Enough room for CCI in regulated sectors

Financial Express, October 29, 2011

By Pradeep S Mehta

An interim stay by the Delhi High Court, to the effect that the Competition Commission of India (CCI) does not have jurisdiction in cases relating to petroleum and gas, because of the existence of the Petroleum and Natural Gas Regulatory Board (PNGRB), not only stirred a hornet’s nest but also ignited a debate on the interface of CCI and sector regulators in India. The stay is out of sync as it totally ignored the inadequacy of the provisions of the PNGRB Act, 2006, in dealing with the alleged cartel conduct against public sector oil companies in the supply of aviation turbine fuel. The complaint was brought forward by Air India, another PSU.

In other jurisdictions, it has been well understood that the sector regulation laws are seldom adequate to deal with anti-competitive conduct, even though they have a remit to promote competition in their regulated sectors. Therefore, as in the above case, the distinction between promoting competition and checking anti-competitive behaviour has been mixed up as the same thing. They are not the same thing, and every branch of the government is required to promote competition, but it is only the CCI that is empowered to act against anti-competitive conduct. Currently, the only institution in India with a mandate to check such market abuses under the Competition Act, 2002, is the CCI. Therefore, it is incorrect to bar it from doing its job.

The interim stay comes at a time when there is enough evidence that abuse of dominance cases are numerous in regulated sectors compared to unregulated sectors. In a paper done in 2006, Maria Coppola Tineo and Russell Pittman of the US Federal Trade Commission demonstrated that it was actually in regulated sectors in central and eastern Europe between 1996 and 2001 that abuse of dominance was most prevalent; a sharp contrast to expectations, as one would have expected regulatory agencies to take action. These include sectors such as postal services, electricity, telecommunications, natural gas distribution and financial services. Similar patterns have also been noted in Latin America.

It is on this basis that competition authorities have descended harshly on abusive firms in regulated sectors, despite the presence of sector regulators. For example, Russia’s Federal Antimonopoly Service in August 2011, fined a local electricity company, Tyumenenergo, a total of 1.8 million roubles for imposing unfair conditions on a competitor, Suenko, which was trying to connect to Tyumenenergo’s electricity infrastructure. This was an interconnection issue, where the sector regulator is empowered to see that such problems do not arise, but it did not preclude the authority of the competition regulator to take action. There was no conflict and no court interference either. Several such examples in the energy sector exist around the world.

In the communications sector, competition authorities have also been kept busy by abusive firms. In August 2011, the National Competition Commission in Spain fined the country’s incumbent postal operator, Correos, a total of 4.8 million euros for failing to implement a commitment in an abuse of dominance case. In 2009, the Belgian Competition Council also found the historical telecom operator guilty of margin squeeze and imposed a fine of 66.3 million euros.

In some jurisdictions, such as Greece and UK, as an efficient way, sector regulators have been bestowed with the power to implement the competition law in their sectors. This was on the realisation that the competition law is the only legislation that can squarely deal with anti-competitive conduct, unlike sector-specific laws which focus on structural issues. In August 2007, for example, the Greek National Supervisory and Regulatory Authority for Telecommunications and Postal Services used the competition law to impose a fine of 20 million euros on the Hellenic Telecommunications Organisation for abuse of a dominant position under the prevailing Greek Competition Act. In UK, sector regulators in gas and electricity, water, telecommunications, railways and civil aviation are also empowered to implement the Competition Act, 1998, in their own sectors, without involving the competition agencies.

In India, sector regulators do not have the power to implement the Competition Act, 2002, the only legislation that comprehensively deals with competition issues. In fact, sector regulatory laws such as telecom and airports clearly define the jurisdiction of the CCI to deal with competition abuses, with an exception in electricity regulatory laws. This is an example of the policy incoherence that we have in abundance in India. Be that as it may, this makes it imperative that CCI should be called upon to deal with competition issues in all regulated sectors if competition is to be enhanced. However, for the effective handling of cases, it is also imperative that sector regulators should assist CCI in coming up with an informed position.

There are several ways in which sector regulators can assist CCI in its investigations. First, the sector regulator might ensure that in designing its compliance rules, the goals and objectives of competition are incorporated, which would help in containing anti-competitive practices. Second, sector regulators can also share their expertise on technical matters as well as information, particularly historic information on company performance and behaviour, which the sector regulator would be collecting over time. Third, the sector regulators can also monitor the behaviour of firms to ensure that the rulings by CCI are actively enforced, given that CCI might not be in the best position to monitor the behaviour of the regulated firms.

Thus, while the competition authority should be given room to ensure that the Competition Act, 2002, is fully enforced, there is also active room for sector regulators to play their part, which makes cooperation imperative. There is no basis for conflicts and turf wars as the field is big enough for both sets of regulators. The Competition Act has already provided room for such cooperation, given that under sections 21 and 21A of the Act, both CCI and the sector regulators are required to cooperate when it comes to dealing with issues that appear to have an impact on the jurisdiction of the other. Alas, the same is optional and, therefore, ineffective. To this, one can add the peculiar Indian dimensions of egos, and batch years of the retired bureaucrats who are heading the two bodies—a situation very peculiar to India. This was evident in the fight between Irda and Sebi in the Ulips case.

If enforcement of a competition law is not done in an inclusive manner, animosity can also result when the actions of the sector regulator are seen to be contributing to anti-competitive behaviour. In Russia, it was reported in August this year that Federal Antimonopoly Service had taken action against a sector regulator, the Federal Service for Veterinary and Phytosanitary Control (Rosselkhoznadzor). The competition authority found that Rosselkhoznadzor had violated the competition law through its policy on inspecting cargo carriers. It is hoped that such a situation will not develop in India, with CCI working in harmony with regulatory authorities.

Pradeep S Mehta Secretary General, CUTS International and Cornelius Dube of CUTS contributed to this article

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