The Competition Council of Latvia (the CC) has concluded negotiation procedure with the local government’s (municipality’s) owned SIA Aizkraukles ūdens on its alleged abuse of market power. Thus, the CC highlights that unjustified local governments’ involvement in private sector business is not permissible and therefore all local governments should assess their necessity to engage in commercial activities, therefore preventing possible risks to competition distortion.
Due to the negotiation process, the CC prevented SIA Aizkraukles ūdens from using its dominant position in the market for installation and sealing of water meters in apartments by having unjustified privileges. The company had included anticompetitive terms within its agreements with clients denying opportunities to other persons carry out the installation and sealing of water meters. Thus, unjustified competition restrictions to private sector businesses were made.
The CC also found that the local government of Aizkraukle had issued an instruction explaining following procedure – if installation of water meters is carried out by other person, sealing must be done in presence of SIA Aizkraukles ūdens only. Information on the procedure also was published on the website of the local government.
After assessing regulatory framework of the industry, the CC concludes that installation of water meters can be carried out by any person both natural and legal that provides such services, while property owner is free to seek the service provider of his choice.
The CC launched the negotiation procedure as an alternative solution to formal case investigation with intention to prevent competition distortion in less time-consuming manner. During the procedure SIA Aizkraukles ūdens changed restrictive contract terms and corrected information published on the local government’s website, while the local government corrected the instruction. Thus, adjustments were made to ensure that unjustified competition advantages were removed from SIA Aizkraukles ūdens.
Mr Jānis Račko, the Council Member of the CC, says: “Competition restrictions created by local governments more often come in sight of the Competition Council. Local governments must be responsible and act in accordance with principles of good governance to ensure competitive neutrality. By granting competition advantages to municipally owned companies, local governments create uneven-playing field causing significant damage to private sector companies and consumers that are permitted to buy goods and services of fair competition.”
According to opinion by the OECD on competitive neutrality, companies owned by administrative bodies must be under the same regulation as private sector. The CC points out that this is the fourth case within a short period of time when the authority finds competition restrictions created by local governments or companies owned by them in the market of installation and sealing of water meters in apartments.
To avert unjustified competition restrictions created by local governments or companies owned by them the CC invites all local governments to assess the necessity to engage in commercial activities. Furthermore, it is an obligation for local governments to keep track on whether their companies carry out their activities in accordance with the Competition Law and level the playing field to all market participants.
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