Twinning Fiche: “Strengthening the enforcement of competition and State Aid legislation in Armenia”. September-2009
Support to the State Commission for the Protection of Economic Competition (SCPEC) of the Republic of Armenia to develop a Twinning fiche
FWC Beneficiaries Lot 11
Contract N° 2009/ 207249/ Version 1
TWINNING FICHE
(Final Version)
December 2009
Experts:
- Massimiliano Gangi (Team Leader),
- Eric Tonon (Twinning/Public Administration Reform expert)
- Irina Onanyan (Logistic expert)
The project is funded by
the European Union
/ The project is implemented by
Pohl Consulting
LIST OF ABBREVIATIONS
AEPCACArmenian-European Policy and Legal Advice Centre
EC European Commission
ENPEuropean Neighbourhood Policy
Etc. Et cetera
EUEuropean Union
GTZGerman Technical Cooperation (Deutsche Gesellschaft für Technische Zusammenarbeit)
ICNInternational Competition Network
ITInformation Technology
MSMember State
MSCAMember State Competition Authority
MSSAIMember State Institution dealing with State Aid SCPEC State Commission for Protection of Economic
Competition of the Republic of Armenia
NRAsNational Regulatory Agencies
OECDOrganisation for Economic Co-operation and Development
OSCEOrganization for Security and Co-Operation in Europe
PAOProgramme Administration Office
PLProject Leader
PCAPartnership and Cooperation Agreement
PSCProject Steering Committee
RAPSARegulatory Agency for Public Services of Armenia
RTAResident Twinning Adviser
SME Small and medium-sized enterprise
TACISTechnical Assistance to the Commonwealth of Independent States
UNCTADUnited Nations Conference on Trade and Development
TWINNING PROJECT FICHE
-Draft Document-
“Strengthening theenforcement of competition and State Aid legislation in Armenia”
1. Basic information
1.1 Programme:
1.2 Twinning Number:
1.3 Title: Strengthening the enforcement of competition and State Aid legislation in Armenia
1.4 Sector: State Aid and Competition
1.5 Beneficiary country: The Republic of Armenia
2. Objectives
2.1 Overall Objective:
Contribute to the promotion of the competitiveness of the Armenian economy and to the development of a fully functioning market economy in Armenia, to the advantage of consumers and the society as a whole. The development of competitive markets, free from competition-distorting State aid and from anti-competitive business practices, will contribute to the delivery of goods and services at affordable prices and of high quality.
2.2 Project purpose:
The purpose of the project is to strengthen the enforcement of State Aid and competition law and policy in Armenia and ensure further approximation to the “Acquis Communautaire” by Armenia in the State Aid and competition law and policy area through the adoption of implementing regulations and enforcement guidelines in line with those of the EU and through the enhancement of the administrative capacity of the State Commission for Protection of Economic Competition of the Republic of Armenia(hereinafter “SCPEC”), the institution charged with the implementation of State Aid and competition law and policy in Armenia.
2.3 Contribution to EU-Republic of Armenia (RA) PCA and ENP Action Plan
Article 43 of the EU-Armenia Partnership and Cooperation Agreement (PCA) requires the contracting parties to ensure, through a sound enforcement of State Aid and competition rules that competition-distorting State Aid and anticompetitive business practices, put in place by private as well as State-owned enterprises, do not distort trade between the EU and Armenia. Strengthening the Armenian legislative and regulatory framework and the enforcement capacity of the SCPEC is expected to substantially contribute to the implementation of the State Aid and competition-related provisions contained in the PCA.
In view of the enlargement of May 2004, the European Union (EU) adopted, on 11 March 2003, a new framework for its relations with its neighbours, including Armenia. In a Communication called “Wider Europe - Neighbourhood: A New Framework for the Relations with our Eastern and Southern neighbours”, the European Commission underlined that the objective of the so-called “European Neighbourhood Policy” (ENP) is to develop an area of prosperity and to anchor a “ring of friends” with whom the EU can enjoy close, peaceful and fruitful relations. The overall goal of the ENP is to foster the political and economic reform process, promote closer economic integration, legal and technical approximation and sustainable development.
In the framework of the ENP, an Action Plan has been adopted for Armenia. This is a key political document drawn up by the Commission and the MemberStates and agreed with Armenia, which clearly sets out policy targets and benchmarks through which progress can be assessed over several years.
The Twinning Project will be particularly relevant for Chapter 4.4.5 of the Action Plan “converge with EU principles on competition according to Title V article 43 of the PCA Agreement”. The Action Plan, inter alia, refers to the need to establish full transparency as regards State Aid in Armenia by drawing up a complete list of aid grantors and creating a national mechanism for centralising all information on State Aid granted in Armenia, with a view of drawing up annual reports on the amounts, types and recipients of Aid.
The Action Plan also contains the objective of fostering a fully functioning market economy, through the supervision of State Aid and through the promotion of a competition-enhancing legal environment, by ensuring adequacy and compatibility with the EU principles and rules of the domestic State Aid and competition legislation.
This Twinning project should contribute favourably to all of the above Action Plan priority actions and objectives through concrete and measurable results. The project aims at building upon previous technical assistance activities. Through the support of a well-established Member State Competition Authority and State Aid Supervision Institution, the SCPEC will, inter alia, be able: 1) to develop important implementing regulations and guidelines providing support in the practical enforcement activity; 2) receive assistance on ongoing enforcement activities and; 3) be exposed to the enforcement methodologies related to the application of State Aid and competition rules within the European Union.
3. Description
3.1 Background and justification
The initial Competition Law of Armenia, the Law “on the Protection of Economic Competition” was adopted in 2000. It has been amended several times since then, including revisions aimed at introducing rules on control of State Aid. The current law contains provisions dealing with restrictive agreements, abuse of dominant position and control of anticompetitive mergers and acquisitions.
The State agency responsible for enforcing the competition legislation in Armeniais the State Commission for the Protection of Economic Competition (SCPEC). The Commission is an independent agency, made up of a Chairman and six other voting members.
During the fall 2009, new amendments to the Competition law are expected to be presented to the Parliament. The amendments aim at dealing with several serious shortcomings contained in the current version of the Law which have constrained significantly the enforcement of the competition and State Aid legislation in Armenia. At the time of the writing of this Fiche, however, it is not clear both the timing and the scope of the proposed amendments which will be eventually adopted and incorporated in the Armenian legal framework.
In any case, it is considered that at the launch of the Twinning Programme an assessment of the existing Competition Law provisions, with possible proposed amendments in order to ensure full harmonization with the EU legislative framework, will be necessary, also as building block activity for all other activities of the Twinning Programme.
The strengthened enforcement of the competition legislation is expected to play a central role in Armenia, in order to facilitate the process of development of a full-fledged market-based economy. Without a strong enforcement of antitrust rules matched by pro-competitive and legislative and regulatory reforms, the Armenian Government believes that the development of competitive markets may be endangered.
The SCPEC’s institutional capacity with respect toapplication of the legal and economic principles underlying State Aid and Competition legislation is still considered weak. This holds particularly true with respect to the enforcement of the current provisionsdealing State Aid Legislation contained in the current Competition law.
A revision of the current legal provisions in the area of State aid law is expected to be a central component of the Twinning Project. At present, the rules on State Aid are viewed as ambiguous and unclear and they are considered in need for reformulation. Also, no enforcement activities in the area of State Aid legislation have been carried out so far. Therefore, building adequate institutional capacity in the field of State aid legislation will be an important component of the Twinning Project.
SCPEC, in particular, needs to acquire adequate skills to deal with the general application of State Aid rules in all types of industries and markets, with particular reference to new markets and complex sectors (particularly electricity, telecommunications, gas, television and banking) as well as in new business practices.
SCEPC also needs to strengthen its internal organisational structure, also taking into account the expected enlarged activities in the area of State Aid legislation. The Twinning Project aims also at filling-in these gaps and coaching the SCPEC towards a more effective performance of its core functions.
Only few implementing regulations or enforcement guidelines have been adopted so far by SCPEC in both the State aid and competition field. Also, the existing regulations are considered as providing little guidance, requiring therefore amendments. The lack of guidance about the detailed procedures followed by SCPEC in State Aid and competition investigations as well as the enforcement principles followed is viewed by SCPEC as a weakness point.
One of the objectives of the Twinning Project will include the identification, and then the drafting and adoption, of the relevant regulations and guidelines in both areas of State Aid Competition legislation enforcement.
In addition, the legal and economic skills currently available in the SCEPC are limited. This is an important area of concern as the enforcement of State Aid and competition legislation are complex areas which required deep understanding of the effects of government policies and business practices on competition, market efficiency and consumers’ welfare.
The main training needs of SCPEC and of related institutions in the area of State Aid and competition legislation may be summarised as follows:
In the area of State Aid legislation:
- General training on the economic and legal principles underlying State aid control in the European Union, also in view of the objective of creating a national inventory of all types of State aid granted in Armenia.
- Training in State Aid enforcement in specific sectors, such as public services (electricity, water, railway, agriculture). The SCPEC needs, in particular, training on the economic impact of State aid and how to assess the effects on competition;
- Training on establishing good working relationship with all Public Administration institutions involved in providing State subsidies
- Training on EU legal procedures for the notification, review and prosecution of illegal aid
- Training for line ministries about the State Aid legislation: types of State Aid which is incompatible with the legislative framework.
In the area of competition legislation:
- Training in competition enforcement in specific sectors, such as energy (electricity, natural gas, etc,), telecommunications, transport and other utilities. The SCPEC needs, in particular, to better understand collusive practices between operators, including the State role in price setting;
- Training on the general principles of economic analysis in competition law proceedings such as with reference to the assessment of relevant markets and the conduct of investigations in innovative and rapidly changing markets, banking and insurance, advertising, e-commerce, etc. The SCPEC needs a better understanding of the impact of such economic activities in the market as well as in neighbouring markets;
- Training on dawn-raids and evidence collection during the raids (training on best practices applied in EU Member States), including co-operation with the police and judicial authorities;
- Training on dealing with highly complex cases involving a large number of operators.
Consequently, a priority for SCPEC is to receive training from lawyers and economists working in a national competition authority or State Aid-related institution of an EU Member State, in order to be exposed to EU “best practices”.
3.2 Linked activities:
The State Commission for the Protection of Economic Competition benefited from several donor contributions in the recent past focused on assistance with respect to anti-trust enforcement. A comprehensive review of completed assistance is available on the web site of the SCPEC (
No donor intervention has taken place in the areaof state aid legislation nor is foreseen in the near future, besides this EU-funded institutional Twinning Project.
Three donors have currently earmarked funding for additional support to SCPEC in the field of anti-trust. Coordination with these projects should be ensured by the Twinning project.
- GTZ:
Assistance to SCPEC is taking place within the framework of the regional project “Private sector development in south-Caucasus” for the period from June 2008 to December 2010. Project duration may be extended. The current action-plan is based on six areas of intervention: improving data collection, analysis and inspection; introducing a leniency programme; on demand advice on complex and sensitive cases; training of judges of the administrative court; increasing awareness on competition policy and improvement of coordination between the SCPEC and the Commission for the Regulation of Public Services and the Central Bank.
The approach for GTZ intervention is tailor-made: no precise financial envelope is pre-allocated, specific and final topics for implementation are discussed with beneficiary on a regular rolling-basis.
- World Bank:
Potential assistance to SCPEC will take place within the framework of a loan to promote e-society, innovation and competitiveness in Armenia for a period up to 4 years. Preparation for this agreement will not be completed before mid-2010. Potential interventions will be decided on the basis of a follow-up to a comprehensive assessment by an external consultant. Equipment and supply will be eligible for funding.
- OSCE:
A commitment to secure 200 000 Euro to support SCPEC has been taken by OSCE office in Yerevan. The project has foreseen 7 areas of intervention for an implementation period of 1 year and may start early 2010: establishment of monitoring and reporting mechanisms function to prevent and detect anticompetitive conduct; evaluation of existing legislation and procedures ; recommendations on the introduction of leniency program; punishment/sanctions – calculation of fine; training of staff for better identification and prioritization of anticompetitive behavior; training for judges and information of business community in requirements of competition laws and competition policy.
The Twinning Project will also need to ensure full coordination with the European Commission's activities, notably with regard to the preparation of a comprehensive Free Trade Agreement. In addition, close cooperation with the EU Advisory Group to the Republic of Armenia will also be necessary."
3.3 Results
1. The SCEPC institutional organisation
1.1.A thorough assessment of the SCEPC’s organisational structure and a clear identification of the areas thereof requiring change, taking into account the new planned enforcement activities in the area of State Aid enforcement, through the production of a report. If appropriate, the proposals for structural and organizational changes contained in the report are adopted by the SCEPC.
Objectively verifiable indicators:
- Assessment Report adopted by the Steering Committee
- Proposed changes in organizational structure (if any) adopted by the SCPEC
Sources of Verification:
- Assessment Report
- adopted changes in the organizational structure
2. State Aid legislation and implementing rules
2.1. A thorough assessment of the Armenian primary State Aid legislation and a clear identification of the areas thereof requiring modifications and amendments. If applicable, proposals for amendment to the State Aid legislation will be forwarded to the Armenian Parliament and Government.
2.2.Adoption of regulations with respect to: 1) procedural rules for mandatorynotification and review of State Aid, 2) definition of State Aid, 3) enforcement rules for State Aid in the context of public utilities; regional development; research & development; small and medium-sized(SME) enterprises; agriculture. The regulations aim at providing guidance to SCPEC officers on how to conduct State Aid law enforcement.
2.3.Establishment of a national State Aid Inventory which includes all categories of State Aid andall Aid grantors, at national and local level.
Objectively verifiable indicators:
- Assessment Report approved by the Steering Committee
- If applicable, recommendations for legislation amendment forwarded to the Armenian Parliament and Government for adoption
- Inventory, regulations and guidelines adopted by SCEPC
Sources of Verification:
- Assessment Report
- Mission Reports by short-term experts
- Regulations and Guidelines adopted by SCPEC
3. Competition legislation and implementing rules
3.1.A thorough assessment of the Armenian primary competition legislation and a clear identification of the areas thereof requiring modifications and amendments. If applicable, proposals for amendment to the competition legislation will be forwarded to the Armenian Parliament and Government.
3.2.A thorough assessment by the SCPEC and MSCA of the existing Armenianimplementing competition regulationsand notification forms and a clear identification of the provisions thereof requiring reform. The assessment will take into account the written input received by SCPEC from the European Commission on block exemption regulations. If applicable, the proposals for amendments will be adopted by the SCPEC.
3.3.Adoption of at least two enforcement guidelines; two “block exemption” regulations; and a “cartel detection” manual in order to provide guidance to SCPEC officers on how to conduct competition law enforcement in the area of cartels.
Objectively verifiable indicators:
- Assessment Report approved by the Steering Committee
- If applicable, recommendations for legislation amendment forwarded to the Armenian Parliament and Government for adoption
- Assessment Report, Mission Reports, regulations and guidelines adopted by SCEPC
Sources of Verification: