19th July 2007
COMPETITION ON ENERGY MARKETS ( morning session)
This session opened with the presentation by the UNCTAD secretariat. It explained that a lot of countries have introduced reforms in their energy markets but that this process has not yet been completed. The result of this is a large variety of market structures.
The standard package of reforms proposed by UNCTAD is unbundling, privatization, wholesale competition, retail competition, and regulated or negotiated third party access in transmission and distribution (electricity) or transportation and storage (gas). These reforms are generally more successful in developed countries.
The rules applied to energy markets are specific due to the high risk of creating a post-liberalization monopoly. This complexity is further enhanced by the lack of a model market. Indeed, successful experiences are not automatically transferable.
The moderator then talked about the benefits of competition in energy markets, challenging the idea that a monopoly leads to energy security. He therefore recommends administrative incentives to open up national markets. He finally took the example of Italy, which installed electronic meters that allow different pricing during the day.
Portugal shared its experiences of liberalizing its energy market. Several companies are now providing electricity in the country but there is still only one stock holder. The result has been a reduction of prices for the consumers. It emphasized the importance of an independent sector regulator. Its future objectives are integration with the Spanish energy market and a convergence between their respective regulatory frameworks, though further investment is still needed.
Brazil also explained its new legal framework for the gas industry that aims to create a competitive environment to attract investors. It consists of:
1) Limitations on vertical integration : no single company can operate on all segments of the market
2) Access rules for the gas pipeline transportation sector to avoid abuse of economic power of a transporter: pipelines can be used by more than one gas provider if they express a desire to do so before the pipeline is built, and make an agreement with the transporter regarding fees. Public appeals would be used to identify the demand of providers, needs that are then met by the transporters with the building of the pipeline. With this system, the financial risk of building the pipeline is eliminated because the providers commit themselves to acquire transporting rights.
3) no discriminatory access for storage
The European Commission gave a detailed presentation on the creation of the single European energy market. For this purpose, the first directives ended legal monopolies in the national electricity and gas sectors and guaranteed third party access. Finally, these directives had an unbundling provision that obliged the vertically integrated company to separate their different activities. In 2003, a new set of directives introduced fixed tariffs and national regulatory authorities for energy markets.
However, while progress has been made, the objectives of opening the market have not yet been achieved and significant rises in gas and electricity prices have occurred.
A study ordered by the European Commission, the Sector Inquiry, found that the difficulties encountered in the liberalization of the gas and electricity market come from the nature of these markets. Indeed, they remain national in scope and highly prone to the creation of monopolies. According to this study, the main problems are market concentration, vertical foreclosure and a lack of market integration (no access to cross border transmission lines and transit pipelines). This can be solved by reinforcing the current level of unbundling, strengthening the regulatory environment and by finding a solution to the chronic lack of liquidity and transparency in market operations.
AFTERNOON SESSION
This meeting was a roundtable on the assessment of competition authorities’ effectiveness. The chairman was Mr Eduardo Perez Motta, from the competition agency of Mexico (Comisiòn federal de competencia). He announced that the discussion would mainly focus on the necessity of a competition policy assessment and to know if competition rules are respected by the whole stakeholders (enterprises, public sector…).
Then, the floor was given to countries which contributed to drawing up the report.
First, the secretariat of OECD welcomed the fact that since the first roundtable in 2005, much progress has been made in this area. Nevertheless, she deplored that many studies only focused on cases of mergers and do not give a complete panorama on what is missing in the field of competition.
Afterwards, the delegate of Korea talked about competition authorities in his country which are composed of many stakeholders (lawyers, accountants…). He added that the activity of the authority depended on the market features and that Korea had hardened the legislation against cartels.
The French representative expressed that his country currently has three kinds of assessment tools:
- Surveys carried out close to consumers and enterprises on the competition policy effectiveness. Outcomes permitted to know the weakest sectors in the competition field.
- Competition indicators set up by the budget ministry. The competition agency (Conseil de la concurrence) has to follow these indictors for all sectors and not only those reputed to be obviously uncompetitive.
- Competition indicators more strict concerning mergers and concentrations.
Thereafter, the Brazil’s delegate said that his government adopted a competition policy system at the level of decisions on mergers. The previous system, featured by a downstream action, led to an increase of fines for abusive mergers. But, this policy faced two problems: most of the fines were not paid (currently, less of 5 % of fines are effectively paid), and this solution is not restrictive enough
These drawbacks lead to the adoption of upstream actions, which allow the Brazilian competition authority, CADE (Conselho Administrativo de defesa economica) to act against merger decisions. This policy led to an increase of judicial suits initiated against CADE’s decisions and an increase of collection law suits initiated by CADE and administrative fines collection procedures initiated since 2002.
The delegate of India was the last speaker. He said that a study, carried out by an Indian institute, made detailed recommendations taking into account OECD’s remarks. The specificity of this study is that it has been done backwards. Indeed, these recommendations started from the outcomes obtained (price-cutting after cartel “demolition”) and go back to the origins in order to know which measures has been taken to reach these results (judicial suits…).
This study is still being considered and will provide valuable information.
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