The Ministry of Economy and Sustainable Development has developed a draft law on postal service with the purpose to introduce a new regulatory framework in the postal sector. The draft law envisages the introduction of state regulation in this segment of the market. Transparency International Georgia has analyzed the draft law and found serious incongruities between the regulations proposed under this draft law and the Georgian Legislation. The new regulatory framework in the postal sector will have a negative impact on this segment of the market in terms of free, fair and competitive business environment, and is not in line with best international practices as well. We provide our analysis of the proposed regulations below.

Obscurity in determining Governmental Authorities

The draft law identifies the Georgian National Communications Commission (GNCC) as the regulatory authority for the postal sector. At the same time, the status of the Governmental body defining/steering/implementing the state policy remains inconsistent and ambiguous: on the one hand, the draft law envisages that "state policy for the postal sector is conducted by the Prime Minister of Georgia" (Article 5.1 ), while, on the other hand, it stipulates that "the state policy for postal sector is developed and implemented by the Ministry of Economy and Sustainable Development" (Articles 5.2 and 5.3 ) and that the Ministry shall act as “the postal sector State Control body” (Article 11.1).

It is appropriate to ensure that the Governmental authority’s functions are properly  separated/divided between the government bodies “implementing the state policy” and those “steering the state policy”.

Bureaucratic barriers on postal operators

The draft law also stipulates that, in order to engage in the postal service activities, operators shall be required to have authorization issued by the GNCC – the sector regulator (Article 25.1). In addition, the draft foresees imposing a bureaucratic barriers on the activities of any operator intending to engage in postal service. This will result in economically unjustified State interference in the activities of the private operator and excessive government regulation of the field. In particular, the GNCC will allow a postal service operator to start activities in the field if the operator has appropriate resources as well as skilled staff (Article 25.2). Subsequently, the norm outlines an assessment category without stipulating the criteria to identify the availability of the adequate material and technical resources and qualified staff. Consequently, this norm involves a risk of abuse. Enforcement of these regulations can become a serious formal/bureaucratic barrier for small and medium-sized enterprises operating in this segment of the market. Additionally, their introduction will create risks of subjective assessment as well, which is also not advisable. We would also like to note that a similar bureaucratic barriers were imposed on small and medium-sized carriers under the Minister of Finance’s Order #30 adopted on 25 January 2013, which created serious problems for them to conduct entrepreneurial activity. This Order was later revoked by the Tbilisi City Court and Court of Appeals.

It should also be noted that introducing the authorization regime for operators intending to engage in the postal service, with such requirements as "availability of appropriate material and technical resources and qualified staff," is not compliant with the very scope of  the "authorization" procedure established by the Georgian legislation. Otherwise stated, authorization will not be determined automatically anymore and it will be the administrative body’s discretion to assess whether the material/technical resources and staff’s qualification of operators intending to engage in the postal service conform with the law’s requirements. Subsequently, the administrative body acquires the power to grant or reject authorization request. Introduction of the above requirements effectively imposes an indirect license-permit regime rather than an authorization regime on the activities of postal service operators. As, the operator to be able to engage in postal service needs to obtain a relevant authorization from the GNCC, and in order to obtain the authorization, the operator should meet the criteria specified in the law (the operator must "have appropriate material/technical resources and qualified staff"). Therefore, the proposed draft regulation contradicts the Georgian law ,,on Licenses and Permits’’ (Article 4, para. 1), which deems inadmissible to introduce any additional license or permit; specifically, this provision stipulates that "comprehensive list of the types of licenses and permits of the areas of licensed activity and permitted action shall be defined by this law. It is forbidden to introduce other license and permit requirements through other laws or by-laws on an activity and action not included under this Law ,,on Licenses and Permits”.

Monopolizing the market by ,,Georgian Post’’

The draft law provides that after the GNCC authorizes operators intending to engage in postal service, only one authorized operator shall be granted the status of the National Postal Service (appointed) Operator through a decision by the Ministry of Economy and Sustainable Development (Article 38.2). The draft also stipulates (Article 54.2) that ,,Georgian Post’’ shall be granted the status of the National (appointed) Operator. This status is to be granted for a period of 20 years (Article 44.1). No similar norm can be found in international practice. After the end of this period, the Ministry will either extend the status for the existing operator or select a new operator. The National (appointed) Operator shall carry out both the universal postal service and the universal reserved postal service (Article 15.3). These services include receiving/sending/shipping/delivering letters weighing up to 2 kg (priority/non-priority or ordinary/registered letters), secograms not exceeding 7 kg, parcels weighing up to 20 kg, and special ,, M'' bags weighing up to 30 kg; also, the so called “postal reserved service area” includes receiving/processing/sending/shipping/delivering local and international letters and cards of up to 100 grams of weight, and international parcels weighing up to 30 kg shipped to/from Georgia via land or sea. Accordingly, regulations substantially restricting competition are being imposed in this segment of the market and other operators will only be able to deliver their services through the National (appointed) Operator and/or “under its umbrella". This new regulatory framework is not in line with the best international practices, according to which a successful way of reforming policy in the postal sector is the one that provides for the full liberalization of the postal market and opening the market to competition (EU Directive 2002/39/EC) and abolishing the “postal reserved service areas” (EU Directive 2008/6/EC).

At the same time, it is worth noting that the national (appointed) operator is not restricted in conducting other activities (Article 24.10), and the draft provides for the approval of a list of other services under the Order of the Minister of Economy and Sustainable Development (Article 22). Thus, the draft includes a risk of repeating the practice established under the Minister of Finance’s order # 30 of January 25, 2013, i.e. the National (appointed) operator (,,the Georgian Post’’) may continue to carry out activities in the carrier market (the so called “cargo” transportation) under the ministerial act. It is, therefore, important that the draft law incorporates the specific size and weight characteristics for the mail/parcels and conforms to international best practices in the field of postal service.

Ambiguity of the proposed draft regulations

The draft law also sets the service tariffs regulation regime for the Universal Postal services and Universal Reserved Postal services by the GNCC (Article 28.2). As a result, in addition to local and international letters and cards of up to 100 grams of weight, tariffs regulation regime shall also cover the receiving/sending/shipping/delivering of international parcels of up to 30 kg of weight. This cannot be justified in terms of economic viability and does not conform to the principles of free market economy.

The draft law also provides for the introduction of a ,,administration (regulatory) fee’’ for the activities of authorized postal operators. Article 46 defines the amount, structure, and payment procedures for the regulatory fee payable by authorized postal operators. Defining the regulatory fee in the present draft, however, is in violation of the procedure established by the Georgian law ,,on Regulatory Fees" (Article 3, para. 2), which stipulates that “regulatory fee shall be determined by the normative act of the relevant national regulatory authority".

Recommendations:

Transparency International Georgia recommends that, prior to submitting the draft law on Postal Service to the Parliament, the Ministry of Economy and Sustainable Development of Georgia:

• to ensure that the new regulatory framework in the postal sector conforms with international best practices;

• to develop a process of liberalization and demonopolization of this market through the introduction of an appropriate regulatory framework in the postal sector;

• to ensure that the selection procedure for the National Postal operator (,,The Georgian Post’’, as stipulated in the draft), acting as a universal postal service provider, is conducted in a transparent way;

• to reduce substantially the limit for the “postal reserved service areas” which the State may grant to its universal postal service provider(s) and make use of the transitional period only to postpone full market opening; support of a free, fair, and competitive business environment outside the postal reserved area; abolish the “postal reserved service area” altogether after the expiry of the so called “transitional period”, and ensure the process of the full market-opening.