The Competition Council of Latvia (the CC) detected that since 2007 the public capital company “LDZ CARGO”, abusing a dominant position, made it more difficult for competitors to operate in rail freight transport in Latvia. For example, a different pricing practice was applied to own customers and customers of competitors for freight transport services, and in some instances transport contracts in the border area of Russia and Belarus were terminated. Also, a charge for downtime on common use railways of freight wagons owned by private persons, was groundlessly imposed in the entire territory of Latvia. For the detected infringements the CC imposed on the public capital company “LDZ CARGO” a fine of 5,694,174 euros, whereas the state joint stock company “Latvijas dzelzceļš”, which owns 100% of capital shares of SIA “LDZ CARGO”, is jointly and severally liable for payment of the fine.
In 2007, reorganisation of the state joint stock company “Latvijas dzelzceļš” was completed. The objective of this reorganisation was to prevent a situation, where the manager of the railway infrastructure at the same time also ensures also freight transport that can be provided by private merchants. As a result of the reorganisation, the subsidiary SIA “LDZ CARGO” took over provision of freight transport services. Currently, railway freight transport services are provided by four merchants in Latvia. However, in the period from 2007 to 2020, SIA “LDZ CARGO” ensures 70-80% of the total freight transport market in Latvia.
Different pricing practice for own customers and customers of competitors
In order to ensure international railway freight transport to and from Russia and Belarus, border stations in Kārsava, Zilupe or Indra have to be crossed. However, stations where actual acceptance and transfer operations of international freight take place are located 50-90 kilometres away at domestic freight acceptance and transfer stations in Rēzekne and Daugavpils.
Historically, railway freight transport from border stations to freight acceptance and transfer stations in Rēzekne and Daugavpils was ensured by the state joint stock company “Latvijas dzelzceļš”, but after its reorganisation the provision of this service was taken over by SIA “LDZ CARGO”. This resulted in SIA “LDZ CARGO” becoming an inevitable cooperation partner for freight transport in the border area for customers that wish to send or receive their freight through Latvia, plus the company is not restricted in determining any transport charge. Taking into consideration this situation, SIA “LDZ CARGO” applies various relief arrangements for its customers that use the services provided by the capital company throughout the route, not only in the border area, for example, discounts and other conditions that promote cooperation. Whereas for customers that entrust provision of freight transport services in Latvia to any of the three private merchants SIA “LDZ CARGO” applies a tariff for services provided in the border area.
In addition, in situations, when a customer wishes to switch the carrier from SIA “LDZ CARGO” to any of the competitors, SIA “LDZ CARGO” terminates the previously concluded transport agreement on more favourable conditions and applies a tariff for transport services in the border area, thus increasing the customer's costs for the entire transport route. The CC holds a view that it is economically disadvantageous for customers to choose competitors of SIA “LDZ CARGO” as service providers, which, in its turn, makes difficult for new service providers to enter the market and encumbers competition among the existing companies, as well as influences the options of choice for a consumer.
Groundless charge for downtime of wagons owned by private persons
In Latvia, both inventory wagons, and wagons owned by private persons are used for railway freight transport. Historically, freight transport was ensured in Latvia by using freight wagons belonging to USSR, which were taken over into ownership by the former USSR states or transferred for privatization after regaining of independence. Those wagons that were transferred into ownership of states are referred to as inventory wagons. These wagons are still linked into a unified wagon fleet and their use and management is coordinated by the Council for Rail Transport of the Commonwealth Member States, a member of which is also Latvia. Since 2007, the accounting of inventory wagons (containers) and also wagons (containers) owned by private persons is carried out by SIA “LDZ CARGO” in Latvia. Moreover, SIA “LDZ CARGO” also makes settlements with railway administrations of other states for the use of wagons (containers).
According to the Railway Transport Law carriers of railway freight may impose a charge on freight shippers or recipients for wagon downtime – detention of wagons on the way or loading and unloading of wagons. This condition is introduced with a purpose to promote circulation of wagons. At the same time, “LDZ CARGO” is the only railway freight carrier in Latvia that accounts wagon downtime and imposes a charge for it. In addition, SIA “LDZ CARGO” applies the charge for downtime not only in cases, when inventory wagons are used for railway freight transport, for the use of which in Latvia the company is responsible, but also in cases, when wagons owned by private persons are used for railway freight transport, the use of which is agreed between the freight shipper or recipient and the wagon owner or its representative.
The CC established that downtime charges determined by “LDZ CARGO” for the use of inventory wagons are substantiated, as far as such charges are necessary for covering the management costs of these wagons. At the same time, the CC concluded that charges imposed on downtime of wagons owned by private persons on common use railways are groundless. First of all, one of the arguments given by SIA “LDZ CARGO” for such charges is that these charges are aimed at ensuring efficient throughput of public use railway infrastructure. However, the manager of the railway infrastructure in Latvia is the state joint stock company “Latvijas dzelzceļš”, and fulfilment of this function is not assigned to SIA “LDZ CARGO”. And secondly, an agreement on the use of wagons owned by private persons is reached between the freight recipient or shipper and the wagon owner or its representative. The CC holds a view that in a situation, where freight transport has been performed by any of the three private merchants, no causation can be observed between costs of SIA “LDZ CARGO” and downtime charges that apply to the use of wagons owned by private persons. SIA “LDZ CARGO” also has not provided information or justification regarding the situation that the downtime charge for the use of wagons owned by private persons is collected on behalf of wagon owners.
Activity of public administrative body should comply with the principles of fair competition
In relation to the restricted facilities of private merchants to perform cross-border freight transport in Latvia, several complaints have been filed also to the European Commission; as a consequence, the European Commission called to specify the national legal framework to ensure that it corresponds to the principles of fair competition. This resulted in coming into force of the Cabinet of Ministers Regulations No. 540 “Regulations Regarding the Services Provided by the Public Use Railway Infrastructure Manager in the Border Areas” of 28 August 2020, which state, among other things, that VAS “Latvijas dzelzceļš” will become the cooperation partner in border area stages, replacing SIA “LDZ CARGO”.
Regardless, whether the railway freight transport services in the border area will be ensured by SIA “LDZ CARGO” or its parent company VAS “Latvijas dzelzceļš”, the actual activity of public administrative body shall correspond to the principles of fair competition and their activity shall not encumber new service providers entering the market or decrease the options of choice for customers for receiving the most favourable offer. This aspect is stipulated by the principle of competition neutrality, which is introduced in Latvia since 2020 and prohibits the state and local governments and their capital companies from market deformation by using any advantages that are not available to private service providers.