Decision of the Arbitration Court of Cassation Instance

FEDERAL ARBITRATION COURT

VOLGA-VIATKA DISTRICT



603082, Nizhny Novgorod, Kremlin, 4



DECISION

Of the Arbitration Court of Cassation Instance



Nizhny Novgorod Case No. A28-12932/2004-618/13

July 07, 2005



The Federal Arbitration Court of the Volga-Viatka District composed of:



Chaiperson: Ms. M.Yu.Evteeva

Judges: Ms. N.Yu. Basheva, Ms.O.P. Maslova



Attended by Representatives from:

Claimant: Mr. D.V.Toporov (power of attorney, dated 06.09.2004);

Interested Party: Ms. M.L. Nikonova (power of attorney No.2, dated 12.01.2005);



Examined in its proceedings the cassation appeal of the claimant «Kirovenergo» Open Joint Stock Company;



Regarding the Decision of the Appeals Instance, dated 12.05.2005, on Case No.A28-12932/2004-618/13 of the Arbitration Court of the Kirov Oblast, made by Judges V.A. Ustiuzhanin, T.M. Ol'kova, A.V. Karavaeva;



In connection with the claim of the «Kirovenergo» Open Joint Stock Company against the Department of the Federal Antimonopoly Service for the Kirov Oblast to invalidate the Decision, and the Instruction.



And established that:



The «Kirovenergo» Open Joint Stock Company (further referred to as: Company, «Kirovenergo» OJSC) submitted to the Arbitration Court of the Kirov Oblast a claim against the Department of the Federal Antimonopoly Service for the Kirov Oblast (further referred to as: Department, Antimonopoly Authority) to invalidate Decision No.08/02-04 of 07.07.2004, and, Instruction No.08/02-04 of 07.09.2004, whereby the Company was recognized to violate Article 5, para.1, of the Law of RSFSR «On Competition and Restriction of Monopolistic Activity at Commodity Markets»



The Decision of 17.01.2005 satisfied these claims.



The Ruling of the Appeal Instance, of 12.05.2005, cancelled this Decision and rejected the claims.



The «Kirovenergo» OJSC challenged this Ruling and addressed a cassation appeal to the Federal Arbitration Court of the Volga-Viatka District.



The Claimant believes that the Court misapplied Articles 4 and 5 of the Law of RSFSR «On Competition and Restriction of Monopolistic Activity at Commodity Markets»; Article 26 of the Federal Law «On electric Power Sector»; and, did not invoke Article 5, para.2, of the Law of RSFSR «On Competition and Restriction of Monopolistic Activity at Commodity Markets»; Article 71 of the Guidelines for Pricing Electric and Heat Energy, approved by Russian Government Resolution No. 109, of 26.02.2004; Article 65 of the Arbitration Procedure Code of the Russian Federation. In its view, the Company, acting within the framework of bilateral contracts did not and could not exert any decisive influence on pricing at the market of services of connection to power grids; the facts of occupation of dominant position, and, infringement upon the subscribers' interests, being not proven; the Court did not appraise the fact that the Company had long addressed the Federal Tariff Service, and, illegally accepted as evidence the documents that were not the object of examination by the Commission of the Antimonopoly Agency; the Company was not entitled to refuse the provision of power grid connection services to the subscribers, even in the absence of duly established tariff (payment) for such a service.



The Claimant's position is detailed in the cassation appeal.



The Department disagreed with the arguments provided in the cassation appeal.



Under Article 163 of the Arbitration Procedure Code of the Russian Federation the Court took a recess from 05 to 07.07.2004.



The legality of the Ruling, made by the Arbitration Court of the Kirov Oblast, was verified by the Federal Arbitration Court of the Volga-Viatka Distric following the procedure established by Articles 274,284 and 286 of the Arbitration Procedure Code of the Russian Federation.



As is seen from the documents presented for the case, Decision No.08/02-04 of the Commission of the Antimonopoly Authority, of 07.09.2004, the «Kirovenergo» OJSC was recognized to violate Article 5, para.1, of the Law of RSFSR «On Competition and Restriction of Monopolistic Activity at Commodity Markets», in the form of non-compliance with the established regulatory acts on the pricing procedure.



The substance of violation consisted in the fact that despite the requirements of Article 23, para.2, and Article 26, para.1 of Federal Law No.35-FZ, of 26.03.2003, «On Electric Power Sector», whereby the payment for technological connection to power grids is subject to state regulation, in the absence of such regulation from a federal executive authority, as of 01.06.2004, the Company collected such payment from the subscribers in the amount established by the administrative order of the CEO of the Company No.229, of 28.05.2004, «On introducing payment for power grid connecting».



In order to stop the violation of antimonopoly legislation the Company was instructed on 07.09.2004 to stop collecting payment for power grid technological connection in the amount, which was not established by a federal executive authority, and to transfer to the federal budget the proceeds obtained as a result of this violation in the amount of 1 255 113 Rubles 36 Kopeks.



The Company challenged the Decision and Instruction of the Department, and appealed them in the arbitration court.



Whereas the first instance court found in the acts of the Company no indication of violation of the antimonopoly legislation, it satisfied the stated claims.



By overruling this Decision and rejecting the stated claims of the Company the appeal instance court was guided by Article 34, part 2, of the Constitution of the Russian Federation, Article 4, Article 5, para.1, of the Law of RSFSR « On Competition and Restriction of Monopolistic Activity at the Commodity Markets», Articles 23, 25, 26 of the Federal Law «On Electric Power Sector», paragraph 5.3.1.3 of the Federal Tariff Service Regulations, approved by Government of RF Resolution No.332, of 30.06.2004, and came to a conclusion that the collecting of independently established payments for technological power grid connection, performed when rendering such a service in a natural monopoly situation, lead to the infringement upon the interests of economic entities (subscribers) and constituted a violation of the antimonopoly legislation.



Having examined the cassation appeal the Federal Arbitration Court of the Volga-Viatka District did not find grounds to satisfy it for the following reasons:



Under Federal Law No. 147-FZ, of 17.08.1995, «On Natural Monopolies» and RSFSR Law «On Competition and Restriction of Monopolistic Activity at Commodity Markets» (further referred to as: Competition Law) the activity of natural monopoly entities is controlled by natural monopoly regulatory bodies and antimonopoly authorities. In the event of detected violation of the Competition Law by a natural monopoly entity, remedial measures can be applied to it, as envisaged by the antimonopoly legislation, provided that the factual circumstances serve as evidence of violation of the Law provisions.



Article 5, para.1, of the Competition Law prohibits the acts by the economic entity with dominant position, which lead or may lead to denial, restriction, elimination of competition and/or infringement upon the interests of other economic entities, including such acts as violation pricing procedure established by regulations.



It follows from the above that the infringement upon the interests of other economic entities is one of the criteria, which determine the consequences of the acts prohibited by Article 5 of the Competition Law



Pursuant to Article 23.1 of the aforementioned Law the proceeds obtained as a result of violation of the antimonopoly legislation by the economic entity, whose acts had been duly recognized following the established procedure as a monopoly activity or unfair competition, in the event of non-execution of a relevant instruction, are subject to legal recovery to the federal budget through the lawsuit by the antimonopoly authority.



Under Article 23, para.2, and Article 26, para.1, of Federal Law No.35-FZ, of 26.03.2003, «On Electric Power Sector» the payment for technological power grid connection is subject to state regulation and is approved by a federal executive body of the Russian Federation.



Resolution No.332 of the Government of the Russian Federation, dated 30.06.2004, designated the Federal Tariff Service as enforcement agency.



Thus the payment for technological power grid connection cannot be established either unilaterally by a natural monopoly entity or by an agreement (contract) between the parties.



The documents presented under the case serve as evidence that the «Kirovenergo» OJSC, who is a natural monopoly entity within the limits of this economic entity infrastructure, and occupies a dominant position at the commodity marker for the provision of such services; in the absence of amount of payment for technological power grid connection approved by the Federal Tariff Service; unilaterally determined the amount of payment and established it in administrative Order No.229, and contracts signed with the subscribers.



In these circumstances the antimonopoly authority made a correct conclusion that the Company violated Article 5, para.1, of the Competition Law in the form of non-compliance with the pricing procedure established by the regulatory acts, and reasonably instructed it to stop the collecting of unilaterally established payment, and to transfer to the federal budget 1 255 113 Rubles 36 Kopeks of illegally obtained proceeds, their size calculated with VAT deduction in accordance with the requirements of Article 25 of the Tax Code of the Russian Federation.



In the light of the above the appeal instance court having examined thoroughly, fully and objectively the documents presented, reasonably rejected to satisfy the claims of «Kirovenergo» OJSC.



The references by the Company to Article 5, para.2, of the Competition Law, and letters from the Federal Tariff Service, dated 01.09.2004, 15.09.2004, and 17.01.2005, cannot be taken into account, since the do not constitute the circumstances that justify its unilateral introduction of payment for technological power grid connection.



The Arbitration Court of the Kirov Oblast correctly applied the norms of material law. No violations were established with respect to the norms of procedural law, which, pursuant to Article 288, part 4, in any otherwise constitute the grounds for repealing the court decision.



Under Article 110 of the Arbitration Procedure Code of the Russian Federation the state fee for the cassation appeal in the amount of 1000 Rubles is to be charged on «Kirovenergo» OJSC.



Pursuant to Article 287 (para.1, part 1) and Article 289 of the Arbitration Procedure Code of the Russian Federation the Federal Arbitration Court of the Volga-Viatka District



D E C I D E D:



The Ruling of the appeal instance, dated 12.05.2005, of the Arbitration Court of the Kirov Oblast on case No.A28-12932/2004-618/13 is to be kept unchanged, and the cassation appeal of «Kirovenergo» Open Joint Stock Company - left without satisfaction.



Expenses on state duty for cassation the cassation appeal are to be charged on the «Kirovenergo» Open Joint Stock Company.



The Decision of the cassation instance arbitration court enters into force from the date of its adoption.



Chaiperson: M.Yu.Evteeva



Judges: N.Yu. Basheva, O.P. Maslova