Latvia: Competition Council

Equal competition as private and public responsibility

Yearly reports on operation results resemble putting together a jigsaw puzzle: assembling the numbers, performance indicators and evaluations to see if they line up to the picture, drawing in our strategy and finding the holes that have to be filled. The pattern that we have got this year is promising. It reveals that we have worked in the right directions with good results, and it shows clear and sound hints for the priorities of future planning periods.

Court judgments – in favour of the state

Above everything else, we value our results in high-profile enforcement and its external evaluation. Results in the most difficult, legally and economically challenging cases speak louder than any workload statistics. Here a reliable and impartial evaluation is provided by courts that review the challenged decisions of the authority.

In 2015, 16 such legal proceedings were completed. In 15 proceedings, the court did not reverse the decisions of the Competition Council, recognising them as lawful and justified. One proceeding was completed and the decision of the Competition Council came into force after the conclusion of a settlement agreement.

Public benefit that exceeds the authority budget 52 times

Our economists estimated savings that occur as the society does not have to overpay due to violations eliminated by the Competition Council and calculated that each euro in the budget of the authority has created a benefit of €52 to the society.

The work of the Competition Council over a period of three years has provided society with a benefit of approximately €51 million per year. The internationally recognised methodology developed by the OECD and used by many competition authorities was especially adjusted for Latvia to be used in the calculation. It is based on the assumption that any potential losses not caused to consumers due to the competition authority prohibiting or preventing specific violations serve as a public benefit.

Successful implementation of the Case Prioritisation Strategy

Putting into action the Case Prioritisation Strategy, the Competition Council has been able to concentrate its resources on the most severe infringements and in-depth sector inquiries. Thus, a comprehensive market study into waste management is being carried out by a research team for the first time in the authority’s practice. Meanwhile, less significant alleged infringement cases are tackled by alternative means, such as warning procedures and mediation.

Tendencies in mergers and notified agreements

Last year the authority assessed 20 mergers and three notified cooperation agreements. During the past two years, the decisions of the authority influenced the development of competition in a total of 24 industries worth more than €3.8 billion in the national economy. The majority of mergers and allowed agreements took place among small fuel retailers, thus forming stronger competition against the market leaders in a broader territory.

New ancillary materials for working with competition law

In 2015, the Competition Council drafted a record number of guidelines – a total of six. The companies have received guidelines on how to properly prepare merger notifications. Other guidelines explain the situations when the rent of premises is considered as a merger, define oral hearing principles, and explain the application of the new retail trade regulation. In the Case Prioritisation Strategy, the Competition Council explains to companies and society in general how the authority establishes enforcement priorities, deciding which investigations have to be initiated and which solved by alternative means. In the guidelines for state and municipal decision-makers the Competition Council explains how to adopt decisions without creating unjustified competition restrictions.

Positive international recognition

In evaluating the readiness of Latvia to join the OECD Competition Committee, last year the organisation reviewed the competition policy of Latvia and operation of the Competition Council. The OECD recognised the Competition Council to be a professional and effective authority in the implementation of competition policy and the adoption of the best international practice, while it asked the state to strengthen the independence and resources of the authority.

Last year, for the first time, the Competition Council was included in Global Competition Review’s Rating Enforcement, receiving a three-star rating based on our achievements in case investigation, the promotion of competition culture and improvements in work efficiency.

Bid-rigging cases in the battle against cartel agreements

In 2015, the Competition Council detected five prohibited agreements, and they were all cartel schemes among the procurement applicants. Twenty-six companies were involved in violations. A further 23 companies were warned about involvement in 10 similar violations of a smaller scale and severity. Penalised companies are the entities supplying hospitals and health centres with medical devices, providing computer equipment to the Corruption Prevention and Combating Bureau, forestry services to the state forestry operator and demounting works to the state electricity company, etc.

Such numbers clearly show that the fight against bid rigging will remain the authority’s top priority. We also understand that an important role in this fight will be played by procurement organisers. Their awareness and willingness to prevent bid rigging is crucial to achieve good results. Thus, thanks to informative activities – various seminars, conferences, articles, etc – of the Competition Council the number of cases whereby procurement organisers informed the authority about alleged bid rigging doubled in 2015 in comparison to 2014. Unfortunately, equally problematic can be procurement organisers’ ability to undermine fair procurement. This ranges from negligence and lack of control, which allows bid rigging to flourish unnoticed, to seemingly corrupt cases when the winner is pre-selected and other bidders are asked to imitate real competition.

Thus, in addition to investigation activities we will continue intensive work to educate both market participants and procurement organisers. In 2016, we will actively participate in drafting amendments to the Public Procurement Law, to ensure that principles of fair competition are strengthened throughout the legal framework of public procurement.

Public bodies as distorters of fair competition

By creating normative regulation that entails discrimination and unjustified inequalities, some state and local municipalities distort competition and an investment-friendly environment.

In 14 cases last year, the Competition Council pointed at the distortion that may be caused to competition by the regulatory framework. Usually authors of the draft legislation take into consideration the recommendations or objections made by the Competition Council and avert the risks. Thus, based on the opinion of the authority, the Saeima (parliament) did not adopt amendments to the Law on Value Added Tax that would have privileged public over private concert and other entertainment organisers.

However, opinions of the competition authority cannot be enforced and it is only optional to comply. Thus, regardless of our negative opinion, amendments to the Waste Management Law were adopted, reducing opportunities of the private companies to operate in this business and further expanding monopoly power of the municipal enterprises. Restrictions are also often created by rules of local governments. For example, regulation introducing a new levy on taxi companies for entering the historic part of Riga and thus creating an additional administrative barrier discriminating against smaller taxi service providers was adopted in Riga, ignoring objections expressed by the Competition Council. Another recent example is the regulation stating that employees of a local municipality and its companies can have their mandatory health examinations only in municipally owned health centres.

In 2015, to support public persons in creating a competition-friendly environment, the Competition Council issued guidelines with a competition assessment toolkit, and organised a conference to promote public discourse on the necessity of fair competition.

However, the authority also understands that while the guidelines help in improving knowledge and understanding, they do not eliminate anticompetitive conduct. We also acknowledge that competition advocacy will help less in future if there is no strong enforcement against actions of public administrative bodies.

An especially severe damage to competition is created when special treatment and benefits are granted to enterprises owned by state or local governments.

A telling example is the case where Riga Freeport authority, after acquiring its own tugboats, abused its dominant position against private tugboat service providers. It took more than seven years, three consecutive decisions of the Competition Council and three litigations to end the competition distortion. Thus, in 2015 Riga Freeport authority, by concluding an administrative agreement, agreed to stop the infringement and to pay a fine in the amount of more than €600,000. Its tugboats have been expropriated to another, unrelated company via an auction.

In the coming years, the Competition Council will intensify competition advocacy and maintain its proposal to amend the Competition Law in order to enforce the law against public administrative bodies.

Improvements for better competition protection

In 2015, the Competition Council accomplished work on two legislation drafts: amendments to the Competition Law and a new Unfair Retail Trade Practices Prohibition Law.

Amendments to the Competition Law are substantial to ensure that the Competition Council can investigate infringements according to the best practice of the OECD and EU. Amendments also have to provide market participants with clear definitions and limits of liabilities as well as better laid out principles for damage actions. The amended law will provide for a better-defined leniency programme and for changes to merger review (changing notification thresholds and introducing a fee for merger review). Adoption of the amendments was delayed, as several business associations that had previously participated in the drafting of the amendments and had expressed their support unexpectedly changed their position and opposed adoption. After much discussion, however, the disagreements were resolved and the amendments were adopted and came into force on 15 June 2016.

The new Law on the Prohibition of Unfair Retail Trade Practices starting from 1 January 2016 replaces and regulates in more detail the prohibition of the abuse of a dominant position in retail trade previously stipulated in the Competition Law. The new law defines principles of fair cooperation with food suppliers for retailers, determining that the retailer may not transfer its risks or expenses to the supplier, must take regard of the ability of the supplier to fulfil the order and the right to receive a payment, and may not affect the cooperation of a supplier with other companies. Non-food retail trade is regulated separately. During the transition period, the Competition Council has made an effort to explain the principles of the new law and monitor the reaction of markets.

Our institution has to operate with limited resources, thus efficiency and improving the quality of our work is always on our agenda. Our main challenge for the next period is to maintain high-quality standards regardless of high staff turnover as employees leave for better-paid positions in the private sector or other state administration institutions. Owing to the increasingly complex nature of our cases and litigations and several substantial procedural requirements that arise from the newly amended Competition Law, maintaining our quality standards does not mean striving for the status quo: it means constant endeavour to strengthen our expertise.