State-created monopolies Break-out session ICN 6 th Annual Conference 30th May 2007, Moscow

Outline Definition of SCM and SCM dominance assessment Objectives/reasons for creating and maintaining monopolies by the state Competition law application/ regulation of SCMs Privatization/liberalization of SCMs Discussion of the guidance paper competition law enforcement, regulation privatization and liberalization of SCMs Suggestions for future work

How do you recognize SCM? Definition/assessment of SCM dominance Definition: SCM is a government or private company entitled for exclusive operation in the market defined by the national law (excluding telecoms, energy, water, and railway sectors in this study)  Are there any other meanings/understandings of the term state created monopoly? Are SCMs nation-wide or local in your country? Assessment of SCM dominance: the jurisdictions that responded to SCM questionnaire were unanimous in applying the same dominance assessment techniques to SCMs as to private non- regulated companies.  Is there any jurisdiction that follows a different approach?  If so, what is it?

TOPIC 1: Objectives/reasons for creating and maintaining monopolies by the state In what sector(s) did your national government intentionally create monopoly? What are the reasons for it? What objectives are being pursued?

TOPIC 2 Competition law application/ regulation of SCMs Two ways of regulating SCMs reported by jurisdictions surveyed are i. Application of competition law ii. State action defense Which of these ways are used in your country? Do you view them as mutually exclusive or complementary? Why? How can the SCM customer be protected in your country? By competition law or/and other means? What behavioral constraints are applied to SCMs in your country in the absence of competitive constraints (primarily in terms of price/quality of service rendered)? How does your government ensure efficiency of SCMs in terms of cost and quality? Are there any means that are alternative to competitive constraints or quasi competitive, e.g. referring the costs to competitive benchmark?

TOPIC 3 Privatization and liberalization of SCMs What markets did your government liberalize recently? In what form this has been done (e.g. privatization, removing monopoly privileges for the private incumbents etc.)? How did your country ensure competition in formerly liberalized markets? What analytical considerations and techniques were used for it? What was/is the role of your national competition authority in privatization and liberalization process? At what stage of this process did your national competition authority intervene?

Guidance Paper Proposition 1: In creating and maintaining SCMs there are two major approaches to treatment of state-created monopolies: applying same competition rules as to other dominant firms, or “state action defense” excluding the state created monopoly from the application of competition rules. In this case, efficiency considerations should be taken into account. The choice of the approach depends on priority assigned by the country to competition and other social values underlying the creation of the monopoly in a specific sector. Proposition 2: Standard dominance assessment techniques should be applied to both SCMs and private companies

Guidance Paper Proposition 3: In liberalizing/privatizing SCMs, competition considerations should be taken into consideration from the very beginning As part of their advocacy role, competition authority should:  Have efficient advocacy means and/or decision making power during the liberalization/privatization role  Participate in planning of the liberalization/privatization process  Possess effective advocacy instruments to carry out successful advocacy work: reports, opinions etc.  Try to convince relevant authorities to insert competitive elements into the liberalization/privatization process  Use of merger control powers even in the absence of any advocacy role at the enforcement stage

Future work Do you think that the Unilateral Conduct Working Group should develop a guidance paper over the next year of the State-created Monopolies Project during the year ? What do you think about the discussion draft ? Would you like to see more detail or would you like to have something more brief? In particular, should the Working Group develop more detailed guidance on how to assist jurisdictions in playing a greater advocacy role during the liberalization/privatization process? Which of the issues addressed above should not be included? Which additional issues should the guidance document address? What other work should state-created monopolies project carry out?