Recognition as illegal and cancellation of the order of the Committee on Regulation of Natural Monopolies

No. 6001-23-00-6ap/1563 dated 12/25/2023

Plaintiff: JSC "KTGA" (hereinafter - the Company)

Respondent: Russian State Institution "Department of the Committee for Regulation of Natural Monopolies of the Ministry of National Economy of the Republic of Kazakhstan" (hereinafter referred to as the Department)

The subject of the dispute: on the recognition of illegal and cancellation of Order No. 59-OD dated June 29, 2022

Review of the plaintiff's cassation appeal

PLOT: The retail price of commercial gas for the Company's consumers by order of the Head of the Department No.135-OD dated November 29, 2021 (hereinafter referred to as Order No.135-OD dated November 29, 2021) from January 1, 2022 was set at 4,658.65 tenge. Based on a request from an individual, K.S. (in March 2022) on the actions of the Department (regarding the validity of the approval of the tariff to the plaintiff's branch, with the issue of conducting an audit of approved tariffs for compliance with current legislation and consumer rights) The Committee on Regulation of Natural Monopolies of the Ministry of National Economy of the Republic of Kazakhstan (hereinafter referred to as the Committee) has appointed an audit, which resulted in an act dated April 29, 2022.

In general (taking into account appeals to higher government agencies), according to the results of internal control, violations of the requirements of the legislation on natural monopolies were found in the actions of the Department, which resulted, among other things, in unjustifiably calculated amounts of costs of the tariff estimates of the Company's branch when approved by Order No. 135-OD dated November 29, 2021. Namely, violations have been identified following the results of the procedure for approving the tariff estimates for 2022-2026 and for holding public hearings, including on:

1) seven points of the tariff estimate ("Labor costs", "Repairs", "Operation and maintenance of the gas distribution system", "Calibration of metering devices", "Profit", "Depreciation" and "Gas for losses");

2) failure to submit the minutes of the public hearing;

3) failure to provide an opinion on the results of consideration of the draft tariff estimate;

4) failure to send a copy of Order No. 135-OD dated November 29, 2021 to the plaintiff (hereinafter referred to as procedural actions and documents);

5) making a decision on approving the plaintiff's tariff and tariff estimates in violation of the 7 working days period provided for by the Law of the Republic of Kazakhstan "On Natural Monopolies" (hereinafter referred to as the Law).

The above-mentioned conclusions of the Committee on the illegality of the Department's actions to adopt Order No. 135-OD dated November 29, 2021 were confirmed during court sessions of all judicial instances.

Further, in pursuance of the instructions (to eliminate the identified violations) of the Committee for the Elimination of Identified Violations, the Department issued the disputed order No. 59-OD dated June 29, 2022 on amendments to Order No.135-OD dated November 29, 2021 regarding changes in the tariff and tariff estimates with the establishment of the retail price of marketable gas for consumers of the Company. in the amount of 4,122.26 tenge.

The plaintiff filed a complaint against this order to a higher administrative authority dated July 8, 2022, which was denied due to the absence of violations in the defendant's actions and the grounds for canceling the order dated June 29, 2022.

Judicial acts:

1st instance: the claim was denied.

Appeal: the court's decision is upheld. Cassation: judicial acts are cancelled. A new decision on the satisfaction of the administrative claim was made in the case.:

To declare illegal and cancel the Department's Order No. 59-OD dated June 29, 2022 "On Amendments to Order No.135-OD dated November 29, 2021 "On Approval of the Tariff and Tariff Estimates of KTGA Joint Stock Company for a regulated service for the transportation of commercial gas through the gas distribution systems of consumers of the Republic of Kazakhstan for 2022-2026".

Conclusions: the local courts, rejecting the claim, concluded that the defendant's actions to amend Order No. 135-OD dated November 29, 2021, were lawful in the manner applied by the Department. At the same time, the judicial board does not agree with these conclusions of the courts on the following grounds.

Subparagraph 6) of Article 4 of the Law defines that public hearings are a procedure for discussing the draft tariff, standards of consumption of utilities in the areas of natural monopolies for consumers who do not have metering devices, and conducting reports to consumers and other interested parties.

Subparagraph 9) of Article 8 of the Law stipulates that the authorized body conducts public hearings with the publication in the media of an announcement on the date and place of their holding.

Paragraph 403 of the Rules for the Formation of Tariffs, approved by Order of the Minister of National Economy of the Republic of Kazakhstan No. 90 dated November 19, 2019 (hereinafter referred to as the Rules), stipulates that public hearings are conducted by the department of the authorized body when determining the tariff.

By virtue of paragraph 5 of Article 25 of the Law, the authorized body publishes in a periodical information on the date and place of public hearings to discuss the draft tariff, and on its Internet resource - the results of public hearings to discuss the draft tariff, including transcripts of discussions, minutes of meetings with decisions on the issues under consideration. It follows from the above rules that consideration of the application, including calculations for tariff increases, approval and implementation of the amended tariff should be considered during public hearings.

Subparagraph 2) Paragraph 1 of Article 25 of the Law stipulates that the publicity of the process of state regulation of the activities of natural monopoly entities is ensured by holding public hearings.

In accordance with the first part of Article 73 of the CPC, an administrative body or official is required to provide an opportunity for a participant in an administrative procedure to express his position on a preliminary decision on an administrative case, which the participant in the administrative procedure is notified of in advance, but no later than three working days before the adoption of the administrative act.

The interpretation of subparagraph 2) of paragraph 1 of Article 25, paragraph 5 of Article 25 of the Law presupposes the transparency of the process of state regulation of the activities of natural monopoly entities by following procedures, including public hearings, prior to the adoption of an order approving and amending the approved tariff estimates. This follows from the spirit of the Law and is reflected in article 73 of the CPC and, accordingly, is consistent with subparagraph 6) of Article 4 and paragraph 8 of Article 22 of the Law.

In other words, a condition for approving and making changes to the approved tariff and tariff estimate is the holding of public hearings conducted by the authorized body. Consequently, the Department's failure to comply with procedural actions during the approval of the tariff for 2022-2026, including the preparation of relevant documents, led to a violation of the procedural procedure for making changes to the approved tariff estimate, since the approval and implementation of the amended tariff can be considered during public hearings.

Subparagraph 12) of Article 8 of the Law "On Natural Monopolies" (hereinafter referred to as the Law) establishes that the authorized body, in this case represented by the Department, has the authority to approve and amend the tariff estimate approved by it.

Subparagraph 6) of the first part of Article 4 of the CPC stipulates that administrative discretion is the authority of an administrative body, an official, to make one of the possible decisions based on an assessment of their legality in accordance with the purposes and limits established by the legislation of the Republic of Kazakhstan.

This means that the Law grants the Department the right to administrative discretion. The first part of Article 10 of the CPC stipulates that when exercising administrative discretion, the administrative body and the official ensure a fair balance of interests between the participant in the administrative procedure and the company (the principle of proportionality).

Similar requirements are established by article 1 of the Law, which states that the objectives of the Law are to achieve a balance between the interests of consumers and subjects of natural monopolies, as well as to ensure the protection of the interests of consumers and subjects of natural monopolies.

The first part of Article 100 of the CPC prescribes the issuance of six types of decisions, including in relation to disputed legal relations, such as:

1) on the cancellation of an administrative act;

2) on the cancellation of an administrative act and the adoption of a new administrative act;

3) on sending an administrative case to an administrative body, to an official whose administrative act or administrative action (inaction) is being appealed, for the implementation of an administrative procedure indicating the violations committed and suggestions for their elimination.

The above-mentioned norms of the APPC on the cancellation of an earlier adopted administrative act are applicable due to the instructions of a higher authority to a lower one based on the results of internal control, which was facilitated by the appeal of an individual.

Meanwhile, the Department, instead of canceling Order No.135-OD dated November 29, 2021, as prescribed by the first part of Article 100 of the CPC, and conducting a new administrative procedure, amended it.

Whereas the defendant at this stage did not have the administrative discretion to amend Order No. 135-OD dated November 29, 2021 (to change the tariff), but had the discretion to cancel it and conduct a new administrative procedure to approve the tariff estimate.

In this case, according to the legislation on natural monopolies (paragraphs 3, 8 of Article 15 of the Law), the tariff in force until Order No. 135-OD dated November 29, 2021 would be applied. It should be noted that the Committee initially instructed (ext.No. 32-9-17/785--And dated June 27, 2022) to cancel Order No.135-OD dated November 29, 2021 and, taking into account the comments reflected in the internal control act, to adopt a new administrative act on tariff approval based on the results of consideration of the tariff approval application. and the tariff estimates. However, it was then reformulated as about making changes.

The courts did not assess the fact of the absence of public hearings on the approval of tariff calculations for the Company's consumers, but actually accepted (overestimated) calculations from the inspection report dated April 29, 2022, laid down as the basis for the adoption of the new tariff in the contested order. At the same time, the court is authorized to assess the actions of an administrative body through the prism of the principles of the APPC only if the legality of the procedures preceding the adoption of an administrative act is ensured (in terms of applicability, validity and legality).

Compliance with the procedures would ensure the rights and legitimate interests of commercial gas consumers and natural monopolies. Whereas the actual non-adoption of the new administrative act burdened consumers of marketable gas with unjustified increases.

Consequently, the Department's actions to amend Order No. 135-OD dated November 29, 2021, within the framework of its administrative discretion, violate the requirements for the repeal and adoption of an administrative act (Chapters 11 and 15 of the CPC), and do not comply with the principles of transparency of procedures and achieving a balance of interests.

Moreover, the judicial board draws attention to the fact that during the consideration of this case in the courts, the Department did not take actions to repeal and adopt a new administrative act in compliance with the relevant procedures, including hearing.

As a result of this inaction, overstated tariffs and tariff estimates for regulated services for the transportation of commercial gas through consumers' gas distribution systems have been applied for more than 2 years to consumers of commercial gas and natural monopoly entities.

The first part of Article 5 of the CPC stipulates that the tasks of administrative procedures are:

a) full realization of public rights, freedoms and interests of individuals and legal entities;

b) achieving a balance of private and public interests in public law relations;

(c) Strengthening the rule of law in the public law sphere.

Violation of the principles of administrative procedures and administrative proceedings, depending on its nature and materiality, entails the recognition of administrative acts, administrative actions (inaction) as illegal, as well as the cancellation of judicial acts (part four of Article 6 of the CPC).

And in accordance with article 12 of the CPC, all doubts, contradictions and ambiguities must be interpreted in favor of the plaintiff. An administrative body or official carries out administrative procedures within its competence and in accordance with the Constitution of the Republic of Kazakhstan, the APPC and other regulatory legal acts of the Republic of Kazakhstan (Part one of Article 7 of the APPC, the principle of legality).

When exercising administrative discretion, the administrative body and the official ensure a fair balance of interests between the participant in the administrative procedure and the company (Part one of Article 10 of the CPC, the principle of proportionality).

Article 14 of the CPC, that is, the principle of prohibiting the abuse of formal requirements, states that an administrative body or official is prohibited from denying, restricting, or terminating the right of a participant in an administrative procedure, as well as imposing an obligation on him in order to comply with requirements not established by the legislation of the Republic of Kazakhstan.

The first part of Article 84 of the CPC regulates that violation of the legislation of the Republic of Kazakhstan on administrative procedures is the basis for recognizing an administrative act as illegal if such violation led or could lead to the adoption of an incorrect administrative act.

In the context of the above norms, it follows that failure to comply with administrative procedures entails the cancellation of the contested administrative act, since by actions (inaction) Both the defendant and his superior authority have failed to ensure legality in the public law sphere, as well as the implementation of administrative procedures.

Consequently, judicial acts of local courts are subject to cancellation with the issuance of a new decision on the satisfaction of the claim, since:

I) the administrative body has committed violations of the principles of administrative procedures and the norms of industry legislation;

II) the courts have made mistakes in the assessment of evidence, interpretation and application of substantive and procedural law, which led to an incorrect resolution of the dispute and the issuance of illegal judicial acts. Therefore, the administrative body represented by the Department needs to cancel and adopt a new administrative act, taking into account the legal position of the court.

At the same time, when carrying out the procedure for making changes to the approved tariff and tariff estimate of KTGA JSC for the regulated service for transporting commercial gas through gas distribution systems of consumers for 2022-2026, it is necessary to make up for previously committed violations and ensure a balance of interests of consumers and the subject of natural monopolies, taking into account the principles established by the APPC.

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