On July 22, the Competition Council (CC) decided to punish Jelgava’s Municipality for abuse of a dominant position related to the municipality's actions, unreasonably and inconsistently with the regulatory framework granting its capital company Ltd. “Jelgavas komunālie pakalpojumi” the right to operate in the waste collection and transportation market in the administrative territory of Jelgava city. As a result, the market was closed for competition for more than seven years. The CC fined Jelgava’s Municipality a fine of 51,123 euros for the implemented competition violation.
Jelgava’s Municipality is obliged to organize the waste collection and transportation process in the administrative territory of Jelgava city, including determining the procedure by which the waste management process will take place from their collection to disposal. The regulatory framework stipulates that in Latvia, every local government has the freedom to choose the way to ensure waste management in its administrative territory by selecting a service provider in a procurement procedure, private-public partnership process or in-house procedure entrusting the provision of services to its capital company.
Since 2004, Jelgava’s Municipality has been providing waste management by applying the in-house procedure. However, when choosing an in-house service provider, the municipality must exercise complete control over the corporation without involving private capital. At the same time, in the company, Ltd. “Jelgavas komunālie pakalpojumi”, to which the collection and transportation of municipal waste in Jelgava have been transferred, 51% of the capital shares belongs to Jelgava’s municipality, but 49% of the capital shares belongs to the private market participant Ltd. “KULK”. Thus, in the actual circumstances, there were not all the criteria specified in the regulatory framework that would allow the application of the in-house exception.
If the local government itself is involved in the provision of services, it is considered that the local government operates in the field of private law. On the other hand, in a situation when a local government transfers the performance of a waste management service to its capital company, applying the in-house principle and not organizing public procurement, it is considered that the local government provides the service itself, which means that Jelgava’s local government performs economic activities. As a result, the actions of Jelgava’s Municipality are subject to the prohibition of abuse of a dominant position.
In 2006, the Waste Management Law was amended, which stipulated that a local government may enter into an agreement with a waste manager only for a definite term - not shorter than three and no longer than five years. Thus, contracts concluded without applying or improperly applying regulatory enactments on public procurement must be terminated until 1 July 2013. Unfortunately, Jelgava’s Municipality did not take this transition period into account and, despite the amendments to the law, continued to use the in-house exception unreasonably even after 2013. As a result, the municipality used its dominant position and transferred the rights in the relevant market to Ltd. “Jelgavas komunālie pakalpojumi” for more than seven years after the amended contract term, thus excluding other potential municipal waste management service providers from the market, without allowing other market participants to offer their services.
Juris Gaiķis, the Chairman of the CC: “The Competition Council has been emphasizing competition problems in the field of waste management in Latvia for years. In July, a settlement was reached in a dispute with Riga, which produces almost half of Latvia's waste, but the recent decision reflects that there are problems in other Latvia’s cities that should not be ignored and need to be addressed. As a result of the actions of Jelgava’s Municipality, by permanently closing the municipal waste collection and transportation market, the residents could not receive a possibly higher quality and more efficient service, which can be obtained by choosing a service provider in the competition.”
Considering that the abuse of a dominant position, in this case, has manifested itself as an action of Jelgava’s Municipality, choosing a service provider in a way that does not comply with the regulatory framework – the CC imposes a fine of 51,123 euros on the municipality. Whereas Ltd. “Jelgavas komunālie pakalpojumi” would not be able to acquire a dominant position in the municipal waste collection and transportation market, thus no violation of the dominant position is visible at the disposal of the municipal company without the initiative of the local government and the decision to enter into a service agreement.