FAS seeks the right to control the competitive distribution of budget subsidies in the Russian Federation in the Supreme Court
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FAS seeks the right to control the competitive distribution of budget subsidies in the Russian Federation in the Supreme Court. The regional authorities, who disagree with this, dispute the authority of the service in the courts, but there is no consensus in the arbitration system on resolving such disputes. Lawyers believe that antimonopoly control over the distribution of subsidies in the competition is necessary – we are talking about trillions of rubles a year and high corruption risks, and the control of the Accounts Chamber and the Treasury is not enough. The Ministry of Finance, on the other hand, insists on competition among recipients of subsidies and unification and automation of their selection – by 2025, such requirements will apply to budgets of all levels.
The Supreme Court (SC) will determine the powers of the FAS to control the procedures for distributing subsidies from the budget. According to Art. 78 of the Budget Code (BC), recipients of subsidies, including grants, can be selected both by decisions of the executive branch and “based on the results of the selection of recipients of subsidies.” The selection is carried out on a competitive basis by request for proposals (according to the criteria and order of receipt of applications) or by competition. Compliance with selection procedures and wants to control the FAS.
Specifically, the dispute in the Supreme Court concerns the allocation of funds from the Omsk budget for the overhaul of houses on a competitive basis – with reservations about the non-admission of applications that include work that is not related to common property or to the types specified in the act of the urban department. The winner of the competition was JSC Omskelektro, with which the authorities signed an agreement in December 2019. But in August 2021, the regional department of the FAS, following an audit, concluded that when choosing a company, the Omsk authorities violated Art. 17 of the law on protection of competition. The Department of Property and Omskelektro challenged this decision in court.
In March 2022, the Arbitration Court of the Omsk Region sided with the FAS, recognizing that there were “reasons for refusing” the admission of the JSC’s application to participate in the competition and the provision of a subsidy (the absence of a number of documents and the inclusion of unforeseen work in the statements). The court rejected the argument of the Omsk authorities that the tender was not subject to FAS control, pointing out that the selection of subsidy recipients was a kind of competitive procedure. The appeal agreed with this, but the cassation found the decision of the FAS illegal, considering that the competition for recipients of subsidies does not apply to mandatory procedures for “preventing and suppressing monopolistic activities”, and “its results do not affect competition.” The FAS appealed this position to the Supreme Court, insisting that the disputed procedure “by its nature is an auction in the context of antimonopoly legislation.” The Supreme Court considered the arguments worthy of attention and referred the dispute to the economic board. A hearing has been scheduled for July 19.
Antimonopoly lawyer Natalya Pantyukhina emphasizes that the topic is “extremely topical, given the large number of people who want to receive budget funds.” The Ministry of Finance previously estimated the annual volume of subsidies in the Russian Federation at 2 trillion rubles. in 2023 (see Kommersant dated May 24). At the same time, the lawyers interviewed by Kommersant disagree on whether the FAS has the discussed control powers, but agree that they are necessary.
So, Anastasia Sivitskaya, an adviser to the Orchards law firm, says that there is no direct answer in the legislation to the question of whether the service has the right to check tenders for subsidies. Ms. Pantyukhina notes that in the decision of the plenum of the Supreme Court of 2021, “the competence of the FAS is slippery,” and the practice of arbitration courts is contradictory. In her opinion, the FAS has the right to check the selection of recipients of subsidies, regardless of the level of the budget system, since the regulation in the BC is the same for everyone. Julius Tai, Managing Partner at Bartolius, agrees with her: “It is logical not to block the authority of the service – in the mechanism when the government uncontrollably chooses the recipient of subsidies, there is obviously a corruption risk,” and “there is no one else to complain to business.”
Financial control of the Treasury or the Accounts Chamber is not enough, Natalia Pantyukhina believes. “They do not check the terms of competitions for subsidies, but only deal with agreements based on their results. The FAS has the right to issue an order to return illegally received subsidies to the budget or to oblige to hold new auctions,” she says. Anastasia Sivitskaya adds that the decision of the Supreme Court in the case with the Omsk administration, “of course, will be of practical importance.”
It should be noted that the FAS claims to control competition when distributing subsidies can be justified by analogy with the approach to state orders, where the service has such powers – subsidies differ little from public procurement. But the trend towards digitalization indicates the redundancy of continuous control: the automation by the Treasury of checking the execution of public procurement procedures has already allowed the FAS to abandon it, reducing the burden on inspectors and corruption risks and focusing on cases with a high risk of violations. And although in terms of subsidies, the service de facto claims the authority of mass control, digitalization will also await this area in the coming years. Since 2022, the Ministry of Finance has been actively engaged in the unification of the selection process for recipients of subsidies at both the federal and regional and municipal levels. Recall that the department is converting the distribution of subsidies into electronic form, counting on saving government spending through competition for government funds (see Kommersant of May 24 and June 14) according to transparent rules.
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