In 2020, majority of public administrative bodies pursuant to Section 88 of the State Administration Structure Law (the SASL) are obliged to carry out assessment, whether their involvement in commercial activity through their owned capital companies is legally and economically justified. Since the assessment provides for the necessity to receive a conclusion of the Competition Council of Latvia (the CC), the authority developed a self-assessment tool, in order to support public administrative bodies to make re-assessment of their participation in a capital company.
According to SASL a public administrative body – the state or a local government – may engage in commercial activity for efficient performance of its functions, establishing own capital company, obtaining participation in an existing capital company, retaining such participation or extending the commercial activity of capital company. However, in all the aforesaid instances a public administrative body has an obligation to carry out assessment and gain approval of the fact that otherwise it is impossible to efficiently eliminate the existing market deficiency, i.e., to entrust provision of products and services to private entrepreneurs, to create products or services, or manage properties that are strategically significant for development of the administrative territory of the state or local government, or the state security.
To eliminate risks of public administrative body groundlessly engaging in commercial activity and causing competition distortion by such action, making difficult or even impossible for private merchants to operate on the market, public administrative bodies have to carry out assessment of planned activities when establishing new capital companies or re-assessing their participation in the existing capital companies. Such an assessment, including evaluation of the impact on competition, shall be carried out at least once every five years. Majority of public administrative bodies have carried out their last assessment in late 2015.
The aim of this self-assessment tool is to promote easy and convenient legal and economic assessment of the economic activity for public administrative bodies. This assessment covers all most essential aspects and risks that a public administrative body shall definitely pay attention to, thus doing its homework and obtaining all the necessary information before the decision-making on establishment of capital company or retaining participation in a capital company.
Jānis Račko, the Acting Chairperson of the Competition Council “Unjustified engagement of public administrative body or its capital company in commercial activity, which is implemented without due legal and economic assessment, can have negative impact on competition, for example, lowering the motivation and entrepreneurship possibilities of private merchants. Consequently, if following the use of this self-assessment tool a public administrative body does not gain confidence that participation in a capital company or extending of commercial activity is justified, the CC calls to refrain from retaining participation in the capital company.”