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EU Support to strengthening competition in Serbia. Hungarian Practice: Competition law and energy markets. Arpad Hargita EU-SCS. Implementing consortium lead by. A project financed by EU. Introduction. I. Short story of liberalization II. GVH activity in the energy sector:
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EU Support to strengthening competition in Serbia Hungarian Practice: Competition law and energy markets • Arpad Hargita • EU-SCS Implementing consortium lead by A project financed by EU
Introduction I. Short story of liberalization II. GVH activity in the energy sector: a) consumer deception cases b) abuse of dominance cases c) sectoral investigation and competition advocacy III. Regulation/Competition - Cooperation with the regulator
I.Liberalisation of energy markets in Hungary • Liberalization of the Hungarian Energy market • from 01/01/2003 : opening for large customers (over 6.5 GW), public lighting, certain local governments → 33 % of the consumption • from 01/06/2004: all non-household customers → 65 % of the consumption • from 01/07/2007: for all customers • until 2008 twin model public utility market – open market → customers could choose where they buy from - not a good solution as public utility market owned 95 % of the purchase agreements – no real room for competition • from 2008 open market: universal market (for households and small customers) and open market for others
I.Liberalisation of energy markets in Hungary – one key problem Long terms contracts: • between1995-1998 privatisationof generatingcompanies→inordertomakeitwork and tofacilitatethereturnsontheconsiderableinvestments • lastinguntil 2012-2021 – representing80 % of electricitydemandin Hungary →closing market: sellingonlytotheformerincumbent, hinderingnewentrants, and hinderingcompetitionbecause of the fix prices (some of the generating companies had profit even with 10 % capacity usage) • EU Comissiondecision: agreementshas to be ended beforethe end of 2008 ( samesituationinPoland): unlawful state aid and restricting competition
I.Liberalisation of energy markets – pasttrends EU policy: • liberalization in the first sectors (air-transport and telecommunication) was bringing good results • the main goalsin energy werealways: (i) security – (ii) sustainability – (iii) competitiveprice • 2007 Sector investigation showed serious problems: • still national markets, • high concentration, • insufficient unbundling of production and distribution → consquence: series of cases started ended up with commitment decisions, e.g.: a) E-On (2008) divesting appr. 20 % of its generation capacity, b) RWE (2009) divesting its gas transmission system, c) ENI (2010) selling its shares in certain transport capacities
I.Liberalisation of energy markets – recenttrends 2014 Commissionreport- January: falling of wholesalepricesbetween 2008-2012 between 35-45 % • Commissioncommunication - October: completion of internal market gives 16-40 billion EUR benefits/year, furtherinterconnection of theenergy market needed, and alsothelevel of renewableenergysources has to be increasedfrom 23,5 % to 27 % until 2030 EU position on Hungary - NRA should have the power to set network tariffs → more independence needed: now Ministry sets key parameters and NRA calculates - because of energy prices were cut 20 % in 2013 and further cut is foreseen there is no private investment in the sector
II.GVH activity in the energy sector The role of the competition authority is to protect competition – in case of the Hungarian energy sector: • help the process of liberalization by hindering abuse of incumbents (see cases also in railway/telecom), • consumer protection in order that consumers are able to chose the offer that is the most advantageous for them, • cooperationwiththe regulator, • competition advocacy.
II. Hungarian cases – Abuse cases DÉMÁSZ/ TITÁSZ cases (2002) • concluding with certain municipalities long-term contracts (10-15 years) on providing all the services related to street lighting with penalty provisions that impeded or at least limited the municipalities’ possibility to purchase as eligible customer electricity for street-lighting from other distributors after the liberalisation → infringement decisions EMFESZ case (2008) - tender published by a huge fertilizer manufacturer (PNM) for supply agreement of natural gas – agreement concluded with winner (EMFESZ) - after one year parties could not agree on the modifications of the price formula → manufacturer claiming that the supplier is in dominant position and abusing it - Competition Council stated that the contract itself does not create dominance, the market situation in the moment of signing the agreement has to be taken into account → no dominance at that moment (EMFESZ had 5 % market share) - stopping of gas supply may be a breach of contract but not abuse of dominance
II. Hungarian cases – Abuse cases DÉMÁSZ/ TITÁSZ/ E-On/ ELMU/ DÉDÁSZ/ ÉMÁSZ cases (2006) • as a result of the sector investigation, procedures started against all the six previous local monopoly energy suppliers for long-term contracts (1-6.5 years) containing “English clause” (possibility of last offer) for large customers • Theory of harm: foreclosing the liberalized market using monopoly position with contracts concluded before liberalization on the retail market • Conclusion: no infringement as, • the share of the customers tied (15-20 %) and the share in the overall share of these contracts (1-2 %) was too low, • english clause was not applied, • customers did not feel that they were hindered in switching • other players appeared on the market
II. Hungarian cases – Consumer deception cases Hungarian Telekom (subsidiary of Deutsche Telekom) – former incumbent of fixed telephony entered the gas retail market for households → a) 09/2011-08/2012 campaignpromising5 and 8 % lower gas prices – compared to universal gas price - for customers of MT (in part of this period a 12 month loyalty contract was an additional option) b) 09/2012 the price of gas changed – 3 and 5 % reduction instead of 5 and 8% c) One key sentence of the campaign was „ the possible yearly saving is 16400 HUF” d) Calculators created on the webpage of MT showing yearly savings
II. Hungarian cases – Consumer deception cases Competition Council stated that - the advertisements constituted an unfair commercialpractice/misleading advertisement as an average customerbelievedthatthepricereductionwouldlastfor a longerperiodbasedonthe main messageemphasizingyearlysavings, - thecostsavingspresentedintheadvertismentwerenotachievedbecause of thepriceraising. 20 million HUF fineswereimposed
II. Hungarian cases – sectoral investigation and competition advocacy • GVHadviced Government already in 2000 that liberalization is essential and an independent regulatory agency is needed • 2006 - sectoral investigation on why the proposed level of competition was not reached → suggestions of the GVH: • renegotiation of the long term contracts as they restrict competition on the market foreclosing it from competitors, • creation of a regional market (done in 2012) and common exploitation of cross border capacities (e.g. joint auctions), • opening new competitive energy generation capacities, • raising consumers awareness.
III. Cooperation with the regulator – regulation vs. competition
III. Cooperation with the regulator – regulation and competition Cooperation is essential because of possible parallel application is possible and convergence (e.g. SMP/dominance, market definition) → Cooperation agreement between GVH and the sector regulator a) executive level: yearly meeting b) decision making level: nonstop cooperation → information sharing on cases (sending order opening the procedure and decision ending it) c) international cooperation: harmonizing positions towards international organizations (OECD) d) joint researches – joint awareness making campaings
Thank you for your attention! arpad.hargita@giz.de