No. 169 (hereinafter - the Market Analysis Procedures) by the Russian MAP department for competition policy in the agro-industrial, forestry, chemical, and natural resources complexes (hereinafter - the Russian MAP Department) have revealed the following.



Chlorine is manufactured by electrolysis of sodium chloride water solution. Electrolysis produces gaseous chlorine and sodium hydroxide. The obtained alkali solution is purified to produce commercial caustic soda.



Caustic soda is used in industry, construction, agriculture, transport, etc.



The establishment of fungibility of caustic soda in accordance with item 2.4 of the Market Analysis Procedures was conducted from the point of view of its utilisation - consumption fungibility - and from the point of view of its production - production fungibility.



With respect of consumption fungibility it has been established that the product dimensions of the product market are restricted to a single product - caustic soda. This conclusion has been made on the basis of the opinion of economic entities that have filed applications to the Russian MAP concerning the violations of the antimonopoly legislation, which are the main consumers of this product - enterprises of the chemical, pulp and paper, aluminium, automobile industry, and power engineering, using caustic soda as raw material in their technological process.



This approach conforms to the requirements of items 2.2 and 2.4 of the Market Analysis Procedures, stipulating that the identification of the product dimension of a market should be based on buyers' opinion on the fungibility of products comprising one product group. During the consideration of the case of violation of the antimonopoly legislation the buyers assured it was impossible to substitute this product with any other.



The conclusion on the impossibility of full and effective substitution of caustic soda for the main consumers of this product was also made by specialists of the Department in the analysis of the caustic soda market. This conclusion has also been drawn up in accordance with requirements of item 2.4 of the Market Analysis Procedures. It should be mentioned that these conclusions were fully confirmed afterwards by the opinions of the Russian Engineering Academy and the Central Scientific Research Institute of Paper.



In addition, in keeping with item 2.3 of the Market Analysis Procedures, during the initial identification of the product dimensions of the market caustic soda was found to be referred to a qualification group in accordance with GOST.



According to item 2.4 of the Market Analysis Procedures, one of the consumption fungibility criteria is the demand price cross elasticity index calculated as the proportion of the change of the sales volume of product X (as %) to the change of the price of product Y (as %) over a certain period. The demand for product X with an increase of the price of product Y can either grow or decline, depending on the customer's attitude to joint utilisation of one and the same product. If the demand does not change in the event of a price increase, the point at issue is a product without fungibles.



According to the analysis of contracts between OJSC UTC and consumers, as well as former contracts between caustic soda manufacturers and consumers, an increase of the caustic soda price was not accompanied with a change of demand for it. E.g. according to the complaint against the violation of the antimonopoly legislation filed by OJSC Russian Aluminium Management on 03 February 2004, No. 01-18-024/04, after an increase of the price of caustic soda from 2,200 RUR/t (contract with the manufacturer) to 6,200 RUR/t (contract with OJSC UTC) the applicant had to accept the OJSC UTC terms and purchased an entire volume of caustic soda necessary for its production purposes.



The conclusion concerning production fungibility is made on the basis of the fact that caustic soda is a standardised product and all its properties and production procedures are regulated by the state standard - GOST. Moreover, caustic soda is manufactured as a by-product of chlorine production, No other fungible product can be manufactured by chlorine production technology. Therefore, according to the production fungibility criterion, caustic soda is not a fungible product.



Having identified the product dimensions of the market, the Russian MAP Department has identified the market subjects in keeping with item 1.4 of the Market Analysis Procedures. The main manufacturers of caustic soda in Russia are: JSC Caustic (Sterlitamak), OJSC Caustic (Volgograd), OJSC Khimprom (Volgograd), OJSC Sibur-Neftekhim, OJSC NAC Azot, OJSC Sayanskhimplast, and OJSC Kirovo-Chepetsk Chemical Plant named after B.P. Konstantinov (OJSC KChKhK). The aggregate share of the said manufacturers on the caustic soda market exceeds 65%.



The results of analysis were presented in the conclusion of the Russian MAP Department made upon the analysis of the caustic soda market and submitted to the Russian MAP Commission. The Russian MAP Commission has examined the materials presented by the Russian MAP Department and used them in passing its Decision. The conclusion on OJSC UTC dominance on the caustic soda sales market was drawn as a result of the examination of the presented contracts between OJSC UTC and the main caustic soda manufacturers and their marketing organisations, envisaging the manufacturers' obligation to hand over in OJSC UTC property 100% of their output.



The purchase of 100% of the manufactured caustic soda by OJSC UTC is confirmed also by the OJSC UTC statement on the ownership of 100% of caustic soda produced in the Russian Federation, as well as the record of the Russian MAP Commission session.



2.2. The Applicant assumes that the price of caustic soda set by OJSC UTC is not monopolistically high. In substantiation of its position the Applicant claimed that the Russian MAP Commission was considering the case only on the basis of the contents of applications filed by caustic soda consumers complaining against a 1.5 - 2 times prices increase over the 2003 prices and the fact of a 50-percent trade mark-up in the price offered to caustic soda buyers by OJSC UTC, as compared to the purchase price, OJSC UTC expenses not included. The Applicant also describes the scheme of pricing and profit distribution between OJSC UTC and the companies manufacturing caustic soda.



In addition, the Applicant believes that the Russian MAP Commission has not conducted an analysis of the existence and justification of profit utilisation in violation of item 4.12.4 of the Provisional Methodological Recommendations for Identifying Monopolistic Prices of 21.09.1994 No, VB/2053 (hereinafter - the Provisional Recommendations) and has not detected the elements of a monopolistically high price presented in the definition of a monopolistic price given in Art. 4 of the Law on Competition (an economic entity's opportunity to compensate for unreasonable expenses and (or) receive a considerably higher profit than possible in comparable conditions or in a competitive environment).



There statements made by the Applicant do not correspond to the materials of the case and cannot be used as grounds for recognizing the Russian MAP Decision unjustified for the following reasons.



The Russian MAP Decision contains a price analysis based on criteria set by Art. 4 of the Law on Competition and the Provisional Recommendations. According to item 2.4 of the Provisional Recommendations, a monopolistically high price is the price set by a dominant economic entity on the product market as a result of withdrawal of goods from circulation for purposes of its overstating to gain excess profit and/or compensate for unreasonable expenses by infringing the economic interests of other economic entities.



The Russian MAP Decision contains an analysis of the costs and outlays of caustic soda production, an analysis of utilisation of the profit gained as a result of the product marketing, on the basis of which a conclusion has been made that the Applicant gained higher profits than possible in comparable conditions or in a competitive environment.



The information on a change (significant overstatement) of the price of caustic soda in 2002-2003 was obtained from supply contracts concluded with the manufacturers in competitive market conditions, provided by consumer enterprises.



In addition, the analysis of the price and its comparison with the monopolistically high price was conducted on the basis of the analysis of the elements of monopolistic prices of caustic soda prepared by the Institute of Placement and Wholesale Market Studies (OJSC ITKOR), approved by OJSC ITKOR General Director on 09 February 2004 (hereinafter - the analysis of the elements of monopolistic prices). This analysis of the elements of monopolistic prices also meets all the criteria of identifying of a monopolistically high price established by Art. 4 of the Law on Competition and the Provisional Recommendations. The analysis of the elements of monopolistic prices contains the structure of expenses and the analysis of the cost of caustic soda production; the calculation of outlays on caustic soda production; the calculation of a monopolistic profit (an opportunity to gain a considerably higher profit than possible in comparable conditions or in a competitive environment).

OJSC UTC is a caustic soda marketing organisation (a reseller) and, therefore, does not have expenses connected with production, plant replacement and other outlays, while the size of the mark-up set by OJSC UTC is several times higher than the manufacturers' trade mark-up that existed on the competitive market in 2002-2003. This prompts the conclusion that according to Art. 4 of the Law on Competition, the expenses of OJSC UTC included in the price of caustic soda are unreasonable and economically unjustified.



Therefore, the analysis of the price of caustic soda conducted during the adoption of the Russian MAP Decision meets the criteria prescribed by the antimonopoly legislation. There are no violations qualifying the price as monopolistically high and, hence, no grounds for invalidating the MAP Decision.



We also believe that the structure of the price offered by OJSC UTC, as presented in the appeal, does not meet the criteria set by the antimonopoly legislation and also vividly shows the compensation mechanism of OJSC UTC unreasonable expenses (as per Art. 4 of the Law on Competition):



- salary of the OJSC UTC staff - 96.76 RUR/tonne;

- other expenses - 179.57 RUR/tonne;

- credit servicing - 34.88 RUR/tonne;

- expenses connected with the lowering of the losses causes by forced caustic soda overproduction - 186.82 RUR/tonne.



The calculation of regular expenses presented by OJSC UTC, including the salary, cannot be made in relative units (roubles per tonne), as OJSC UTC can never know how for certain many tonnes of caustic soda will be purchased (according to the terms of the contracts with caustic soda manufacturers, OJSC UTC is to purchase 100% of caustic soda manufactured by them).



Expenses connected with the lowering of the losses caused by forced overproduction of caustic soda in the amount of 186.82 roubles out of 585.95 roubles are unreasonable, as OJSC UTC does not produce anything but is an intermediary.



We consider the OJSC UTC arguments concerning the expenses on the servicing of clients to be unjustified and inconsistent. In accordance with the contracts concluded by OJSC UTC with consumers, the latter are obliged to pay 100% price of the supply in advance. The manufacturers dispatch caustic soda to end consumers, which conclude supply contracts with OJSC UTC.



Therefore, the fact of produce dispatch to the consumers constitutes the evidence of payment for the produce by them to OJSC UTC. Under these circumstances, given 100-percent advance payment for caustic soda supplies by the customers, OJSC UTC cannot reasonably refer to its expenses the outlays on servicing the credits received by OJSC UTC.



Therefore, OJSC UTC revenue from the resale of caustic soda per tonne of the produce, constituting unreasonable expenses as per Art. 4 of the Law on Competition, amounted to 585.95 roubles per tonne.



The Federal Antimonopoly Service considers the Applicant's argument that the caustic soda determines the pricing specifics on this market ungrounded, as the pricing specifics offered by OJSC UTC is not connected with particularities of the caustic soda market, but rather with the model of monopolisation of the caustic soda sales market applied by OJSC UTC.



OJSC UTC claims that the market strategy of caustic soda manufacturers requires the finding of a source of minimising the losses caused by forced overproduction of caustic soda.



However, this «strategy» does not call for a need to find such a source of minimising the losses caused by forced overproduction of caustic soda at the expense of unreasonable costs (monopolistically high prices).



Moreover, consumer enterprises (OJSC Volzhsky Orgsintez, RAO Bumprom) have provided materials to the Federal Antimonopoly Service attesting to the losses sustained precisely by the consumers, and precisely as a result of setting monopolistically high prices on caustic soda by OJSC UTC. These materials have been submitted to the Russian Federation Prosecutor General's Office (a copy is attached)



In its calculation of the profit presented in paragraph 3 of the 6th page of the Appeal, OJSC UTC does not deny its unreasonableness, but on the contrary, stipulates that the exclusion of OJSC UTC from the link between the manufacturer of caustic soda and it buyer would result in the elimination of a considerable component from the price of the product. The size of this component over the first quarter of 2004 alone equals the sum total of the profit gained by OJSC UTC (115,212,618.81 roubles) and «other expenses» of OJSC UTC (44,343,643.29 roubles).



Consequently, OJSC UTC arguments do not prove that the price set by OJSC UTC should be recognised as «fair,» but on the contrary, they demonstrate that the price set by OJSC UTC is unfair and unjustified.



The Applicant claims that the MAP Commission has disregarded the fact that the OJSC UTC actions have a favourable effect for supporting chemical enterprises manufacturing caustic soda.



In our opinion, a price increase does not mean that:



the setting of a monopolistically high price terminates the violation of Art. 5 of the Law on Competition if part of this price is channeled for production modernization;



manufacturing enterprises have received the component intended for modernization in the structure of the caustic soda price due to the setting of a monopolistically high price.



Therefore, the setting of a monopolistically high price cannot be considered not to be a violation of Art. 5 of the Law on Competition if part of such price is channeled for production modernization, and the channeling of part of a monopolistically high price to production modernization does not constitute the grounds for recognizing the MAP Decision invalid.



Moreover, the setting of a monopolistically high price of caustic soda as a result of collusion (concerted actions) of a number of caustic soda manufacturers and OJSC UTC and applying a monopolistic produce marketing pattern via OJSC UTC as a means of gaining additional profit allegedly channelled for production modernisation is illegal and inadmissible.



The Applicant claims that the MAP Commission came to the conclusion that OJSC UTC imposed on its counterparties a number of contractual terms, specifically, on appointing caustic soda consignors and on penal sanctions for improper fulfilment of obligations. MAP has qualified these conditions as unprofitable for consumers merely on the basis applications filed by some of the OJSC UTC counterparties without conducting a relevant economic analysis and only because these applicants were offered different consignors than those from which they received produce in 2003.



The Applicant also assumes that during the application of this provision of the Law on Competition contractual terms should be evaluated from positions of reasonability of the offered contractual terms, and also the seller's economic, organisational and other opportunity to offer different conditions.



However, MAP has not investigated the circumstances due to which OJSC UTC offered the particular consignors to their counterparties which were indicated in the MAP Decision. Moreover, MAP did not establish the existence of an objective opportunity to ensure the consignment of caustic soda from the companies requested by the buyers.



In our opinion, the fact of imposition of unprofitable contractual terms on a counterparty is evident from the analysis conducted during the adoption of the MAP Decision.



The materials of the administrative case contain numerous applications filed by enterprises consuming caustic soda, according to which in the absence of a marketing model of caustic soda proposed by OJSC UTC:



such consumers would never have supplied the produce from the manufacturer companies;



the consumers have for a long time purchased and supplied the produce from other manufacturing companies than those offered by OJSC UTC;



the expenses on the product transportation according to the pattern offered by OJSC UTC exceed transportation expenses consumers' choice.



The unjustified and unprofitable increase of expenses on caustic soda supply from the manufacturing companies imposed by OJSC UTC compared to the product supply expenses in conditions of a competitive market in confirmed, for instance, by the reference note on supply of liquid caustic soda presented by OJSC Avtovaz and the application of OJSC Volzhsky Orgsintez No. 12/2975 of 31.05.2004.



On the basis of the above and in keeping with articles 1, 10, 13 of the Russian Federation Civil Code, article 5 of the RSFSR Law «On Competition and Restriction of Monopolistic Activity on Product Markets,» articles 198-201 of the Russian Federation Arbitration Processional Code, the Federal Antimonopoly Service



REQUESTS



the Moscow City Court of Arbitration to fully dismiss the claims filed by OJSC United Trade Company on invalidating the Russian MAP Decision.



Attachments:



1. A copy of the representative's power of attorney.

2. A copy of the analysis of the product market of caustic soda.

3. A copy of the application filed by OJSC Volzhsky Orgsintez No. 12/2975 of 31.05.2004.

4. A copy of the conclusion of the Russian Engineering Academy on the impossibility of economically beneficial substitution of caustic soda (outgoing No. VG-106 of 28.05.2004).

5. A copy of the conclusion of the Central Scientific Research Institute of Paper on the impossibility of caustic soda substitution (outgoing No. 5.2-9/745 of 27.05.2004).

6. A copy of the reference note on caustic soda supply addressed to OJSC Avtovaz.

7. A copy of the letter of RAO Bumprom on the damage inflicted on pulp and paper enterprises by monopolization of the caustic soda market (outgoing No. 104-VG of 27.05.2004).

8. A copy of a letter to the Prosecutor General's Office (No. AG/1555 of 10.06.2004).



Representative of the Federal Antimonopoly Service O.G. Mishakov



under the authority of power of attorney













MOSCOW CITY ARBITRATION COURT



in the name of the Russian Federation



DECISION



14.07. 2004 Case No. A40-22062/04-72-139





The operative part of the decision was announced on 08.07.2004





The Moscow City Arbitration Court in the composition of:



Chief justice N.A. Narimanidze,

the record of the court proceedings kept with the use of a computer by assistance judge T.I. Dorofeeva,



having considered at the court session the case on the claim filed by OJSC UTC

to the Federal Antimonopoly Service

to invalidate its Decision



with the participation of:

on behalf of the Applicant: A.A. Rokhlin under the authority of power of attorney No. ETK/84 of 11.05.2004; A.V. Kukin under the authority of power of attorney No. ETK/83 of 11.05.2004; A.P. Nikitin under the authority of power of attorney No. ETK/85 of 11.05.2004.



on behalf of the Respondent: S.Yu. Vershinin under the authority of power of attorney No. IA/770 of 19.05.2004;

O.A. Savinova under the authority of power of attorney No. AG/2641 of 07.07.2004;

T.I. Kharinoshvili under the authority of power of attorney No. IA/771 of 19.05.2004;

S.V. Doronin under the authority of power of attorney No. IA/636 of 14.05.2004;

O.G. Mishakov under the authority of power of attorney No. AI/632 of 14.05.2004;

I.V. Bashlakov-Nikolaev under the authority of power of attorney No. IA/1612 of 11.06.2004



has established:



OJSC UTC has applied to court with a claim vs. the Federal Antimonopoly Service to invalidate the decision of the Russian MAP of 11.02.2004 on case No. 1 05/4-04. In support of its claim the Applicant refers to the assumption that the decision does not conform to effective law and infringes the Applicant's rights. The Applicant's actions do not contain the elements of abuse in the form of setting a monopolistically high price, imposing consignor terms and penal sanctions for improper fulfilment of obligations. The appealed decision is lacking a justified calculation of a monopolistically high price, the conclusion that caustic soda has no fungibles on the market is unjustified, as in some cases caustic soda can be substituted with another product. The ITKOR conclusion is irrelevant to the case, as it was presented after the appealed decision was passed.



A representative of the Federal Antimonopoly Service requests to dismiss the claims, as the decision does not violate the rights and lawful interests of the Applicant. The decision was passed within the frameworks of the antimonopoly authority's competence, the decision is lawful and justified. The case was initiated on the basis of applications filed by caustic soda consumers, as well an address by a State Duma deputy and a report of the territorial agency on the violation of the antimonopoly legislation. It is impossible to fully substitute caustic soda with another product in various sectors of the industry. Caustic soda is a by-product of chlorine production and has a state standard - GOST.



The company has unjustifiably overpriced the product, as before its emergence on the market the price equalled approximately 4 thousand roubles, but the company has concluded contracts for the sale of the product at the price of 6 thousand roubles. Moreover, the company has unjustifiably introduced penal sanctions, the company was appointing consignors at its own discretion, which entailed additional transport expenses for many buyers. The OJSC UTC share on the market of caustic soda exceeds 65%. The company's market entry has resulted in the elimination of competition between caustic soda manufacturers.



Having considered the materials of the case and heard the persons involved in the case, the court considered that the Applicant's claims shall be satisfied for the following reasons.

In accordance with Art. 13 of the RF CC and Art. 198 of the RF APC, a non-regulatory act of a public authority can be invalidated by the court if it does not comply with the law or other regulatory legal acts and violates the rights and lawful interests of a legal entity.



On 11 February 2004, the omission of the RF MAP has passed a decision on case No. 1 05/4-04, qualifying the actions of OJSC United Trade Company as violations of Art. 5 (1) of the RSFSR Law «On Competition and Restriction of Monopolistic Activity on Product Markets,» manifested in dominance abuse by OJSC UTC on the market of caustic soda by setting a monopolistically high price of liquid caustic soda and imposing unprofitable contractual terms on consumers of this produce (geographically unfavourable consignors and economically unjustified penal sanctions).



The court has established that the appealed decision does not conform to the RF legislation for the following considerations.



In keeping with items 2.12 and 2.15 of the Rules of Considering Cases of Violation of the Antimonopoly Legislation approved by Order of the RF MAP of 25.07.1996 No. 91, a decision of the MAP Commission considering a case of violation of the antimonopoly legislation should be motivated, the decision should disclose the circumstances of the case established by the Commission and the conclusions made by the Commission as a result of consideration of the case.



The Respondent has not abided by these requirements.



In accordance with item 2.2 of the Procedures for Conducting an Analysis and Evaluation of the State of the Competitive Environment on Product Markets approved by Order of the RF MAP of 20.12.1996 No. 169, the identification of the product dimensions of a market should be based on the buyers' opinion on the fungibility of products comprising one product group. This opinion can be found out as a result of a total or sample buyers' poll and supported with data of a merchandising review.



The analysis conducted by the RF MAP department for competition policy in the agro-industrial, forestry, chemical, and natural resources complexes (vol. 2, pages 3-9) contains a conclusion that the consumer cannot substitute caustic soda with any other product. The Respondent claims that this conclusion has been made on the basis of opinions of caustic soda, which is substantiated by the opinion of the Russian Engineering Academy «Forestry Engineering Technologies» issued in May 2004.



The Respondent's reference to this opinion in substantiation of lawfulness of the appealed decision is inconsistent, as the decision was passed on 11.02.2004 and the opinion was issued in May 2004.

The analysis conducted by the RF MAP department for competition policy in the agro-industrial, forestry, chemical, and natural resources complexes suggests that the conclusion about a lack of fungibles of caustic soda has been made exclusively on the basis of opinions of consumers most of which are applicants on case No. 1 05/4-04 and are not backed with any evidence. The Company's petition for conducting an expert evaluation has been dismissed by the Commission without indicating a reason.



In its response to the claim the Respondent refers to the formula of the cross elasticity index in the issue of caustic soda fungibles. This argument is unjustified, as the respondent compared the change of the caustic soda price with the change of caustic soda sales volumes. However, item 2.4 of Procedures No. 169 envisages the comparison of the change of the price of one product with the change of the sales volume of another product.



The criteria of fungibility also include functional fungibility of various produce, which is determined by comparison of consumption purposes of a particular product and its potential fungibles. It is necessary to take into account a differentiated approach of different groups of buyers to this problem. One and the same produce may circulate on one and the same territory on different product markets, and these markets should be considered separately (paragraph 9 of item 2,4 of Procedures No. 169).



Therefore, the Respondent's conclusion about a lack of fungibles to caustic soda cannot be considered justified.



During the calculation of the Applicant's share on the caustic soda market the Respondent did not take into account the output volumes of solid caustic soda - a product with the same chemical characteristics as liquid caustic soda. Taking this circumstance into account would have lowered the Applicant's share on the product market.



The appealed decision and the analysis conducted by the RF MAP department for competition policy in the agro-industrial, forestry, chemical, and natural resources complexes indicate the data on caustic soda production volumes in 2002, whereas the contracts referred to by the Respondent were concluded by the Applicant in a later period - in late 2003 - early 2004.



The Respondent's decision is based on the assumption that the Applicant's share on the market of caustic soda is 100%. However, the analysis of elements of monopolistic prices of caustic soda conducted by OJSC ITKOR shows that the Applicant's share is 80%, which shows obvious contradictions between these documents.



Therefore, the Applicant's share on the caustic soda market has been improperly identified.

On the basis of the analysis of the elements of monopolistic prices of caustic soda prepared by the Institute of Placement and Wholesale Market Studies (OJSC ITKOR) the Respondent made a conclusion that OJSC UTC expenses included in the price of caustic soda are unreasonable and economically unjustified.



According to item 2.4 of the Provisional Methodological Recommendations for Detecting Monopolistic Prices of 21.04.1994 No. VB/2053, a monopolistically high price is the price set by an economic entity occupying a dominant position on a product market as a result of withdrawal of goods from circulation for purposes of overpricing to gain excess profit and/of compensate for unreasonable costs at the expense of infringement of economic interests of other economic entities or individuals.



Facts formally indicating the elements of a monopolistic price may in fact be a consequence of the market situation rather than market dominance abuse by an economic entity in conditions of free pricing (item 3.1 of the Provisional Recommendations).



Item 4.3 of the Provisional Recommendations stipulates that the analysis of the elements of monopolistically high prices should be conducted in two stages: preliminary analysis; and the stage of comprehensive (in-depth) analysis of an economic entity's activity.



The results of a preliminary analysis do not provide the grounds for passing a final decision by the Russian MAP concerning dominance abuse on the market by setting monopolistically high prices, and do not provide the grounds for issuing an instruction to an economic entity either (item 4.10 of the Provisional Recommendations).



In pursuance of this item, the Russian MAP jointly with the pricing authorities and representatives of bodies of power and management should analyse, on the one hand, the presented materials, and on the other - the arguments of produce consumers and in each particular case pass a joint balanced decision concerning the level of the so-called «reasonable price» which would ensure a maximum satisfaction of consumers on the market along with a justified observance of the produce manufacturers' financial interests.



A «fair» price is calculated as the sum of the cost, whose reasonability is checked by all calculation items, and the profit objectively needed for the enterprise development. This price requires the consideration of the specific features of the enterprise's economic position and specifics of its produce pricing. Such specifics may include the objective need for channelling funds for production extension and modernisation, personnel training and retraining. Additional outlays (expenses) recognised as unreasonable and obtained as a result of calculations based on item 4.12.4 should be left within the structure if the cost (profit) of the inspected produce.



The Respondent's arguments that the price analysis of caustic soda during the adoption of the Russian MAP decision was based on criteria prescribed by the antimonopoly legislation and that there were no violations in qualifying the price as monopolistically high are inconsistent.

The appealed decision lacks an analysis of justifiability of costs and profit objectively needed for production development.



The Respondent's decision indicates that OJSC UTC markets liquid caustic soda with a 50-percent trade mark-up, resulting in the setting of a monopolistically high price of caustic soda.



These allegations do not correspond to reality, as in the process of consideration of the case of violation of the antimonopoly legislation the Applicant and caustic soda manufacturers stated that the price at which the consumers purchase caustic soda from the manufacturers exceeds 4,000 roubles. However, these statements were disregarded.



The Respondent regards the analysis of the elements of monopolistic prices of caustic soda prepared ITKOR as the evidence of examining the structure of the Applicant's price of caustic soda.

Art. 4 of the RSFSR Law «On Competition and Restriction of Monopolistic Activity on Product Markets» requires an analysis of expenses of the entity suspected of monopolistically high pricing to detect a monopolistically high price.



The analysis of the elements of monopolistic prices analyses the cost of caustic soda production by the manufacturers, and it does not indicate the reasons why any expenses of the Applicant were qualified as unreasonable; the Respondent has not examined the Applicant's cost and outlays.



The conclusions made in the analysis of the elements of monopolistic prices of caustic soda about improper distribution of the manufacturer's expenses on production of caustic soda and chlorine are arbitrary and not based on regulatory requirements. This circumstance is confirmed by the letter of OJSC Caustic of 07.07.2004 on remarks to the analysis of the elements of monopolistic prices of caustic soda prepared OJSC ITKOR on 09.02.2004 on the Russian MAP assignment.



In accordance with item 4.12.4 of the Provisional Recommendations, the existence of an objective necessity of funds for production extension and modernisation constitutes sufficient grounds for a fair price increase. Considering that the Respondent recognises the need to conduct a re-equipment of the manufacturers, the increase of the purchasing price paid by the Applicant to caustic soda manufacturers is justified. Therefore, the increase of the price of caustic soda is also justified.



The appealed decision stipulates that the Applicant imposed unprofitable terms of supply contracts to caustic soda consumers, specifically the geographically unfavourable consignors and economically unjustified penal sanctions.



At the same time, the Law does not specify which particular contractual term can be recognised as unprofitably imposed. Contractual terms should be evaluated from the point of view of reasonability of the offered conditions, as well as the buyer's economic and organisational opportunities to offer different condition.



The Russian MAP ha not examined the circumstances due to which the Applicant offered to its counterparties different consignors from those indicated in the Respondent's decision without finding out whether there was a possibility to ensure soda shipment from the enterprises requested by the buyers.



Moreover, the Respondent claims in the appealed decision that the penal sanctions for improper fulfilment of obligations cannot be justified with economic expediency without indicating the reasons for such an assertion. The Russian MAP has not conducted an analysis of the application of civil liability during the conclusion of the contracts, as in the event of disagreement with such contractual terms the buyers eliminated such terms by drawing up a memorandum of differences.



The interference of a federal executive authority in the entrepreneurial activity of OJSC UTC constitutes the violation of the rights and lawful interests of a legal entity.



In violation of Art. 65 and part 5 of Art. 200 of the RF APC, the Respondent has failed to prove the circumstances used as the grounds for passing the decision of 11.02.2004.



The state duty shall be refunded to the Applicant from the federal budget, as the Respondent is exempt from duty.



On the basis of articles 8, 12, 13 of the RF CC, articles 5, 6, 12, 27, 28 of the RSFSR Law «On Competition and Restriction of Monopolistic Activity on Product Markets,» guided by articles 110, 167-170, 200, 201 of the RF APC,



The Court decided: to recognise the decision of the Russian MAP of 11.02.2004 on case No. 1 05/4-04 invalid (tested from the point of view of consistency to the RSFSR Law «On Competition and Restriction of Monopolistic Activity on Product Markets»).



Refund the state duty in the amount of 1,000 roubles to the Applicant from the state budget.

The decision shall be implemented immediately.



The decision can be appealed within a month from the date of its adoption at the ninth court of appeals.



Judge N.A. Narimanidze













THE FEDERAL ARBITRATION COURT OF THE MOSCOW DISTRICT





107078, Moscow, 18, Akademika Sakharova pr.



RULING



No. A40-161-05



City of Moscow

28 February 2005 Case No. A40-22062/04-72-139





The full text of the decision was issued on 28 February 2005:





The Federal Arbitration Court of the Moscow District in the composition of:



Chief justice V.A. Letyagina,

Judges M.V. Borzykin and I.V. Tubolets



with the participation in the session:

on behalf of the Applicant - A.P. Nikitin, power of attorney No. 161 of 1.01.2005;

on behalf of the Respondent - O.G. Mishakov, power of attorney No. 632 of 14.05.2004; S.V. Doronin, power of attorney No. 636 of 14.05.2004,



having considered at its session of 29 February 2005 the cassation claim filed by the Federal Antimonopoly Service,



HAS ESTABLISHED:



The decision of the Moscow City Court of Arbitration of 14 July 2004, left unchanged by ruling No. 09AP-2276/04-AK of the Ninth Arbitration Court of Appeals of 27 October 2004 on case No. A40-22062/04-72-139, has invalidated the decision of the Russian MAP of 11 February 2004 of violation of the antimonopoly legislation by OJSC United Trade Company.



During the session of the cassation instance, representatives of OJSC United Trade Company and the Federal Antimonopoly Service presented for consideration of the court an out-of-court settlement signed by head of the Federal Antimonopoly Service N.Yu. Artemiev and OJSC United Trade Company General Director N.I. Pinigina.



According to the out-of-court settlement agreement, the Applicant shall recognise the fact of violation of Art. 5 (1) of the RSFSR Law «On Competition and Restriction of Monopolistic Activity on Product Markets» No. 948-1 of 22.03.1991 manifested in setting a monopolistically high price of liquid caustic soda in the period from 01.01.2004 to 30.09.2004.



The Respondent shall recognise that the level of the Applicant's prices of liquid caustic soda set as of 01.10.2004 is not monopolistically high.



The Applicant shall pay the sum stipulated by item 1.4 of this agreement in the amount of 20,311,163 (twenty million three hundred and eleven thousand, one hundred and sixty-three) roubles to the federal budget within three months from the date of approval of this agreement by the Federal Arbitration Court of the Moscow District. The payment can be made by a third party on the Applicant's instruction.



In this case the payment documents should contain, in addition to the data on the details of this agreement and the determination of the Federal Arbitration Court of the Moscow District approving it, an indication that the payment is made on behalf of OJSC United Trade Company.



The Applicant shall pre-notify the Respondent during three years from the date of conclusion of this agreement of each planned aggregate price increase by more than 10% during one quarter year period of the ex-price of liquid caustic soda marketed by the Applicant as compared to the previous price level, starting from the price level as of 01.03.2005, presenting relevant justifications.



The Applicant shall present to the Respondent within the period until 20.03.2005 an economic substantiation of the liquid caustic soda price increase that took place in January-February 2005.

The Applicant shall be immediately notifying the Respondent during three years from the moment of conclusion of this agreement of caustic soda supply contracts concluded by it with the manufacturers (their marketing organisations), attaching the copies of the contracts.



In order to maintain a balance of demand and offer of liquid caustic soda and a competitive environment on this market, the Applicant shall obligate as of 01.03.2005 not to maintain more than 50% share on the domestic market of liquid caustic soda and inform the Respondent on a quarterly basis of the Applicant's share on this market.



The Applicant shall pre-inform the Respondent within three years from the date of conclusion of this agreement of a planned increase of export supplies of liquid caustic soda, envisaging a reduction of the volumes of this produce supply to the Russian Federation domestic market by more than 5% over the 01.03.2005 indices.



The Applicant shall obligate not to include in supply contracts concluded with the manufacturers (their marketing organisations) contractual terms envisaging obligatory sale of 100% of liquid caustic soda.

The Applicant shall obligate to abide by the antimonopoly legislation and not abuse its dominance on the product market of liquid caustic soda.



The Applicant shall obligate to notify the Respondent of the acquisition of more than 10% of voting stocks/shares in the authorised capital of liquid caustic soda manufacturers within 30 days from the date of receiving the title to the said stocks/shares.



Having heard the opinion of the parties to the case requesting to approve the out-of-court settlement agreement, discussed the draft out-of-court settlement agreement presented to the cassation court, the court considered it possible to approve it, except item 2.10 and 2.11, as the terms of an out-of-court settlement do not contradict the law and do not violate the rights and interests of both the stakeholders and the public authority.



The consequences of approval of the out-of-court settlement agreement have been explained to the representatives.



Guided by articles 284-289 of the Russian Federation Arbitration-Processional Code, the Federal Arbitration Court of the Moscow District



HAS RULED:



To approve the out-of-court settlement agreement concluded between the Federal Antimonopoly Service and Open Joint-Stock Company United Trade Company, according to which the Applicant shall recognise the fact of violation of Art. 5 (1) of the RSFSR Law «On Competition and Restriction of Monopolistic Activity on Product Markets» No. 948-1 of 22.03.1991 manifested in the setting of a monopolistically high price of liquid caustic soda in the period from 01.01.2004 to 30.09.2005.



The Respondent shall recognise that the level of the Applicant's prices of liquid caustic soda set as of 01.10.2004 is not monopolistically high.



The sum indicated in item 1.4 of this agreement in the amount of 20,311,163 (twenty million three hundred and eleven thousand, one hundred and sixty-three) roubles shall be paid by the Applicant to the federal budget within three months from the date of approval of this agreement by the Federal Arbitration Court of the Moscow District. The payment can be made by a third party on the Applicant's instruction. In this case the payment documents should contain, in addition to the data on the details of this agreement and the determination of the Federal Arbitration Court of the Moscow District approving it, an indication that the payment is made on behalf of OJSC United Trade Company.



2.3. The Applicant shall pre-notify the Respondent during three years from the date of conclusion of this agreement of each planned aggregate price increase by more than 10% during one quarter year period of the ex-price of liquid caustic soda marketed by the Applicant as compared to the previous price level, starting from the price level as of 01.03.2005, presenting relevant justifications.



The Applicant shall present to the Respondent within the period until 20.03.2005 an economic substantiation of the liquid caustic soda price increase that took place in January-February 2005.



2.4. The Applicant shall be immediately notifying the Respondent during three years from the moment of conclusion of this agreement of caustic soda supply contracts concluded by it with the manufacturers (their marketing organisations), attaching the copies of the contracts.



2.5. In order to maintain a balance of demand and offer of liquid caustic soda and a competitive environment on this market, the Applicant shall obligate as of 01.03.2005 not to maintain more than 50% share on the domestic market of liquid caustic soda and inform the Respondent on a quarterly basis of the Applicant's share on this market.



2.6. The Applicant shall pre-inform the Respondent within three years from the date of conclusion of this agreement of a planned increase of export supplies of liquid caustic soda, envisaging a reduction of the volumes of this produce supply to the Russian Federation domestic market by more than 5% over the 01.03.2005 indices.



2.7. The Applicant shall obligate not to include in supply contracts concluded with the manufacturers (their marketing organisations) contractual terms envisaging obligatory sale of 100% of liquid caustic soda.



2.8. The Applicant shall obligate to abide by the antimonopoly legislation and not abuse its dominance on the product market of liquid caustic soda.



2.9. The Applicant shall obligate to notify the Respondent of the acquisition of more than 10% of voting stocks/shares in the authorised capital of liquid caustic soda manufacturers within 30 days from the date of receiving the title to the said stocks/shares.



To cancel the decision of the Moscow City Arbitration Court of 14 July 2004 and the ruling of the Ninth Arbitration Court of Appeals of 27 October 2004 No. 09AP-2270/04-AK on case No.

A40-22062/04-72-139.



The terminate proceedings on the case.



The ruling can be appealed with the cassation instance of the Federal Arbitration Court of the Moscow District within a month as of the date of final issuance of the ruling.



Chief justice V.A. Letyagina,

Judges M.V. Borzykin, I.V. Tubolets