Tailoring competition laws for state-owned enterprises

Feb 17 2014, 00:35 IST
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SummaryGovernment enterprises are often shackled in their decision-making but may enjoy monopolies as well. Competition laws need to consider both conditions

On December 9, 2013, the Competition Commission of India levied a fine of Rs 1,773 crore on Coal India Ltd, a state-owned enterprise (SOE), for abuse of dominance in the fuel-supply services market, and also recommended that it should be broken up. Although CCI has slapped heavy fines on other firms since it started operating, this was its first major penalty on an SOE. 

SOEs operate under the protection of the state. Hence, they are complacent about how they go about their business without respecting market principles. The mindset stems from the old adage that the ‘king can do no wrong’. In fact, SOEs were exempt under the old competition law, the Monopolies and Restrictive Trade Practices Act, 1969, until 1991, when reforms were launched. The message was loud and clear—that the law will not be preferential of SOEs henceforth. SOEs performing sovereign functions, such as currency production, space, etc, are albeit exempted.

SOEs occupy a large space in many economies, including India, but modern competition laws are applicable to them equally. China, with the largest number of SOEs in the world, too makes no exemptions.

Early this year, China’s State Administration for Industry and Commerce (one of the three competition authorities in the country) fined the state-owned water company, Yiyuan Fresh Water Company, 3.2 million renminbi (388,000 euros) for abuse of its monopoly position. The company was engaged in tied selling, where it was bundling its water supply services with the construction of water meters and pipes.

During the same period, Poland’s Office of Competition and Consumer Protection (UOKiK) fined the country's National Health Fund 361,000 zloty (86,000 euros) for abuse of dominance. The health agency managing the funding for all state medical services was found to have set unfair criteria in two separate government contracts.Many other examples can be found across the world.

Section 4 of the Competition Act, 2002, of India prohibits all enterprises from abusing dominant positions. The ambit of this provision extends to enterprises and departments of the government, as long as they are engaged in the production, storage, supply and distribution of goods or services in a commercial manner.

The harm to consumers in terms of overpricing is even more pronounced for state-owned enterprises, as they are mostly licenced monopolies in their own markets. Some SOEs simultaneously carry out activities in areas where they face competition with the private sector while operating in others where

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