Transcript Competition in Infrastructure Sector By Vinod Dhall

Competition in Infrastructure Sector
by
Vinod Dhall,
Former Member & actg Chairman,
Competition Commission of India
at
Forum of Indian Regulators (FOIR),
Chennai, 31January, 2009
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Organisation of the Presentation
• Competition- why and how?
• Evolution of Competition Policy and Law in
India
• Competition in Infrastructure
• Competition Law and Infrastructure
• Competition Act, 2002
• Suggestions
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Competition- why and how?
What is Competition (in economic field)?
• Striving for the custom and business of
people in the market place (Prof Whish)
• The situation in which firms or sellers
independently strive for buyers’ patronage
in order to achieve a particular business
objective (World Bank-OECD)
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Competition- why and how?
Benefits of competition (economic theory):
• Promotes efficiency: productive, allocative
• Maximises ‘consumer welfare’; more
choice, better prices
• Incentivises innovation
Competition is not an end in itself, but a means to
achieve societal goals
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Competition- why and how?
Empirical evidence of benefits:
• Australia: average household income up by
A$ 7,000 p.a. (OECD/ APC study); gain 5.5% of
GDP(Paul Crampton, OECD-IADB)
• New Zealand/UK: added 2.5% to employment
rate over 1978-1998(OECD)
• USA: fall in real prices following de-regulation
(OECD): raised productivity by 4% (Paul London)
India: benefits visible since reforms (auto, white goods,
consumer electronics, milk, etc)
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Competition- why and how?
Competition framework:
• Competition policy: set of government and
regulatory policies / laws that facilitate
competition; need for legal framework
• Competition law: to prohibit anticompetitive practices / activities
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Competition- why and how?
Competition Policy permeates various areas e.g.:
• Industrial policy
• Trade policy
• Financial sector policies (interest rate, forex
allocation, entry of banks, etc)
• Privatisation (dis-investment)
• State aid: subsidies, guarantees, tax incentives
• Policy towards to SOEs (PSUs)
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Competition- why and how?
Legal framework includes laws for:
• Property rights
• Contracts
• Firm structures (company law)
• Insolvency (bankruptcy, BIFR)
• Capital markets ( SEBI, SEs)
• IPRs
• Consumer protection
• Competition law
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Evolution of Competition Policy
and Law in India
Competition oriented policy reforms starting 1991:
• Industrial policy-licensing, controls, MRTPAct
• Trade policy- physical barriers,tarrifs
• Financial sector- interest rate, forex allocation,
entry of banks, capital markets
• Dis-investment
• Patronage to PSUs
• Reduction in SSI reservations
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Evolution of Comp Policy and Law
in India
Some reform deficit areas:
• Coal – Coal India ‘monopoly’
• Labour – exit barrier
• FI restrictions e.g. retail, civil aviation
• Insolvency law – litigation in courts
• Professions – restrictive rules e.g.
medical, legal, accountants
• Infrastructure – rail, post, urban transport
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Evolution of Comp Policy and Law
in India
Evolution of competition law:
• MRTP Act, 1969
• Amendment of MRTPAct in 1984
• Amendment of MRTPAct in 1991
(economic reforms)
• FM’s statement 1998; Raghavan
Committee report 2000
• Competition Bill,2001
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Evolution of Comp Policy and Law
in India
Evolution of competition law:
• Competition Act, 2002 in Jan03
• Competition Commission of India
established Oct03
• Challenge in Supreme Court; judgment in
Jan05
• Competition (Amendment) Act,2007 in
Sep07
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Evolution of Comp Policy and Law
in India
Highlights of Competition Act, 2003 (as
amended):
• Prohibits:

Anti-competitive agreements

Abuse of dominance
• Regulates mergers (mandatory
notification)
• Mandates competition advocacy
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Evolution of Competition Policy
and Law in India
Activities of Commission:
• Competition advocacy (post, shipping,telecom)
• Groundwork for:

Enforcement ( draft Regulations,
internal guidelines, processes)

Institution building ( training,
organisational structure)
Actual enforcement cannot start till government
notifies enforcement provisions.
India only major economy without functioning
Competition Commission !
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Competition and Infrastructure
• Competition principles apply across all
sectors
• However, certain features distinguish
infrastructure sectors, e.g.:
 Natural monopoly
 Network effects
 Switching costs
 Heavy capital costs
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Competition and Infrastructure
Some infrastructure sectors also have
individual characteristics that affect
competition, e.g in electricity:
• Cannot be stored
• Relatively inelastic demand
• Demand fluctuations - within day and interseasonal
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Competition and Infrastructure
Measures that promote competition:
• Vertical separation (unbundling) of ‘natural
monopoly’ from contestable parts
• Horizontal separation to encourage inter
se competition and ‘yardstick competition’
• Open access (essential facility doctrine)
• Remove entry barriers; facilitate entry
• Mitigate switching costs (number
portability, bank account portability ?)
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Competition and Infrastructure
• Competition ‘for-the-market’ vis-à-vis
competition ‘in-the-market’ (competitive
bidding):
 Maximise number of bidders, consistent with
qualification parameters
 Level playing field for new bidders
 Concession agreement to avoid ‘monopoly’
strengthening provisions
• Competition oriented Regulation
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Competition law and Infrastructure
•
•
Competition law generally has overarching
jurisdiction in all sectors, though picture varies
across countries/ industries-Australia, Mexico,
USA
Examples of application of competition law:
 Merger: EC prohibited (2004) proposed acquisition of
GDP by EDP and ENI
 Merger: EC allowed (2000) merger of German
electricity companies VEBA/VIAG subject to
commitments to divest holdings and drop T-component
transmission charges
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Competition law and Infrastructure
 AOD Divestiture: UK Competition Commission’s interim order (2008)
requiring BAA to divest Gatwick and Stanstead airports in London,
and abide by behavioural remedies.
 AOD: Energy company ENI fined EUR 290 mn for abusing its
dominant position in gas transport through its subsidiary TTPC; also
ordered it to allow transport of 6.5 bn c.m. per year and guarantee
time bound completion of gas pipe expansion.
 AOD: EC has objected (Dec08) to French state-controlled power
giant EDF’s long term contracts for sale of electricity to customers
 AOD: Aeroporto de Roma required to provide non-discriminatory
access to rival caterers
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Competition law and Infrastructure
 Cartel: Korea FTC imposed huge penalty (2003)
on price cartel between telecom companies KT
and Hanaro Telecom
 Cartel: French antitrust authorities slapped
record fines amounting to Euro 534m on mobile
operators Orange, SFR and Bouygues for
illegally sharing sales data and conspiring to
undermine competition
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Competition Act 2002
Enforcement not commenced, but live
concerns exist in markets:
• Cartels alleged in shipping, steel, cement,
Copper-T, explosives, civil aviation, brake
linings
• Abuse of Dominance alleged in coal,
telecom, post, airports
• M & As proceeding without prior review:
civil aviation, cement, alcoholic beverages
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Competition Act 2002
• Applies to all sectors, alongside sector
regulation where existing
• Especially relevant provisions: AOD and
Mergers
• Sec 21 and Sec 21A, CA02 provide for mutual
consultation between Commission and sector
Regulator
• Consultation to be at two levels:
 Individual cases
 Broader policy level
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Some suggestions
• Needed a National Competition Policy: competition
impact assessment, competition neutrality, essential
facility doctrine, separation of policy/operation/regulation,
incentives for reform at state level, etc
• Sector Regulation’s primary objective should include a
duty to promote effective competition, and in assessing
the interests of consumers, the Regulator should have
due regard to the views of enterprises
• Immediate commencement of enforcement of
Competition Act
• Mandate close co-operation between Sector Regulators
and Competition Commission of India
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Thank you
Vinod Dhall,
DHALL LAW CHAMBERS,
Dewan Manohar House,
B-88, Sector 51, NOIDA (U.P.), India – 201301
Phones: +91-(0)-120-4547550 / 1,Telefax: +91-(0)-120-4547550,
Mobile: +91-9811322324
Email: [email protected]
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