It is possible to say that the National Institute for the Defence of Competition and Protection of Intellectual Property (INDECOPI) has acquired experience in the fight against cartels by demonstrating its capacity to detect and sanction them firmly, thus sending a clear message that these conducts will not be tolerated by the authority. The year 2017 is representative of the progress achieved, either because of the importance of the markets involved in the resolved cases or because of the amount of the fines that have been imposed. Given that the fines are calculated on the benefits obtained by the infringing companies, their amount can be considered an indicator of the relevance of INDECOPI's intervention.
On the other hand, INDECOPI's commitment to its leniency programme in the last years reached a milestone in 2017 with the first case ever sanctioned thanks to the information provided by a leniency applicant (the Toilet Paper case) and the issuing of its Leniency Guidelines, which have recently been awarded in the Antitrust Writing Awards contest in the soft law category. From our perspective, both products confirm that INDECOPI is able to properly manage this programme.
During the last year, INDECOPI has solved a total of 10 administrative proceedings at first instance. Among the most relevant cases are those concerning cartels in the markets of toilet paper, liquefied petroleum gas (LPG) cylinders and LPG for vehicle use in the cities of Chimbote and Chiclayo. The focus of INDECOPI's attention was once again on the price fixing cartels, which, as is well known, constitute some of the most serious anticompetitive conducts. As a result, the fines imposed against the companies and their executives for these cases amounted to approximately US$45 million in 2017.
The Toilet Paper case
This cartel involved the two largest producers of toilet paper and other products made by tissue paper in Peru, which accounted for the 88 per cent of the market. It is the longest-running cartel (10 years) detected and sanctioned by INDECOPI since its creation. The overprices imposed by the cartel on its customers (distributors, wholesalers and supermarkets) amounted, in some cases, to more than 20 per cent.
The investigation revealed that the agreements to increase prices were reached through meetings in hotel rooms or cafés between the general managers and other executives of both companies, including subsequent telephone contacts. The infringement was proven through electronic mails and records, hotel meeting bills, an agenda from the secretary of one of the former general managers containing phone calls and meeting records, testimonials and statistical evidence about price movements in the market.
The fines for the companies and their executives amounted to approximately US$16 million, after discounting the benefits granted to those who collaborated via the leniency programme. However, not only were fines imposed on those who were responsible, a five-year compliance programme was also imposed to the companies as a corrective measure, which includes an annual training for executives, the identification of potential breaches of compliance with competition rules, the adoption of measures to avoid such risks, the approval of codes of conduct and the hiring of an external and independent compliance officer for each company.
INDECOPI's decision was consented by the sanctioned companies and by 11 of the 14 executives. However, the case is currently under revision by the Specialised Chamber in Defence of Competition of the Tribunal of INDECOPI, the second administrative instance, after three of the sanctioned executives appealed this decision. Nonetheless, considering that the companies did not appeal, their compliance programmes are under way.
This is the first cartel detected and sanctioned under our leniency programme, which would have been difficult to detect through conventional methods such as screening or dawn raids, due to the following reasons:
• the increases were not simultaneous but with lags of more than one month;
• one of the toilet paper brands of a company was not subject to cartelisation; and
• the agreements were carried with a high degree of confidentiality.
The ruling of the case also served for the diffusion of the leniency programme and to demonstrate its usefulness in the prosecution of cartels. Even though the media campaign undertaken by INDECOPI achieved the expected results, some of the congressmen who became aware of the programme described it as excessively benevolent. INDECOPI, together with local experts in the antitrust field, have opposed any bill that could affect the leniency programme and has publicly defended its utility in the detection and prosecution of cartels.
LPG Cylinders case
The cartel was formed by the three main manufacturers of LPG cylinders, which represented approximately 73 per cent of the market. LPG cylinders are used mainly in homes as fuel for cooking food. In 2011, 78 per cent of homes nationwide used the LPG cylinder as an energy source, with a monthly consumption of 6.3 million cylinders of 10 kilograms. In other words, on average Peruvian households consumed around one cylinder per month.
The cartel, which lasted from 2008 to 2011, imposed on its distributors increases between US$0.07 to US$0.61 per cylinder of 10 kilograms (main product concerned) – increases that were later translated to the consumers in the products' final prices. The agreement also included maintaining the prices charged to the distributors after the government decreed a reduction of 1 per cent (from 19 per cent to 18 per cent) in all the sales affected by VAT. The objective of the colluded companies was to avoid the transfer of the tax reduction to their clients and continue charging the same price.
The sanctioned cartel operated secretly through coordinations mainly between directors, general managers and commercial managers. The cartel was discovered thanks to the monitoring of the market carried out by the Technical Secretariat and the information obtained allowed the authority to conduct dawn raids in the premises of the investigated companies.
The three companies, and seven of their executives, were sanctioned with fines amounted to US$22 million. This is the case with the highest fines imposed up to date by INDECOPI and, in addition, it is the first case where an executive was sanctioned with the maximum fine allowed by law, which is US$127,000.
As in the Toilet Paper case, INDECOPI ordered as a corrective measure the implementation of compliance programmes for a period of three years, with the purpose of preventing these illegal acts to happen again. The execution of the compliance programme must be reported to INDECOPI.
In our opinion, compliance programmes help to eliminate any traces of anticompetitive conducts in the sanctioned companies, but what is most relevant, they help to identify potential breaches of compliance with competition rules and to implement measures to avoid such breaches, thus promoting a sense of respect towards the antitrust legislation.
Given that the decision of the first instance of INDECOPI was appealed, the case is currently under revision of the Specialised Chamber in Defence of Competition of the Tribunal of INDECOPI.
The cartels of LPG for vehicle use in Chimbote and Chiclayo
These cartels, different from each other due to the companies and the geographical areas concerned, were active at the time the Technical Secretarial conducted dawn raids, so these actions put an end to the illegal conducts.
The first cartel, comprised of 16 companies, developed in the northern city of Chimbote and operated between 2012 and 2014 through coordinations carried out between filling stations or through the association that grouped them. The association acted as a facilitator of the anticompetitive conducts by fulfilling the following roles:
• it convened meetings for anticompetitive purposes;
• it supervised the agreements adopted at the meetings; and
• it set up committees that could communicate the agreements to the interested parties.
The cartel imposed on its customers (mainly taxi drivers) an average overprice of 15.03 per cent for each litre of LPG. The agreement impacted negatively on the cost of the taxi passenger transport service and, therefore, on the users of this means of transport. Consequently, the companies were sanctioned with fines amounted to US$3.6 million.
The second cartel, similar to the one in Chimbote but comprising 14 companies, took place in the northern city of Chiclayo and developed between 2009 and 2014 through coordinations between officials or employees of the investigated companies. The cartel imposed an average overprice of 9.70 per cent for each litre of LPG on its customers, hence increasing the cost of the taxi passenger transport service in the aforementioned city. The companies were sanctioned with fines up to US$3 million.
In both cases, the companies appealed the decisions of the Commission for the Defence of Free Competition and are currently being revised by INDECOPI's second administrative instance.
The outcome of these cases showed the competition authority's will to supervise markets not only in the country's capital but also in the regions, for the benefit of local consumers.
Soft law: leniency programme guidelines
In August 2017, INDECOPI published its Leniency Program Guidelines (the Guidelines), in Spanish and English. The objective of the guidelines was to develop more broadly the rules contained in the Peruvian Competition Law and thereby improve the transparency and predictability of the programme, with the aim of promoting its use by practitioners.
The draft guidelines were published in 2016 in order to receive comments from the general public. The Commission for the Defence of Free Competition evaluated and debated each of the comments and finally approve the Guidelines in 2017. Among its main rules, the following should be mentioned.
• The Guidelines focus on the detection of cartels. The benefits for collaboration are only available for undertakings involved in cartels, because these are the most difficult conducts to detect, as well as the most serious.
• The benefits are possible for companies and individuals. Two types of leniency are set forth: corporate leniency and individual leniency. It should be noticed that the first allows the extension of the leniency benefits received by an undertaking to its employees, as long as they collaborate with the authority and the company.
• The sooner an undertaking approaches INDECOPI to reveal an anticompetitive conduct, the greater the benefits that it can receive. Full leniency is assured only to those who report their participation in a cartel before INDECOPI detects it or undertakes investigation actions (for example, dawn raids).
• The reductions of fines rely on the added value of the information provided by an applicant. An applicant for a reduction of fine will be able to obtain greater benefits if it is able to provide additional information that adds value to the investigation and contributes significantly to the initiation of an administrative proceeding. The Guidelines contain examples of what is considered as 'added value'.
• There is no leniency regarding the liability for the damages caused by the cartel. The benefits obtained by an applicant through its collaboration cannot be extended to the civil liability that could be determined by courts towards the clients or consumers affected by the cartel.
• Definition of the duty of collaboration. Those interested in obtaining benefits must cooperate fully, continuously and diligently, providing all the information and evidence that is in their possession.
• Consultations. Those interested in seeking leniency can approach the authority in a confidential manner, in order to know the availability of benefits, markers and the rules of the programme.
It is noteworthy to mention that the Guidelines were selected as one of the most innovative piece of soft law of 2017 in the Antitrust Writing Awards competition, organised by the Competition Law Center of the Faculty of Law of the University of George Washington and Concurrences magazine. This award is an important example of INDECOPI's technical work and its commitment to the leniency programme. As a result, INDECOPI has received seven applications in the last two years, five of them corresponding to Peruvian based companies, which dismantles a common prejudice that Peruvian business sector may not be ready for mechanisms of self-reporting.
The promotion of more competitive markets is one of the main tasks on INDECOPI's agenda. In the exercising of its powers of competition advocacy, INDECOPI recommended to the Provincial Municipality of Urubamba that, in order to promote competition, it should call for a tender to choose a new operator for the tourist transport service on the route that leads to the Inka Citadel of Machupicchu, Peru's main tourist attraction, because there is strong evidence that shows that the current route operator's contract might not be valid. For purposes of the tender, INDECOPI considered that transparent rules should be established and that competition should be promoted among bidders. For example, none of the participants could have any kind of relationships with public officials from the contracting authority, as was the case in the past.
In 2017, INDECOPI received three pre-merger notifications in the electricity sector, which is the only sector that is subject to merger control in Peru. At the end of 2017, one of these three requests were resolved. The merger, involving agents that perform the activities of generation and transmission of electric power in Peru, was approved by INDECOPI without conditions after determining that it did not affect competition in the analysed markets.
Participation at international forums
INDECOPI continues to participate in the Competition Committees of APEC and OECD. During 2017, the institution retained the Presidency of the APEC Competition Committee and during its administration special emphasis has been placed on the training of officials of the APEC member economies, especially on leniency programmes and tools for investigation and detection of anticompetitive behaviour.
In recent years, INDECOPI has paid special attention and resources to investigate cartels, a task that has been successfully executed. However, similar attention should be placed on the activities of competition advocacy and soft law, which although have been carried out in recent years, could be increased in frequency and number. In that sense, in 2018, INDECOPI expects to issue two guides: one on competition in public procurement and another on trade associations and competition. Regarding market studies, it is expected to initiate a study in the credit cards market and conclude another one in the market of vehicle licence plates.
Special attention should be placed on the guidelines on competition in public procurement. Its draft was published in June 2018 in order to receive comments from experts and agencies linked to public procurement. Its final version expects to be approved in the following months.
These guidelines will be directed mainly at public officials who participate in tenders with a double objective. On the one hand, to help them design competitive and efficient procurement processes and, on the other hand, to provide them with tools in order to detect possible signs of anticompetitive conducts in such procurements.
It must be remembered that more than half of the Peruvian state's expenses are made through public procurement. Government purchases – understood as the purchase of goods and services by public entities – represented 50.7 per cent of the Peruvian government expenses and 11.6 per cent of the country's gross domestic product, according to a 2017 Organisation for Economic Co-operation and Development study. In addition, the document includes specific proposals to modify the legal framework that currently governs the public procurement system, to make it more competitive.
Finally, the Peruvian congress is currently discussing several bills concerning a pre-merger notification system applicable in all sectors of the economy (currently, it only exists for the electricity sector). In the past, INDECOPI has issued a favourable opinion on the existence of a general merger control regime. On the occasion of the new bills, INDECOPI has now formulated a series of recommendations with the aim of making the merger control a predictable and objective system.
Peru is one of the few countries that does not have a merger control regime, largely due to dissenting opinions that question the usefulness of this type of control, based on the assumption that it will reduce the incentives for investment, the small size of the Peruvian economy and the absence of conclusive evidence at international level that demonstrates that merger control manages to maintain and protect competition in the markets.
If congress approves a merger control law, INDECOPI will have the challenge of effectively administering this regime. This will surely imply the elaboration of guidelines, the development of adequate methodologies for the analysis of mergers in different sectors and the creation of an specialised area or team dedicated specifically to this activity, so that others such as the persecution of the cartels may not be neglected.