Papua New Guinea: Independent Consumer and Competition Commission

The ICCC and the ICCC Act

The Independent Consumer and Competition Commission (ICCC) is an independent statutory authority established under the Independent Consumer and Competition Commission Act, 2002 (the ICCC Act). Its three main functions are to do with competition, consumer protection and economic regulation.

The ICCC administers the ICCC Act, the Prices Regulation Act (PRA), the Commercial Advertisement (Protection of the Public) Act (CAPP Act), the Trade Measurements Act (the TM Act) and various other relevant legislation.

The ICCC Act is based on principles similar to those of the New Zealand’s Commerce Act and Australia’s Trade Practices Act, 1974 (now the Competition and Consumer Act, 2010), which mandates the ICCC with three roles: economic regulation (part III); competitive market conduct (part VI); and consumer protection (part VII).

Part III provides a regime for the regulation of certain industries, entities and goods and services, including the regulation of prices and related service standards under regulatory contracts. These industries are electricity, water, ports, postal and third-party motor vehicle insurance. Telecommunications is also a regulated industry but regulation of that is handled by National Information and Communications Technology Authority (NICTA).

Part VI gives mandate to the ICCC to enforce competition law, which aims to prohibit anti-competitive agreements and conduct, to promote and protect competition and to achieve competitive outcomes in the economy.

Part VII deals with protecting consumers. While other areas are generally covered, this part provides for specific wide-ranging powers in relation to consumer product safety.

The competitive market conduct

Provisions here prohibit certain anti-competitive conduct. They are sometimes referred to as market conduct rules (MCR). Mergers and acquisitions, cartels, taking advantage of substantial market power and resale price maintenance, and other anti-competitive conduct is prohibited under part VI of the ICCC Act.

This part extends to the engaging in conduct outside Papua New Guinea (PNG) by any person carrying on business in PNG to the extent that such conduct affects a market in PNG. The state is bound by the provisions of part VI of the ICCC Act to the extent that the state engages in trade.

Business acquisitions

Acquisitions of assets of a business or shares are prohibited if the acquisition would have, or be likely to have, the effect of substantially lessening competition in a market in PNG.

Authorisation

When a business seeks to engage in conduct that it thinks may be anti-competitive, it may apply for authorisation. Authorisation is a statutory process under the ICCC Act that allows a business to seek exemption from legal action to engage in conduct (except taking advantage of market power) that might otherwise breach the ICCC Act. The authorisation is granted through a public and transparent process on public benefit grounds. Essentially the ICCC must grant authorisation when the public benefits resulting from engaging in the conduct would, or would be likely to, outweigh the public detriment (including the anti-competitive effects).

Apart from merger authorisation, the ICCC may only vary or revoke an authorisation after giving the applicant the opportunity to respond to the ICCC’s proposed variation or revocation. The ICCC may vary or revoke an authorisation if it is satisfied that:

  • the authorisation was granted on information that was false or misleading in a particular material;
  • there has been a material change in circumstances since the authorisation was granted; or
  • a condition upon which the authorisation was granted has not been complied with.

Mergers and business acquisitions

Under the ICCC Act, there are no thresholds for notification for proposed mergers or acquisitions, and notification of mergers or acquisitions is voluntary. A person who proposes to acquire assets of a business or shares may notify the ICCC by applying for clearance or authorisation if the person thinks the proposed acquisition may have the effect of substantially lessening competition in a market. The relevant test for clearance is that the acquisition would not have the effect of substantially lessening competition in the market. The relevant test for authorisation is that the acquisition will result, or be likely to result, in such a benefit to the public that it should be permitted. In granting authorisation or clearance, the ICCC may accept a written undertaking to dispose of assets or shares given on behalf of the applicant.

As there is no legislative requirement that parties notify the ICCC of a proposed acquisition, merger parties also have the option of proceeding with a merger without seeking any regulatory consideration. In such circumstances, the ICCC may consider whether it is necessary to investigate the merger and subsequently may take whatever legal actions it considers necessary if the ICCC is of the view that the merger would have the effect, or be likely to have the effect, of substantially lessening competition in a market.

Penalties for contravention of the MCR

All potential breaches are dealt with through the courts. The National Court may, on application by the ICCC, order a pecuniary penalty of up to 500,000 kina for an individual or 10 million kina for a corporate body where it considers a person has;

  • contravened any of the market conduct provisions outlined above;
  • aided and abetted, counselled or procured a contravention;
  • been knowingly concerned in a contravention; or
  • conspired to contravene a provision.

In determining the amount of the pecuniary penalty, the Court may refer to the amount of gain arising from engaging in the conduct. Other remedies may also be applied.

In relation to price fixing (a cartel conduct), a corporate body shall not indemnify directors, employees or agents in respect of any pecuniary penalty or costs associated with the action. To do so is an offence with a pecuniary penalty to be decided by the Court.

A Court may order a person involved in price fixing or a primary boycott (also a cartel conduct to collectively refuse supply or acquisition of a product) not to be a director or promoter or otherwise involved in the management of a body corporate for up to five years.

On application of the ICCC or any other person, the Court may grant an injunction restraining a person from engaging in conduct that may constitute a contravention of any of the market conduct provisions or engaging in an ancillary offence except business acquisitions. For business acquisitions, only the ICCC can apply for injunction from the Court.

Through the Courts, third parties may claim for damages in relation to a contravention of the market conduct.

On application of the ICCC, the Court may order the disposal of assets or shares for a contravention of the business acquisition provisions. However, this is only possible within two years from the date of the merger or acquisition.

A few highlights

The matters summarised below relate to business acquisitions. The first case is one in which Court proceedings were involved. The second concerns parties seeking approval from the ICCC to proceed with a proposed business acquisition.

The ICCC takes Court action against Steamships Trading Company and others for the acquisition of shares in Consort Express Lines

In November 2011, the ICCC began legal proceedings against Steamships Trading Company (STC)1 for its acquisition of a controlling interest in Consort Express Lines (CEL) through its subsidiary company PNG Mainport Liner Services Limited.

CEL is the leading player in coastal shipping and stevedoring and handling services in PNG. CEL was originally equally owned by STC, Kambang Holdings Limited (Kambang) and Anton Lee Transport Limited (Anton Lee).

CEL is directly involved in shipping business, and indirectly involved in stevedoring and handling through its subsidiary companies, while STC, a conglomerate, also operates similar services directly or indirectly via its subsidiary companies. Kambang is owned by the Evangelical Lutheran Church of PNG and also operates shipping services to smaller ports in PNG under its business name Lutheran Shipping.

The acquisition involved the shares of Kambang where STC acquired about 17.6 per cent to increase its stake in CEL to more than 50 per cent. The parties did not inform the ICCC about the acquisition. The ICCC became aware of the matter when it was reported in the newspaper after more than one year from the date of the acquisition.

The ICCC was concerned that the acquisition had, or was likely to have, the effect of substantially lessening competition in one or more markets in the shipping, stevedoring and handling industries and other related business activities. An investigation ensued over a period of some six months to ascertain the facts and establish whether or not there was likely to have been a contravention of section 69 of the ICCC Act.

PNG being an archipelagic nation depends heavily on sea transport as the most economically viable option for the movement of domestic and international carriage of goods. Costs incurred by businesses in the shipping sector are mostly passed through to the consumers.

In August 2012, the Court heard submissions on the application of STC to dismiss the case on procedural grounds. The judgment on this interlocutory issue is pending.

This case is the first competition case for PNG since the ICCC Act came into effect.

Ports acquisition allowed

Recently the ICCC allowed a proposed acquisition involving the sale and purchase of assets in the provision of port facilities and services. The parties were the Independent State of Papua New Guinea, the Independent Public Business Corporation (IPBC)2 and the Papua New Guinea Ports Corporation Limited (PNGPCL) as the acquirer, and the Curtain Brothers PNG Limited (Curtain Bros)3 as the seller. The proposed acquisition was to facilitate the state’s decision for the relocation of port facilities of Port Moresby wharf currently operated by PNGPCL. The target port and the existing port of PNGPCL are located in the same declared port area in Port Moresby.

In the above case, the IPBC applied to the ICCC for clearance and authorisation to acquire a portion of Motukea port within the port of Port Moresby from Curtain Bros.

The ICCC conducted public enquiries into the application by inviting written and oral submissions from any person who may have an interest in the matter. Having referred to submissions from the acquirer and interested parties, the ICCC concluded that the areas of competition most likely to be affected by the acquisition now and in the future were:

  • the market for the supply of all wharf facilities;
  • the market for the supply and acquisition of essential services (wharfage, berths and berth reservation spaces); and
  • the market for the supply and acquisition of contestable services (storage, stevedoring and pilotage).

Referring to the areas of competition above, the ICCC was of the view that:

  • the number of potential competitors is likely to be reduced;
  • there are likely to be higher barriers to entry and expansion;
  • there is potential for increased prices and profit margins; and
  • the potential entry of a new vigorous competitor is reduced.

The ICCC therefore considered that PNGPCL was likely, as a consequence of the proposed acquisition, to enhance its position in the areas set out above and thus competition was likely to be substantially lessened.

The ICCC declined to give clearance for the acquisition and proceeded to assess the authorisation application to decide whether or not to grant authorisation.

In its consideration of the authorisation application, the ICCC identified the following benefits to the community as resulting (or likely to result) from the proposed acquisition:

  • a compressed time frame for the establishment of the new port;
  • a reduction in landside traffic issues created in Port Moresby by the diversion of heavy traffic away from the central business area of Port Moresby;
  • the likely alleviation of capacity constraints and enabling of future port growth, thereby bringing about increased efficiencies in the handling of cargoes at the port of Port Moresby; and
  • a provision for the redevelopment of valuable downtown land in Port Moresby.

On the other hand, the ICCC considered that a number of detriments may result, which include:

  •  the number of potential competitors is likely to be reduced;
  • there are likely to be higher barriers to entry and expansion;
  •  there is potential for increased prices and profit margins;
  • the potential entry of a new vigorous competitor is likely to be foreclosed or, at the least, reduced;
  • there may be adverse consequences for landowners and local settlers;
  •  potential for increased land transport costs;
  • concerns about access issues; and
  • the likelihood of significant costs in upgrading roads and other infrastructure and the likely impact on port costs of such costs.

On balance, the ICCC considered that there were considerable benefits to the community that may result from the acquisition but also the potential for considerable detriment. The ICCC Act provides that the ICCC may impose conditions as a part of an authorisation determination. The ICCC considered that the application for authorisation did not, without conditions, pass the public benefit test and it would be necessary to refuse it in the absence of conditions.

The ICCC therefore imposed some conditions and granted authorisation. The effect of those conditions would ensure that the benefits will outweigh the detriments of the acquisition.

The ICCC decided the clearance and authorisation applications within 30 days.

Our challenges

The enforcement of competition and consumer protection law comes with challenges. Responding to those challenges in positive and appropriate ways contributes to the better enforcement of competition law. The challenges facing the ICCC now are: a weak competition culture and sectoral exemptions; inadequate advocacy; a lack of voluntary merger notifications; and capacity and institutional building.

When the competition and consumer protection rules are more widely known and accepted by firms and government agencies, there is likely to be greater compliance in PNG. Years of government control in many sectors of the economy has hindered the growth of a compliance culture, and some sectors are still subject to a variety of controls, including natural monopolies and utility services industries. Also some economic policies have less regard to competition rules due to the lack of a competition culture and knowledge of the benefits of competition to the economy. Due to the lack of a competition culture prior to the establishment of ICCC, the state had entered into and given effect to some agreements with businesses which give them monopoly status. This has further complicated the challenges to unwind and introduce competition into the relevant industries.

Although the ICCC has been in operation for over a decade now, competition law is still new to many businesses and government agencies and statutory regulatory bodies. Multinational companies operating in PNG do not seem to acknowledge that PNG has competition laws similar to those that apply in other countries the multinational companies operate. Over its first decade of operations, the ICCC has slowly established itself within PNG. However, it must be acknowledged that a broader outreach programme is needed so that all sectors understand the importance of competition and how competition can lead to higher efficiencies, lower costs and improved quality of products and the restructuring of the economy. Consumers and customers benefit from lower prices, and better quality and increased choice of products, which result in economic growth, improved living standards and reductions in poverty.

Under the current voluntary merger notification regime, often companies, including multinational companies who should know better, do not notify the ICCC even if the acquisition will have competition issues. As a developing nation, it is a big challenge to ICCC to investigate the acquisition in these circumstances. Under the current regime also, there is no merger threshold. The ICCC is proposing major changes in the current ICCC Act in this regard.

The challenge of capacity and institutional building also remains a huge one for the ICCC. The credibility and performance of the ICCC’s functions are going to be assessed on the basis of effective intervention and the soundness of its decisions and the outcome achieved.

Future ICCC work

The ICCC’s focus in the area of competition is ensuring that the ICCC v Steamships Trading Company case (reported above) is successfully completed. The decision from this case (regardless of whether it is for or against ICCC) will send a clear message to both the public and private sectors about competition rules.

The ICCC is also closely involved in the review of the ICCC Act headed by the PNG’s Department of Treasury. The ICCC is anticipating that the review will be completed in 2015 and major amendments will be made to make the law more comprehensive. One area that is of great concern that the ICCC expects some major changes in is that of merger and business acquisition thresholds and notifications where it anticipates having thresholds and compulsory notifications. It also expects major changes on the scope of consumer protection laws and remedies available to the ICCC, businesses and consumers.

Notes

  1. China Navigation Company Pte Ltd (CNCo) trading as Swire Shipping has a controlling interest in Steamships Trading Company.
  2. IPBC acts as the owner and trustee of all State owned assets and enterprises. The state-owned PNG Ports Corporation Limited also comes under its stewardship. PNG Ports Corporation Limited provides all essential port facilities and services in all the declared ports in PNG.
  3. Curtain Bros is a conglomerate and also operates port services outside Port Moresby.

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