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The CC proposes to open the vehicle technical condition control market for competition

During market supervision in the area of state technical inspection of vehicles, the Competition Council of Latvia (the CC) detected, that the state groundlessly restricts possibilities of the private sector to provide one of the components of technical inspection – control of technical condition of vehicles. The CC warns, that by groundless restriction of the market development Latvia may infringe legislation of the European Union (the EU).

The basic service of technical inspection is control of technical condition of vehicle. Technical inspection also involves an obligation to implement supervision of settlement of fines and taxes, term of validity and restrictions applied on driver's licence, etc., which is considered as a state function. Having become acquainted with the market situation and based on study of experience of other countries, the CC concluded, that the state groundlessly prevents private companies from engaging into the vehicle technical condition control market for inspection of technical readiness of vehicles to participate in road traffic.

What is the technical condition control system in Latvia like, and what are the risks caused by this system

Implementation of the control of technical condition of vehicles in Latvia is entruested to VAS “Ceļu satiksmes drošības direkcija” (CSDD), which also has accredited four companies for provision of these services, CSDD being a holder of capital shares and implementing control over these companies. It was detected, that these companies hold a collective dominant position together with CSDD.

Considering the double role of CSDD – cooperation with four companies and concurrent operation on the vehicle technical condition control market – the CC points to several significant aspects that restrict competition and cause significant risks for future development of the market. Namely, while deciding on entering the market by potential competitors, CSDD cannot act impartially and neutrally, because it has financial interest to protect economic activity of companies partially owned by the Directorate and restrict entering of the market by other companies.

The CC reminds, that the state and local governments are allowed to participate in entrepreneurship only in separate cases, including if the private sector is unable to ensure provision of services, i.e., market imperfection is observed. The CC detected during the supervision process that, compared to other EU Member States, where the technical condition control market is opened for free competition, the provided service is not specific in Latvia. Moreover, approximately 60% of service station surveyed by the CC showed interest and sufficiency of knowledge to enter this market. Consequently, the state involvement in the technical condition control market is considered as being groundless.

The CC concluded, that restrictions for companies to enter this market are reasonably more significant than stipulated by minimum requirements of the EU. After analysis of examples of other countries, the CC came to a conclusion, that the Latvian system model and restrictions contained by this model groundlessly exceed the level required for ensuring road traffic safety, it cause harm to consumers and close the market for the private sector.

What is the negative impact of the system on competition

The groundless restrictions imposed by the state result in significant competition advantages for the existing market players, at the same time substantially distorting competition and preventing market development.

The CC indicates, that operation of CSDD is based on guidelines adopted by the Ministry of Transport (MoT), the conditions of which are not proportionate and make involvement of new market players actually impossible. If establishment of new inspection stations would be considered, advantages are guaranteed particularly to CSDD and its accredited companies, instead of equal possibilities to all market participants.

The competition is negatively affected also by the fact, that the accredited companies do not mutually compete for customers, because each of them is assigned a particular territory, where they provide their services. As a result, caused consequences are equivalent to one of the most severe competition infringements – market allocation. This, in its turn, limits possibilities of consumers for free choice of service provider.

At the same time, the accredited companies are protected from competition pressure, because automatic extension of agreement with CSDD is guaranteed. Thus, neither these companies, nor new market participants can compete for provision of their services at the particular stations during the next agreement period, completely excluding any competition possibilities.

What is the negative impact of the system on consumers

The competition restrictions created by the existing system model negatively influence the direct recipients of services – consumers.

The CC points out, that only in free competition conditions consumers can be expect prices that are competitive and reflect the actual market situation. Whereas in conditions of closed market in the course of the last ten years the costs of consumers for technical control of vehicles have increased by 50 – 60%. Compared to other EU Member States, these costs in Latvia are among the highest in the EU and the highest in the Baltic states.

In addition, availability of the service is significantly limited for consumers. More than 700 thousand vehicles are registered in Latvia, out of which 30% are located in Riga with only one technical inspection station, which is on average 20 times less than in open market conditions. The CC indicates – considering, that CSDD decides on the number and location of stations, availability of the service is restricted for consumers, and it does not correspond to the demand. Moreover, high service prices and low availability cause other costs for consumers, for example, in a form of time consumption.

The experience of other countries show, that in open market consumers can choose the most suitable service provider in terms of price and availability, and to receive additional services, which are included in the price, for example, free repeated technical control, vehicle washing, flexible working hours etc. Latvian consumers are prevented from receiving various competition-driven benefits.

Open technical control market in Latvia – further action

To eliminate groundless intervention by the state in the technical condition control market, prevent competition restrictions and negative impact on consumers, the CC calls to open this market for free competition. The authority offers as the most optimal system for the particular market, that the state preserves the accreditation and supervision function of companies, entrusting the service provision function to the private sector – service stations and repair workshops –, which could simultaneously identify and eliminate technical defects of vehicles, and carry out technical control.

The CC denies assumptions, that road traffic safety would deteriorate under the conditions of open market. Experience of other EU Member States and practice of EU Court of Justice confirm, that safety on roads does not depend on the market model. Road safety is promoted by introduction and monitoring of efficient state supervision mechanism.

The CC indicates, that the operational policy applied by CSDD, which is included in the guidelines of the MoT, is in conflict with EU legislation and contains features of violation of the Treaty on the Functioning of the European Union (TFEU) – abuse of dominant position. To ensure compliance of Latvia with EU laws and establish conditions of free and fair competition, the CC has sent a letter to the MoT with a request to submit the necessary action and measures plan until 1 October of this year.  In case of failure to fulfil this request, the CC is entitled to initiate a violation case on violation of section 102 of the TFEU in activities of CSDD.