Peru: National Institute for the Defence of Competition and the Protection of Intellectual Property

The year 2014 was very important for the National Institute for the Defence of Competition and the Protection of Intellectual Property (Indecopi) and its Technical Secretariat¹ since they introduced major improvements in the free competition arena. Indeed, they have strengthened their activities of monitoring markets, and the investigation, prosecution and sanctioning of anti-competitive behavior (enforcement), and have also engaged in competition promotion activities (advocacy), and introduced rules aimed at promoting the Peruvian leniency programme.

Monitoring and investigating markets: dawn raids and leniency programme

Since 2013, the Technical Secretariat has been working actively on the prevention, detection and sanction of all kinds of anti-competitive behaviour, as they could affect the efficient development of markets in Peru. The Commission and its Technical Secretariat have received a boost from recent leniency applications. Despite the Commission’s existence since 1996 (within the old Competition Act), undertakings had not taken advantage of leniency rules until 2012, when the first application was submitted. And although the Peruvian leniency programme is not as developed as those of other antitrust agencies, in the past few years Indecopi has taken steps to spread the benefits of applying for leniency. As a result, four leniency applications have been submitted in the last two years, comprising five markets.

      Likewise, the Technical Secretariat have intensified its efforts concerning the detection of anticompetitive behaviour. Indeed, it has increased its investigation activities, particularly, those related to dawn raids. Indeed, between 2013 and 2014, the Technical Secretariat carried out 15 dawn raids to 76 undertakings in different sectors, which is a significant increase on the three dawn raids carried out between 2011 and 2012 to a total of 12 companies. Also, unlike past years, a large part of the dawn raids were performed not in Lima, the capital of Peru, but in other major cities, such as Chiclayo, Chimbote, Piura and Trujillo.

Moreover, since August 2014, the Technical Secretariat has benefited from the use of computer forensic hardware and software tools, which have allowed a substantial improvement in the seizing, recovery and processing of digital data gathered in dawn raids. Members of the Technical Secretariat have also received computer forensics training to take full advantage of the use of new technology. The result is a substantial improvement of monitoring capabilities.

Main cases started

As a result of the investigations conducted by the Technical Secretariat, four administrative proceedings were initiated in 2014: two concerning the supply of liquefied petroleum gas (LPG) through gas stations in the coastal cities of Chiclayo and Chimbote, another regarding the international passenger land transportation services between border cities of Tacna (Peru) and Arica (Chile); and the last on public procurement of haemodialysis services. Considering the relevance of the sectors involved, the potential infringements could have had a great impact on consumer welfare.

In relation to the investigation of LPG supply through gas stations in Chiclayo and Chimbote, the Technical Secretariat found evidence of possible price-fixing agreements concluded by nine undertakings in Chiclayo and 12 undertakings in Chimbote aimed at increasing the price of the fuel from mid-2012 to February 2014. It should be noted that, as a consequence of its high demand, LPG is a product of great significance to the consumer economy in these cities. Indeed, consumption of LPG in Chiclayo and Chimbote amounts to about 13.73 per cent of total Peruvian consumption of LPG.

Regarding the investigation of international land transportation services between the border cities of Tacna (Peru) and Arica (Chile), the Technical Secretariat found evidence that 132 Peruvian and Chilean owners of ‘colectivos’ (small vehicles providing the service) have possibly engaged in anti-competitive arrangements to fix the price of their services and to restrict the number of services per day, between August 2009 and December 2013. The conduct could have harmed 5 million people annually using the service between these two cities.

As for the investigation regarding a possible cartel in the public procurement of haemodialysis services, information gathered during dawn raids conducted in the premises of haemodialysis service centres showed a possible horizontal arrangement aimed at increasing the prices of the service in public procurement. Almost 4,000 patients with chronic kidney disease in Lima and Callao receive haemodialysis treatment annually. Hence, it is a vital health service that costs approximately US$29 million per year.

Main cases decided

In 2014, the Commission and its Technical Secretariat decided eight cases on antitrust infringements. In one of the most important cases, the Commission decided against the Association of Professional Engineers of Peru (APEP) and the Peruvian Association of Consulting (PAC), imposing fines of approximately US$1.3 million for issuing anti-competitive recommendations increasing the cost of the works executed by Provias Nacional (the authority on major highways).

The Commission determined that APEP and PAC recommended the associated engineers to require Provias Nacional to increase rates of staff and overheads, in the procurement of services for development of studies and supervision of works. This case is an example of the application of the Competition Act on the actions executed by trade unions or associations which can distort competition among its members, considering their capacity to align the interest of competitors in their respective markets. The Commission decision has been appealed to Indecopi’s Tribunal.

Other high-profile cases decided were related to cartels in the land passenger transport market. In 2014 the Commission fined cartels for increasing prices in this market in Puno and Ancash.

Main cases confirmed by the Indecopi Tribunal

The Indecopi Tribunal has also been active in its role as second and definitive administrative instance in antitrust cases. In 2013, one of the major cases decided by the Tribunal concerned a market allocation scheme in the public procurement of medicinal oxygen for EsSalud (the Peruvian social security agency). Owing to the length of the cartel (almost five years) and the harm produced by it, the Tribunal upheld the decision of the Commission against three major undertakings. The fines, amounting to approximately US$7 million, are among the highest ever imposed by Indecopi.

In 2014, the Tribunal also had to decide upon several other relevant antitrust cases. One of them concerned a horizontal price-fixing scheme in the vehicle insurance market from 2000 to 2003. In that case, five insurance companies, several of its managers and the association incorporating those companies were fined approximately US$2 million.

In addition, the Tribunal upheld the decision of the Commission that found liability in two unions encompassing all dock workers (stevedores) in the Salaverry port terminal (north coast of Peru), because they blocked the entry of competitors into the dock labour market in that terminal, producing negative effects on competition. The Tribunal emphasised that only a specific provision of a legislative act may limit the application of the competition laws, which does not occur in the case of boycott actions against competitors in the labour market. Therefore, the illegitimate actions were penalised under the Competition Act.

Finally, another relevant case decided by the Tribunal concerned a vertical restraint cartel in which Peru’s dominant cement manufacturer company and its distributors were fined for engaging in a conspiracy to limit the entrance of a new competitor in the cement production-distribution market, by refusing to sell cement of the dominant manufacturer to the sub-distributors selling the entrant products. The fine imposed in this case was close to US$2.6 million.

Fines imposed

Most of the enforcement activities of the Commission and the Tribunal can be estimated indirectly by the increased volume of fines imposed by these instances, as they are the result of the greater number of cases started, the greater harmful effects of the conduct investigated, or the largest antitrust benefit obtained by the undertakings involved in the infringement.

Under these assumptions, the amount of the fines imposed by the Commission or those confirmed by the Tribunal has increased steadily in recent years, which is a result of the increasing monitoring activities of the authority. In the period between 2011 and 2012 the fines imposed amounted to US$0.9 million approximately. In contrast, between 2013 and 2014, the total fines imposed were close to US$17 million.

Competition advocacy

It is not unusual that government action could impose unreasonable or illegal barriers that could prevent competitors from entering a new market, even though such actions are forbidden by law. Thus, in addition to their enforcement activities, the Technical Secretariat and the Commission have strengthened their advocacy efforts to further promote competition and improve regulation issued at any level of the Peruvian government. Two main advocacy efforts took place in 2014.

The first advocacy effort was related to the public notaries market. In Peru, the admission of new notaries public is somewhat controlled by a council of notaries who are usually reluctant to allow new competitors into the business. Therefore, the main objective of the advocacy was the liberalisation of the conditions for the entry of new notaries. Among other measures, it was proposed to incorporate criteria other than population density for the creation of notaries slots, such as commercial traffic or the economic activity of the locality. Also, the Commission recommended abrogating provisions allowing notaries to control the process of admission to the notarial function and existing restrictions for advertising of notary services. According to the Commission, a free access system to the notarial function could be better for consumers, as the conditions of supply and demand would be responsible for determining the entrance of new notaries into the market.

The second advocacy effort has been issued in the driving test service market in Lima. The Technical Secretariat and the Commission identified anti-competitive restrictions derived from the monopoly owned by the Touring Automobile Club of Peru, the only authorised driver’s licence test centre in Lima. They recommended improving regulations to promote competition in the market.

Institutional improvements

To ensure that their activities are carried out in the best way possible, both the Technical Secretariat and the Commission have followed best practices set forth by international organisations such as the International Competition Network or the Organisation for Economic Co-operation and Development.

Also, in 2014, Indecopi signed a commitment of technical assistance (advisory services) with the World Bank, to receive first-rate advice regarding improving the Peruvian leniency programme. Also, the World Bank has committed to help Indecopi to reinforce its investigation and cartel detection capabilities, with special emphasis on inspections and market monitoring.

Also in 2014, for the second consecutive year Indecopi organised Competition Day, ratifying it in the institutional calendar. The event featured keynote speakers such as the National Economic Prosecutor of Chilean FNE, the Chief Superintendent for Competition Protection of the Colombian SIC and an official from the Competition Policy Team of the World Bank, among other experts.

Future agenda (2015–2016)

For 2015 and 2016, both the Technical Secretariat and the Commission have set ambitious goals for Indecopi, in order for it to be recognised as one of the most important and successful antitrust agencies among developing countries.

Therefore, with new techniques and computer tools available, it is expected that the number of dawn raids will be increased in the next two years, from 75 companies raided in 2013–2014 to 152 in 2015–2016. As a natural consequence, the number of administrative proceedings will also increase by 50 per cent in the two following years. Also, regarding cases decided, Indecopi expects in 2015–2016 an increase of 20 per cent in comparison with the 2013–2014 period. Advocacies will also have a key role in antitrust enforcement. The Technical Secretariat will further issue five advocacy reports in 2015–2016.

To increase the predictability of its decisions and to guide the behaviour of the private sector regarding competition issues, the Commission has scheduled the issuing of two guidelines in the next few years.

 First, the guidelines on the Peruvian leniency programme will illustrate all the steps that an applicant for leniency must satisfy to obtain full immunity or a reduction from fines, as a consequence of its collaboration with the authority in the detection and sanction of a cartel in which it has participated. It is expected that such guidelines will provide enough incentives for undertakings to approach the authority, confess to their illegal behaviour and provide full collaboration with Indecopi. As a result of this effort, it is expected that leniency applications will increase by 200 per cent in the next two years.

On the other hand, the guidelines for mergers in the electricity sector² will compile all the criteria set by the Commission and the Tribunal in the past. Thus, it will be easier for companies to understand if they are required to notify their merger operations to the Commission. Also, the Guidelines will establish simpler and clearer rules to improve the efficiency of the merger analysis procedure.

Notes

1. While the Technical Secretariat is in charge of monitoring markets, carrying out investigations and starting proceedings in relation to the existence of anti-competitive behaviour, the main task of the Commission is to decide the proceedings initiated the Technical Secretariat, imposing fines and injunctions. Both the Technical Secretariat and the Commission have autonomy in their functions.
2. According to Peruvian law, pre-notification of mergers is only required in the electricity sector.