Papua New Guinea: Overview
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Competition Law in Papua New Guinea
It has been almost six years since competition laws came into effect in Papua New Guinea (PNG). In that short time, competition laws have become one of the most important and pervasive pieces of business regulation in the country.
The introduction of competition laws in PNG has been seen not only as a fundamental requirement for strengthening market forces and thereby encouraging economic development, but as a governmental response to the weak economic regulation of state-owned enterprises in years past that has led to higher prices, lower quality goods and services, and a lack of innovation.
Much of the importance played by competition law in PNG can be credited to the Independent Consumer and Competition Commission (ICCC), PNG's competition regulator. The ICCC has grown in size and experience and has increased its resources for enforcement and educational purposes. The result is that while many PNG markets have come under the ICCC microscope as a result of merger activity or other anticompetitive conduct, the ICCC itself has commenced a series of competition reviews into certain PNG industries such as international aviation, telecommunications, tourism, water, electricity, taxis, coastal shipping and fire and general insurance.1
The ICCC Act 2002 (the Act) came into effect on 26 May 2002. Part VI of the Act, which contains provisions dealing with competitive market conduct including antitrust violations and procedures for seeking immunity for anticompetitive behaviour, came into effect on 16 May 2003.
The Act seeks to promote competition and fair trading, regulate the prices of certain goods and services and protect the interests of consumers in PNG.2 The Act seeks to achieve these objectives by containing antitrust violations, imposing product safety and information standards and establishing a regulatory regime for businesses connected to state-owned entities.
The ICCC is an independent body that reports directly to parliament and is responsible for ensuring compliance with and enforcement of the Act.
The ICCC has broad-ranging and pervasive powers to investigate possible contraventions of the Act. For instance, the ICCC can exercise the following powers if it reasonably believes that it is necessary or desirable to do so in order to perform its functions:
- summon witnesses, take evidence on oath and require the production of documents;
- require a person to furnish information and answer questions;
- enter and search premises (a search warrant is required from a magistrate), inspect documents and take samples;
- retain documents and take copies; and
- order regulated entities to keep accounting records in accordance with specified guidelines.3
The ICCC has stated that its mission is to 'foster an informed and fair PNG market'4 and 'enhance the welfare of Papua New Guineans through the promotion of competition and fair trade in the market, protection of consumer interests and regulation of prices and service delivery standards in respect of State owned entities.'5 The ICCC seeks to enhance compliance with the Act through education, compliance and enforcement6 and has increased its focus in relation to consumer products and product safety through the establishment of a Consumer Product Consultative Committee.7
The ICCC consists of three standing commissioners (the senior commissioner and two commissioners). The ICCC may appoint any number of temporary associate commissioners to meet the needs of a specific enquiry. Associate commissioners are appointed by the government on the advice of the ICCC where an inquiry may either require or benefit from expertise that is not readily available within the ICCC. In this regard, the ICCC has been willing to use Australian and New Zealand experts in performing its functions. Given that many provisions of the ICCC Act are substantially similar to Australia's and New Zealand's competition laws,8 this approach is likely to have assisted the ICCC in becoming a more effective and efficient regulator in a short period of time. The ICCC has one head office and four regional offices with more than 50 staff.
The ICCC also has the power to undertake pricing reviews of 'declared' goods or services under the Prices Regulation Act 1949.9
Regulation of utilities
Regulated entities, regulated goods and regulated services
Part III of the Act establishes a regime under which the minister or the ICCC can declare an entity as a 'regulated entity' or the goods or services which an entity supplies as 'regulated goods' or 'regulated services'. An entity and the goods or services it supplies can only be declared as 'regulated' if, among other things, the entity carries on business using assets transferred to it from a state-owned entity. The company will only be subject to part III if it meets this criterion.
If an entity is declared as a 'regulated entity' or the goods or services which it supplies are declared as 'regulated goods' or 'regulated services', the entity may be issued with a 'regulatory contract' by the minister or the ICCC. A regulatory contract regulates a number of matters relating to the supply by the regulated entity of regulated goods or regulated services, including the prices at which those goods or services are supplied, the standards which those goods or services must meet, and the conditions on which those goods or services must be supplied.
In issuing a regulatory contract, the ICCC (but not the minister) must take into account a number of economic, investment, industry and financial factors.
Compliance and penalties
A regulated entity must comply with an issued regulatory contract. The ICCC can order compliance with the terms of a regulatory contract. If the order is contravened, the regulated entity may have to provide an undertaking that it will comply with the terms of the regulatory contract. The regulated entity can also be fined up to 10 million kina (approximately US$3.64 million). An account of profits is available against a regulated entity that profits from a contravention.
Part VI of the Act regulates competitive market conduct by prohibiting a number of anti-competitive practices. The application of part VI extends to conduct outside PNG by a person who is a resident of, or carries on business in, PNG to the extent that the conduct affects a market in PNG (section 47(1) of the Act).
Section 50 of the Act prohibits the making of, or giving effect to, a contract, arrangement or understanding that has the purpose, effect or likely effect of substantially lessening competition. Section 51 is a similar prohibition that relates to covenants. A provision of a contract, arrangement or understanding or a covenant that contravenes these sections will be unenforceable.
Targeted exclusionary conduct
Section 52 of the Act prohibits the making of, or giving effect to, an exclusionary provision between persons who are in competition with each other unless it can be shown that the exclusionary provision did not have the purpose, effect or likely effect of substantially lessening competition in a market.
An exclusionary provision is a provision of a contract, arrangement or understanding that has the purpose of preventing, restricting or limiting the supply of goods or services to, or acquisition of goods or services from, any particular person or class of persons, either generally or in particular circumstances or on particular conditions, by any of the parties to the contract, arrangement or understanding.
For an exclusionary provision to contravene the Act, the particular person or class of persons to which the provision relates must also be in competition with one or more of the parties to the contract, arrangement or understanding. An exclusionary provision that contravenes the Act will be unenforceable.
Section 53 of the Act prohibits the making of, or giving effect to, a contract, arrangement or understanding that has the purpose, effect or likely effect of fixing, controlling or maintaining the price, discount, allowance, rebate or credit in relation to goods or services supplied or acquired by the parties to the contract, arrangement or understanding where those parties are in competition with each other. Section 57 is a similar prohibition that relates to covenants.
Sections 54 to 56 of the Act provide that certain joint ventures, price recommendations and joint-buying and promotion schemes do not constitute price fixing for the purposes of section 53 of the Act.
Taking advantage of market power
Section 58 of the Act prohibits a person with a substantial degree of power in a market from taking advantage of that power for any of the following purposes:
- restricting the entry of a person into a market;
- preventing or deterring a person from engaging in competitive conduct in a market; or
- eliminating a person from a market.
Resale price maintenance
Sections 59 and 60 of the Act prohibit resale price maintenance by suppliers and third parties, respectively.
In relation to suppliers, resale price maintenance occurs if a supplier will not supply goods or services to another person unless that person agrees not to resupply the goods or services at a price less than that specified by the supplier. In relation to third parties, resale price maintenance occurs if a third party, either alone or in concert with any other person, seeks to hinder or prevent the supply of goods or services to a person unless that person agrees not to resupply the goods or services at a price less than that specified by the third party.
Section 69 of the Act prohibits acquisitions of assets of a business or shares that would have, or would be likely to have, the effect of substantially lessening competition in a market. This section also applies to acquisitions of assets of a business or shares by a person that occur outside of PNG (offshore acquisitions) to the extent that an acquisition affects a market in PNG - irrespective of whether or not the person is a resident of, or carries on business in, PNG (section 47(2) of the Act).
Sections 65 to 67 of the Act provide a number of exemptions to the operation of part VI. The exemptions relate to partnerships, contracts of service and restraints of trade, sale of business and protection of goodwill, compliance with standards, terms and conditions of employment, export of goods from PNG, related corporations, the carriage of goods by sea and intellectual property rights.
Authorisations and clearances
A person can apply to the ICCC to authorise certain conduct that would otherwise contravene the prohibitions relating to general anticompetitive practices, targeted exclusionary conduct, resale price maintenance and business acquisitions. Conduct will not contravene the Act only to the extent that it is authorised.
A person can seek a clearance from the ICCC in relation to a proposed business acquisition. The difference between a clearance and an authorisation for a proposed business acquisition is that for the latter the ICCC will consider whether the public benefits arising from the conduct outweigh the anticompetitive detriment. For clearances, the ICCC only considers whether the transaction will substantially lessen competition in a market. The ICCC must grant or deny an application for clearance within 20 days of the application, whereas an authorisation can take up to 72 days from the date of the application.
The government can exempt conduct that would otherwise be in contravention of the Act. For example, by way of legislative regulation, a project agreement regarding the establishment of an oil refinery in PNG was exempted from the antitrust prohibitions even though it was likely to result in significant anti-competitive outcomes.10
Penalties and remedies
Corporations may be liable to pay up to 10 million kina (approximately US$3.5 million) for a contravention of the antitrust laws under part VI of the Act. Individuals may be liable to pay up to 500,000 kina (approximately US$178,000) for each contravention. Persons that are involved in contraventions as accessories may also be liable to pay pecuniary penalties as the court thinks fit.
The ICCC or any person can apply for an injunction to restrain a person engaging in conduct that constitutes a contravention of part VI of the Act and a person is liable in damages for any loss or damage caused by that person's conduct where the conduct is in contravention of part VI of the Act. Section 101 of the Act provides the court with wide powers to make remedial orders for contraventions of part VI of the Act such as varying and cancelling contracts and making orders for restitution or compensation.
The ICCC can also apply to the court to make an order that a person shall be restricted from being involved in the management of a corporation for up to five years if the person has contravened the prohibitions against price fixing or targeted exclusionary conduct.
Consumer protection laws
Part VII of the Act provides the ICCC with wide powers and functions to protect consumers and promote product safety and information standards. The ICCC can formulate consumer policies, receive and investigate consumer complaints, make consumer information available, establish consumer codes and advise consumers generally.
The minister may declare consumer product safety or information standards. 'Consumer' is defined in the Act as a person who acquires goods or services for personal, domestic or household use.
A person is prohibited from supplying goods to consumers if they do not comply with a prescribed consumer product safety standard, if they are declared as unsafe, if they are permanently banned or if they do not comply with a consumer product information standard.
The ICCC can issue warnings to the public about certain goods it is investigating to determine whether they cause injury to any person and the possible risks involved in using the goods. The ICCC must also issue the results of any investigation it conducts. If the ICCC considers that goods may cause injury to any person, it can declare the goods as unsafe. Unsafe goods will be permanently banned if a period of 18 months has passed since the declaration and no prescribed consumer product safety standard has been established in respect of the goods.
The ICCC can order a recall of any product that it considers unsafe or that does not comply with the relevant prescribed standards. The ICCC can also order a supplier to replace or repair unsafe goods or goods that do not comply with the relevant prescribed standards. It can also order a supplier to offer refunds to consumers.
- PNG Department of Treasury, Budget Strategy Paper 2008, presented by the Rt Hon Sir Rabbie L Namaliu, CSM, KCMG, MP, minister for treasury, p7; PNG Department of Treasury, National Budget 2008, presented by Hon Patrick Pruaitch MP, minister for treasury and finance, pp73-77.
- The Act was enacted as part of an economic reform package implemented in PNG to meet the APEC free trade goals set in Bogor, Indonesia, in 1994, namely 'the long-term goal of free and open trade and investment in the Asia-Pacific': APEC Economic Leaders' Declaration of Common Resolve, Bogor, Indonesia, 15 November 1994.
- Part IX of the Act.
- ICCC Corporate Plan and Priorities 2008-2010, p4.
- Id, p5.
- Id, p8.
- See www.iccc.gov.pg/publicationsCCC%20Nius%20Issue3.pdf.
- Many provisions of the Act are similar to the provisions of Australia's Trade Practices Act 1974 (TPA) and New Zealand's Commerce Act 1986. For example, section 50 of the Act resembles section 45 of the TPA; section 52 resembles section 29 of the Commerce Act; section 53 resembles section 45A of the TPA; section 58 resembles section 46 of the TPA; sections 59 and 60 resemble section 48 and part VIII of the TPA; and section 69 resembles section 50 of the TPA.
- Under the Act, the ICCC takes over the responsibilities of the prices regulator under the Prices Regulation Act. The regulation of prices in regulated sectors is governed by the regime described in this paper, rather than the Prices Regulation Act. The Prices Regulation Act will, however, continue to apply to other goods and services.
- ICCC (Oil Refining Facility State Agreement Exemption) Regulation 2003.