Court to decide if Pest Control Ltd. holds monopoly position on fumigation market
Irish firm, Pest Control, Ltd, holds a monopoly on the fumigation of Ukrainian grain destined for export and whether it has overcharged the nation’s grain traders millions of dollars in the process.
Until Brazil rejected a shipload of Ukrainian wheat last month, claiming that it was infected with a fungus that can devastate wheat crops, few people outside the country’s agricultural sector knew or cared that shipments are routinely disinfected before being shipped.
But fumigation is important to grain traders and export customers, who pay to ensure that cereals shipped from Ukraine arrive free of harmful pests and fungi that could damage crops or cause health hazards in the receiving country.
While Brazil’s fears were later determined to have been groundless, all grain shipments exported from Ukraine are chemically disinfected. The fees exporters pay for the service are the central issue in the Antimonopoly Committee’s tiff with Ireland’s Pest Control.
In 1999, the state Plant Quarantine Inspectorate awarded Pest Control and another firm the contract to provide the chemicals, equipment and protective clothing used by government employees who perform the actual fumigation.
Under the terms of the government contract, Ukraine’s Transbalt‑Terminal provides fumigation services at the port of Illichivsk near Odessa, but Pest Control has the bulk of the business.
Traders say that because Pest Control is the sole fumigation service provider, it is a monopoly, and that the fees charged for disinfecting grain are exorbitant when compared with similar services provided elsewhere in the world.
The Antimonopoly Committee has its own problems with Pest Control. It claims that the company has been unresponsive to its investigation and refused to disclose pertinent information.
Pest Control, represented in Ukraine by Jurcom, has denied that it charges disproportionate fees and said that the only information it failed to give to committee investigators was irrelevant to Ukraine or the work performed here. It also denies that it holds a monopoly on fumigation, partly because government employees, not Pest Control’s, perform the actual work, and partly because it was selected by government tender to be the sole provider of grain fumigation services.
Antimonopoly Committee Commissioner Oleksandr Potimkov, who is leading the government’s investigation, said that the case is a first for Ukraine: Not only is a foreign company under investigation, but the Agriculture Ministry and the Plant Quarantine Inspectorate are implicated as well.
Moreover, Potimkov said that unlike other foreign firms operating in Ukraine, Pest Control has failed to cooperate with, and been disrespectful of the committee’s investigation.
“Usually, foreign companies are very disciplined in following Ukraine’s antimonopoly laws. Pest Control Ltd cooperates with us only reluctantly. It has dragged out the investigation,” he said.
“It is strange that a company that was brought up on the basis of Western standards of respect for law has neglected Ukrainian legislation,” Potimkov said.
Thus far, the company has been fined Hr 34,000 for failing to respond to the committee and its requests in a timely manner.
Antimonopoly Committee head Oleksy Kostysev said that punitive sanctions represented only an interim measure, and that if Pest Control continued to ignore his agency’s requests, the company could be barred from doing business in Ukraine.
Potimkov maintains that the way the Agriculture Ministry structured the tender effectively created a monopoly. Because traders, rather than the state, pay for the fumigation, Potimkov said that the Agriculture Ministry lacked the authority to hold the tender in the first place.
Kostusev said that the Agriculture Ministry’s actions set a trap for grain exporters.
“Exporters found themselves in a monopoly trap: On one side, fumigation is an integral part of the shipping operation; on the other side, the fumigation can only be done by Pest Control,” he said.
Pest Control took advantage of the situation by charging up to $1.35 per ton for the work. Elsewhere in Europe, the same service costs between 30 cents and 60 cents, he said.
“Pest Control does a professional job, but its prices are three to four times higher than prices for the same service provided in Europe,” he said. “$1.35 a ton may not seem like much, but last year we exported 800,000 tons of cereals, so the sum is rather decent.”
Exporters say that they have been compelled to pay Pest Control’s fees, since foreign buyers require the grain to be treated before the ship leaves Ukraine.
Jurcom Director Andry Smal rejects the committee’s accusations and denied that the company is a monopolist. He said that under Ukrainian law, a monopolist is defined as a company that limits competition. In this case, the Agriculture Ministry, not Pest Control, limited competition by selecting a single contractor to provide fumigation services.
“[The committee] must prove that Pest Control is a monopolist, and that will be very hard to do,” Smal said.
Smal denies that company charged traders $1.35 per ton to disinfect grain.
“We sent the committee information that proves that we charged much less to traders who export large amounts of grain,” he said.
In addition, Smal said that the decontamination procedure used in Ukraine differs from the way it is done abroad. In other countries, produce is treated while stored in grain elevators, while in transit, and at the port – a multiple‑step process that costs between 30 and 60 cents per step. In Ukraine, he said, the grain is treated only after it has been loaded onto ships.
“To fumigate grain after it has been placed aboard a vessel, we have to increase the amount of the chemicals used. An intensive fumigation costs the same as one that is performed several times,” he said. “But even in this case, the price doesn’t equal $1.35.”
As part of the committee’s investigation into Pest Control’s pricing practices, it requested information on the company’s operations outside Ukraine. Smal maintains that what the company does elsewhere isn’t Ukraine’s business and the company has declined to provide records pertaining to contracts it has in other parts of the world.
“I don’t understand why the committee wants to know on what conditions Pest Control fumigated coffee in Brazil. The committee has exceeded its authority by demanding such information,” he said. He said that the company asked the government to refine its request for information, but received a fine instead.
Smal said that the company hasn’t decided what it will do in the event that the committee’s investigation finds that it has violated the antimonopoly law. It could order the firm to pay damages of up to 10 percent of what it has charged. But a lawsuit would be likely, Smal said.
“Pest Control came to Ukraine at the invitation of the Ukrainian government and will only leave the country voluntarily. Otherwise, it will defend itself in the courts,” Smal said.
For his part, Potimkov said it is likely that the committee will recommend that the Agriculture Ministry end the exclusive contracts with Pest Control and Transbalt‑Terminal, and open up the crop fumigation business to competition.
