In honour of the World Competition Day, on 15 December, the Competition Council (the CC) organized a round table discussion with cooperation partners on the involvement of the state and local governments in business and the neutrality of competition in the activities of public administrative bodies. The purpose of the discussion was to discuss the main issues related to the involvement of the state and local governments in business, whether the current legal framework is sufficient, what sectors should pay more attention in the future and what the Competition Council and other partners can do more and better in order to improve the competitive environment.
Distortions of competition caused by public administrative bodies are a significant problem of the competitive environment in Latvia - this is confirmed by both the practice of the CC and the results of a public opinion poll. Thus, for example, the public opinion poll conducted by the CC in 2018 revealed that the most significant problems in the competitive environment in Latvia are 1) cartels or prohibited agreements in procurements and 2) distortions of competition caused by public administrative bodies. Similarly, in 2020, a public opinion poll conducted by the Latvian Chamber of Commerce and Industry (LCCI) concluded that public support for the view that the private sector better manages companies in Latvia than the public sector has increased over the past three years. This is the opinion of 52 % of the public. The study also shows that the number of Latvians who believe it is necessary to precisely define the markets in which local governments may set up their own companies is growing. Overall, 72 % of respondents agree that the allowable business sectors should be defined more precisely. Taking into account the ambiguous attitude of the society regarding the involvement of the state and local government in business, complaints received by the CC about possible violations of public administrative bodies on competition and the fact that the Competition Law has been amended since 2020, which allows the CC to address violations caused by public administrative bodies, this discussion can serve as a successful basis for identifying key industry challenges with partners and discussing how best to address them.
Involvement of the state and local governments in business (Article 88 of the VPIL)
Prior to the discussion, the CC conducted an express public opinion poll, which revealed that 38 % of those working in the private sector evaluate the involvement of public administrative bodies and their capital companies in the business as positive or rather positive. On the other hand, those working in the public sector are more optimistic - about 60 % of the involvement of the state and local governments in entrepreneurship is assessed positively or rather positively.
In the survey, the respondents most often indicated that the involvement of the municipality or the state in commercial activities should be supported only in cases where there is a market failure or in relation to the supply of critical services (for example, water supply, heating).
The sectors in which the involvement of the state and local governments in commercial activities would be assessed as unjustified are, in the opinion of the respondents, the sector of real estate management, production and trade, waste management, tourism. Respondents also pointed to the security, forest management, public transport, and culture sectors. Opinions differed on health care, with some arguing that services in this sector could be provided by private operators, while others felt that public sector involvement was needed.
In order for a public administrative body to be able to operate in the market through a capital company owned by it, it must reassess its shareholding in the capital company every five years, which also includes an assessment of the competition. The revaluation of participation takes place in accordance with Article 88 of the State Administration Structure Law. In 2020, the CC issued a total of 70 opinions on the evaluation of the participation of public administrative bodies in the capital company, and at the end of 2021 the number of opinions issued could be equal.
To promote the understanding of public administrative bodies about the revaluation of participation in a capital company and to facilitate the performance of revaluation, in 2020 the CC prepared explanatory guidelines and a self-assessment tool.
Competitive neutrality in the activities of public persons (Article 14.1 of the Competition Law)
As it is known, from 2020, the CC has broader powers to address competition distortions caused by public administrative bodies, including, if necessary, penalties that may be imposed in cases of possible violations of the CC.
The CC may punish public administrative bodies for creating unreasonable restrictions on competition, for example, if they:
- discriminate market participants, creating unequal competition conditions;
- create advantages for capital companies directly or indirectly influenced by a public administrative body;
- implement activities, as a result of which other market participants are forced to leave the market or which burden entering or operating on the market by the potential companies.
So far, the CC has ensured a successful solution to the problems within the negotiations without having to initiate a formal case. This is important because the Competition Law stipulates that initially the infringement must be remedied through negotiations, and if this fails, the CC is entitled to penalize the public company owned by public administrative body.
The participants of the discussion considered the regulation of competitive neutrality as an effective tool to address distortions of competition in a preventive, fast and efficient manner, if necessary. In the discussion, also an opinion was expressed that it is important not to slow down the development of the country in innovations and opportunities in export markets with the idea of implementing competitive neutrality, which, for example, may also exist for state owned capital companies.
The participants of the discussion concluded that the problematic areas that need to be addressed not only in the context of competitive neutrality, but also in the context of neutral regulation and operation of public administrative bodies and their companies are waste management, port reform, equal access to European Union funds for both public and private companies.
The following people took part in discussion with the representatives of the CC:
- Jānis Endziņš, chairman of the Board of the Latvian Chamber of Commerce and Industry (LCCI),
- Zane Norenberga, representative of the Employer’s' Confederation of Latvia (LDDK) and Ilona Kiukucāne, deputy director general,
- Māris Butāns, a representative of FICIL or the Foreign Investors' Council,
- Viesturs Razumovskis, director of the Local Governments Department of the Ministry of Environmental Protection and Regional Development of the Republic of Latvia,
- Pēteris Vilks, head of the Cross-Sectoral Coordination Centre of the Republic of Latvia,
- At the event public administrative bodies were represented by Andra Feldmane, business adviser of the Latvian Association of Local and Regional Governments,
- Viktors Valainis, executive director of The Latvian Association of Large Cities and
- Raivis Ragainis, chairman of Jēkabpils District Council.