Intervention against anticompetitive conduct by public authorities

1
Intervention against anticompetitive conduct by
public authorities

• Zuzana abová
• Antimonopoly Office of the Slovak Republic
• St. Martin's Conference recent Trends and
  Developments in Competition Law and Policy 2009,
  11.-12.11.2009, Brno

2
Contents

• Legislation
• - 1991 2004
• - since 2004
• Cases
• - Overview of cases dealt by AMO after 2004
• - Case studies
• 1. Ministry of Agriculture granting
  subsidies for veterinary sanitation
• 2. City of Zvolen Thermal energy sector
• Conclusion

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Legislation - grounds

• State authorities as well as municipalities have
  quite wide competencies towards business
  environment
• Non-fitting intervention can distort the market
  environment and thus distort competition
• Favoured undertakings have no motivation to offer
  their products and services for lower prices and
  in better quality gt consumer's harm
• Need for AMO to have a possibility to intervene
  in such situations (the competencies of AMO
  increased over time)

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Act No. 63/1991 Coll. On Protection of
Competition as amended(in force since March 1,
1991 to August 1,1994)

• 18
• State administrative bodies and municipalities
  must not by their own measures, evident support
  or otherwise restrict or eliminate competition.
• The Office relevant according to the seat of the
  undertaking is competent for supervision of
  obligation pursuant to par. 1. On the basis of
  evidence and information analysis it may ask the
  state administrative bodies and municipalities to
  remedy the situation.

5
Act No. 188/1994 Coll. on Protection o
Competition as amended(in force since August
1,1994 to May 1, 2001)

• 18
• State administrative bodies and municipalities
  must not by their own measures, evident support
  or otherwise restrict competition.
• The Office is competent for supervision of
  obligations pursuant to par. 1. Art. 11 par. 2
  shall be applied accordingly.
• On the basis of evidence and information analysis
  it may ask the state administrative bodies and
  municipalities to remedy the situation.

6
Act. No. 136/2001 Coll. On Protection of
Competition (in force since May 1,2001 to April
30, 2004)

• 39
• State administrative bodies and municipalities
  may no by evident support to certain undertakings
  or otherwise restrict competition.
• When the Office comes to the conclusion, that the
  state administrative body or municipality acts
  against par. 1, it requests the body to remedy
  the situation within a stipulated period. When
  the body fails to remedy the situation, the
  matter with the Office's opinion is passed to the
  supervisory authority. When it concerns the
  central state administrative body, the Office
  informs the Government of the Slovak Republic.

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Evaluation of the period 1991 30.04.2001

• Right to ask for information and evidence
  necessary to examine the matter
• No right to impose fines
• Quite weak position of the Office, no right to
  enforce the remedy
• Cases mainly measures laying down discriminatory
  conditions for undertakings (favouring certain
  undertakings), or artificial barriers to entry
  ex. exclusive contracts, immunity to local fees
• Cca 10-20 complaints per year, quite successful
  interventions of AMO

8
Act No. 136/2001 Coll. On Protection of
Competition (in force since May 1, 2004)

• 39
• State administration authorities during the
  performance of state administration, local
  self-administration authorities during the
  performance of self-administration and
  transferred performance of state administration,
  and special interest bodies during the
  transferred performance of state administration
  must not provide evident support giving advantage
  to certain undertakings or otherwise restrict
  competition.
• 38 par. 3
• For the violation of the prohibition pursuant to
  Article 39, the Office shall impose a fine of up
  to EUR 66,000 on a state administration
  authority, territorial self-administration
  authority, or special interest body.

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Selected cases after 2004
10
Cases in 2005 - 2008
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Granting subsidies to carcass disposal plant
N-ADOVA, spol. s r.o. by Ministry of
Agriculture(Office's decision No.
2004/39/2/1/218 from 17.12.2004, Council's
decision No. 2005/39/R/2/054 from 13.05.2005,
Court's judgement No. 2S 192/2005-24 from
28.02.2007)

• 2001 measures taken in connection with the BSE
  disease
• Need to ensure collection, transport, processing
  and disposal of animal by-products from producers
• Granting subsidies for veterinary sanitation by
  the state (concerning the waste which could be
  commercially used in the past)
• 3 categories of waste (animal by-products)
• 1. specific risk materials (connected to BSE ex.
  brain, spinal cord) 2. carcasses
• 3. animal by-products from healthy animals
  (waste from slaughterhouses)

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Carcass disposal plant, offering the service of
veterinary sanitation, needs the a special
permission for disposal of every category of
waste.

• 2001 2003
• Disposal of materials 1, 2 fully compensated by
  the state
• The disposal of waste provided by the company
  N-ADOVA, spol. s r.o., chosen by the Ministry of
  Agriculture
• Company N-ADOVA, spol. s r.o. had the permission
  for disposal of waste 1, 2
• Possibility of commercial use of materials 3
• Other carcass disposal plants possessed
  permissions only concerning waste 3
• The companies did not compete gt no competition
  concerns

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2004

• EU legislation gt very limited commercial use of
  materials 3 after 2004
• Company VAS, s.r.o obtained the permission for
  disposal of materials 1,2
• For the year 2004, the Ministry of Agriculture
  concluded the contract only with N-ADOVA, spol.s
  r.o.
• Complaint submitted by VAS, s.r.o.
• Contract between Ministry and N-ADOVA, spol. s
  r.o. expired on 31.07.2004

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Assessment of the case

• Relevant market
• Both companies, after VAS, s.r.o. obtained the
  permission for disposal of materials 1,2 operated
  in the same market and became competitors.
• Legislation
• Regarding the changes in legislation, the Office
  could examine only the conduct from 01.05.2004 to
  31.07.2004.

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Findings

• No objective grounds for granting subsidies only
  through N-ADOVA, spol. s r.o (both companies
  fulfilled all conditions stipulated by law ex.
  permissions, safety conditions, technological
  equipment etc.)
• VAS, s.r.o. was able to offer services for lower
  prices although it did not get the subsidy
• VAS, s.r.o.s price 4500Sk/t without VAT
• N-ADOVA, spol. s r.o.s price 6 200 Sk/t
  without VAT subsidy
• 1 512,6 Sk/t without VAT final price for
  producers 4 687,4 Sk without VAT

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Conclusion

• Ministry of Agriculture distorted competition in
  the relevant market
• Preferential treatment of N-ADOVA, spol. s r.o.
• Preferential treatment of producers having
  contracts with N-ADOVA, spol. s r.o. (others did
  not get the subsidy although it was meant for all
  producers)
• Non-effective way of spending state finances

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Fine

• Fine for the Ministry of Agriculture in amount of
  200 000,-Sk (EUR 6 639)
• - serious infringement (direct preference of one
  undertaking and indirect preference of
  undertakings having contracts with it)
• - whole territory of SR
• - short-term infringement

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Court's Judgement

• Main plea The Ministry by concluding the
  contract did not exercise the state
  administration, but established a commercial
  relationship. Thus the Office was no competent to
  assess its conduct pursuant Art. 39 of the Act.
  
• Court's findings It upheld the Office's opinion.
  Even when it concerns a commercial relationship,
  the Ministry exercised the state's policy in the
  field of veterinary sanitation and in such a way,
  which belongs without any doubts to the area of
  state administration. While doing this it has to
  act in line with Art. 39 of the Act.

19
Thermal energy supply Territorial plan of the
city of Zvolen (Decision No. 2006/39/2/1/087
from 21.07.2006, Council's decision No.
2006/39/R/2/127 from 24.11.2006, court's
judgement from 18.09.2009, no official version)

• Situation.
• City of Zvolen issued its territorial plan in the
  form of Regulation, in force since 20.01.2005
• In the part Energy supply it was stated that
  the priority must be given to connection to the
  central source of heat supply and to the
  prevention from establishment of new minor
  sources of contamination.
• Complaint submitted by association of flat owners

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Findings of the Office

• In Zvolen, there are 2 suppliers of thermal
  energy into the central source of heat.
• Consumers can build alternative sources of heat
  in flats or in whole houses.
• Need of a permission for construction of it.
• The regulation is the basis for issuing these
  permissions.
• After the regulation entered into force, no
  request for disconnection from the central source
  of heat, although such a demand existed.

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Conclusion

• Preferential treatment of the suppliers supplying
  the heat into the central source of heat
  (assurance of stable purchase regardless of the
  quality and price of supplies)
• Limitation of the alternative for consumers to
  decide on the source of heat supply
• (no possibility to disconnect from the existing
  system a for the new objects no possibility to
  decide on the source of heat supply)

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Additional arguments

• The Act on Energetics allows disconnection and
  states the obligation for the disconnected entity
  to bear costs connected to the disconnection.
• The relevant regulatory body (Office for
  Regulation of Network Industries) has no powers
  to deal with this problem (consultations between
  the offices).
• Other problems, which the regulation was deemed
  to resolve (environment protection and others)
  could be solved otherwise and not by infringement
  of the competition rules.

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Fine

• Local market
• Middle-term infringement (18 months)
• Fine 50 000 Sk (EUR 1660)

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Judgement of the court(only oral announcement of
the judgement)

• Main plea By issuing the regulation, the city
  did not exercise the self-regulatory activity,
  but it is a norm-setting activity granted by the
  Constitution. The Office is not competent to deal
  with the case.
• Findings of the court It upheld the decision of
  the Office. The wording of Art. 39 is so wide
  that it covers also the abovementioned conduct of
  the city.

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Conclusion

• Competence to deal with competition problems
  pursuant to Art. 39 is not a standard competition
  tool.
• Office's experience shows that it is still
  relevant to have such a tool.
• Office's priorities in enforcement of Art. 39 of
  the Act to deal with model cases (heat supply)
  and to send message to the state bodies and
  municipalities that they should take into account
  also competition rules.

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• Thank you.
• www.antimon.gov.sk
• zuzana.sabova_at_antimon.gov.sk