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Estonia: Competition Authority
Director general of the Estonian Competition Authority
The Estonian Competition Authority has been an integrated authority already since 2008, encompassing the functions of a competition authority and sector regulators. We have been able to take full advantage of such an organisational structure in our proceedings, adding value to the work of the competition and regulatory divisions. Having sector-specific and competition know-how has enabled us to carry out analysis in regulated sectors more efficiently. Regarding regulated sectors, the energy sector has always been in our focus because the sector has a monopolistic image and represents a relatively large share of consumer expenditure. An example of such a synergy between the work of Competition Division and Energy Regulatory Division is the recent analysis of the oil shale sector.
The Competition Authority’s analysis of the competitive situation in the oil shale sector involved proposals regarding the better and more efficient usage of oil shale, which is a limited natural resource currently mainly used in the production of electricity.
The Competition Authority examined the current arrangement for sharing oil shale resources and options for future developments. The annual total amount of oil shale permitted to be extracted (20 million tonnes) is currently divided between four mining companies, and the largest extraction permit belongs to the Eesti Energia group.It is not therefore possible to introduce competition in the access to oil shale resources in the near future, but new permits should be issued via a transparent auction and preferences for companies already possessing mining permits (arising from the legislation) should be abolished.
Although in a free market economy oil shale should be used in industry, where more added value is created, the preferance for electricity generation may be justified with the objective of securing supply and energy. But in such a situation, clear principles should be set out in legislation. The Competition Authority is of the opinion that electricity generation from oil shale is not likely to be competitive in the long term compared to the production of shale oil.
Following the principles of the free market, the price of oil shale should develop under the conditions of free competition and on an equal basis to both electricity and oil production. In such case, power generation would gradually perish due to its inability to pay a competitive price for oil shale. The fact that the oil industry is more capable of paying for oil shale than power generation is in contrasted with the objectives of energy security and security of supply. The goal of the analysis of the competitive situation in the oil shale sector was not to conclude whether these objectives are big enough to weigh up the possible distortions of competition or additional costs, it was a political choice to give preference to power generation from oil shale in order to ensure the security of supply. The aim of the analysis was to draw attention to the fact that such a selection may involve additional costs and that, if such a choice is made, clear legislative principles must be laid down in order to preserve the competitiveness of the electricity generation from oil shale.
The cinema sector was also recently investigated, in antitrust and merger proceedings. The Competition Authority investigated whether the largest cinema operator Forum Cinemas AS had abused a dominant position in the market for the public distribution of films in Estonian cinemas. Forum Cinemas AS operates three cinemas in Estonia, one of them in Tallinn. Until 2008, Forum Cinemas AS did not have any competitors in operating cinemas. In addition to operating cinemas, Forum Cinemas AS also distributes films to cinemas operating in Estonia. When the Competition Authority initiated the proceedings, Forum Cinemas AS was the sole distributor of films of six main Hollywood film studios. During the proceedings, the Competition Authority found that the conditions established in the licence agreement by Forum Cinemas AS for its competitor in the downstream market may restrict competition. Forum Cinemas AS decided to change licence agreements offered to cinemas, excluding or specifying those points of the agreement that the Competition Authority had considered harmful to competition. The Competition Authority was of the opinion that with such an action Forum Cinemas AS had significantly improved the competitive situation in the distribution of films for public exhibition in Estonian cinemas and therefore no sanctions were imposed.
In 2013, Forum Cinemas AS also submitted a merger notification proposing to acquire Solaris Kino OÜ, its only considerable competitor in Tallinn. In addition to the two multiplexes owned by the merging parties, there were a couple of smaller players in the market for showing films at cinemas in Tallinn and its vicinity. As a result of the merger, Forum Cinemas AS would have a gained a market share of over 90 per cent. Solaris Kino OÜ entered the market at the end of 2009 and this has been a good example on the positive effect of competition consumers – the prices of cinema tickets dropped drastically and the number of visitors increased significantly.
The Competition Authority was of the opinion that the merger would significantly restrict competition despite the remedies proposed by the parties, and the parties withdrew the merger notification. Otherwise the Competition Authority would have prohibited the merger.
Starting from 15 July 2013 (partly also from 1 January 2014), a number of amendments to the Competition Act entered into force, expanding the competence of the Competition Authority according to European competition rules and clarifying the existing regulation due to the problems encountered in practice.
One of the important changes was complementing the Competition Act with provisions that allow the Competition Authority to use the rights granted to the national competition authorities pursuant to Council Regulation (EC) No. 1/2003 for establishing interim measures and approve commitments. According to the amendments, the Competition Authority may, on its own initiative and in the case of urgency, issue a precept to a natural or legal person to perform a required act or refrain from an illegal act if there is a risk of serious and irreparable breach of competition as set out in the articles 101 and 102 of the Treaty on the Functioning of the EU (TFEU).
The activities of one or more undertakings affecting trade between member sates shall be subject to interim measures in case the Competition Authority estimates on the basis of provisional data that there is an urgent need to protect competition. With the amendments to the Competition Act, the Competition Authority has been given a right to approve commitments proposed by an undertaking when the previous activities of the undertakings might have violated articles 101 or 102 of the TFEU or the respective national provisions, and the Competition Authority is considering issuing a percept to an undertaking to eliminate these infringements. If the commitment proposed by the undertaking is appropriate for eliminating the potential harmful effects of the violation, the Competition Authority will make the commitments binding for the undertaking and terminate the proceedings without taking a final position on whether the violation occurred or not.
The other changes mainly include the qualification and modification of the provisions of proceedings and liability set out in the Competition Act (eg, the grounds for issuing a precept and termination of supervision proceedings have been amended).
Additionally, the merger control provisions have been amended. The most important amendment is related to the determination of the term of validity of the permission to concentrate. It means that the parties to the concentration must, in general, implement the concentration within six months from the clearance decision. There is now also a possibility to suspend the merger proceedings for the assessment and possible market testing of remedies. The proceedings can be suspended once for up to two months.
Finally, an important amendment regarding the expiry period of competition-related misdemeanours in the Penal Code entered into force on 15 July 2013. In Estonia, in order to impose a fine for abuse of a dominant position or enforcement of concentration without a clearance decision, a misdemeanour procedure shall be conducted.
The misdemeanour procedure, which is quite an exceptional method in global practice, was initially meant for the simple proceeding of minor violations (such as driving without a seat belt). The proceeding of complex economic violations (such as abuse of dominant position and concentrations enforced without a clearance decision) in misdemeanour procedure is sometimes highly complicated and therefore also inefficient, compared to other countries. In a misdemeanour procedure, in order to impose a fine to a legal person, the exact natural person who committed the infringement, (ie, enforced the concentration or abused dominant position) has to be identified.
A misdemeanour expires after two years have passed between the commission thereof and the entry into force of the corresponding judgment or decision. This rule used to apply also to competition law misdemeanours. Since July 2013, an exemption regarding competition law misdemeanours was introduced – these misdemeanours now expire after three years.
With the above-mentioned amendment, the investigation of competition law infringements will hopefully become a little bit more efficient, as two years proved to be too short a period. The reason for that was the fact that the running of the two-year term began with the enforcement of concentration or abuse of dominant position, which the Competition Authority might become aware of some time later. Then the investigation conducted and decision made by the Competition Authority, as well as all the court proceedings and decisions (in case the decision of the Competition Authority was challenged), had to take place during the two-year period. In such circumstances, the party responsible for the infringement had strong incentive to delay the proceedings, so that the misdemeanour would expire.
The main changes in the work of the Competition Authority are connected to the changes in the organisational structure – the Communications Regulatory Division will be transferred to the Technical Surveillance Authority.
Director general of the Estonian Competition Authority
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