Intervention against anticompetitive conduct by public authorities

1. Intervention against anticompetitive conduct by public authorities Zuzana Šabová 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

3. 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 => consumer's harm • Need for AMO to have a possibility to intervene in such situations (the competencies of AMO increased over time)

4. 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.

7. 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.

9. Selected cases after 2004

10. Cases in 2005 - 2008

11. 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)

12. 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 => no competition concerns

13. 2004 • EU legislation => 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

14. 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.

15. 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

16. 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

17. 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

18. 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

20. 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.

21. 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)

22. 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.

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

24. 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.

25. 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.

26. Thank you. www.antimon.gov.sk zuzana.sabova@antimon.gov.sk