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Competition Amendment Bill

Parliamentary Portfolio Committee on Trade and Industry Public Hearings

29 July 2008

Smunda Mokoena, CEO, NERSAEthèl Teljeur, Regulator Member for Piped Gas, NERSA

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Outline of presentation

• Sector and competition regulation: focus and goals• Evolution of jurisdiction of competition regulator over time• Potential conflict in energy and competition legislation• Principles of economic regulation• Clarification of roles of regulators• Concurrent jurisdiction and how it is exercised, including

Memoranda of Agreements (MOA’s) between regulators • Proposed approach to jurisdiction and concurrency• Co-operation of regulatory authorities• Proposed text on concurrency for Amendment Bill

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NERSA REGULATED INDUSTRIES AND LEGISLATION

Single, multi-sector regulator- National Regulator Act, 2004 (Act No. 40 of 2004)

• Electricity– Electricity Regulation Act, 2006 (Act No. 4 of 2006)

• Piped Gas– Gas Act, 2001 (Act No. 48 of 2001)

• Petroleum Pipelines– Petroleum Pipelines Act, 2003 (Act No. 60 of 2003)

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Proposed text for Amendment Bill• 3(3) In so far as this Act applies to any conduct arising within an industry

or sector of an industry that is subject to the jurisdiction of another regulatory authority in terms of any other legislation—

• (a) this Act, and that other legislation, must be construed as establishing concurrent jurisdiction in respect of any such

conduct that is regulated in terms of both these Acts, subject to paragraphs (b), (c) and (d);

• (b) the manner in which any concurrent jurisdiction contemplated in paragraph (a) is to be exercised, must be determined by an

agreement between the Competition Authorities and that other regulatory authority, as provided for in sections 21(1)(h) and 82(1);

• (c) any agreement as contemplated in paragraph (b) must be promulgated by the Minister as Regulations and must be published by notice in the Government Gazette; and

• (d) to the extent that any agreement as contemplated in paragraph (b) does not resolve any conflict or

inconsistency between— (i) this Act; and (ii) other national legislation, such agreement must be amended to resolve the conflict or

inconsistency.

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Regulation

1. Sector regulation• Economic regulation of monopolies or near monopolies• Ex ante: setting market structure, limit effects of market power• Ex post – compliance and enforcement functions, for example of Licence

Conditions• Often market has to be established/created (e.g. Mozambican gas pipeline;

Petroline pipeline – licensing of competition)• Prices mimicking competitive outcomes where no competition exist between

firms2. Competition regulation• Regulates competition in markets, reduces market power• Ex post: behaviour of firms in markets

Sector regulation should be pro-competition, where possible– Energy policy and legislation explicitly is

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Jurisdiction: Sector regulators and Competition authorities

• Evolution of issue over time– First: Competition Authorities have no jurisdiction over sector

matters (clearly unbalanced approach and had to be amended)– Then: concurrency of jurisdiction (risk of forum-shopping)– Now proposed in Bill: Competition legislation prevails

• Topical example– Competition Authorities and ICASA– Electronic Communications Act, 2005 (ECA) – made competition

legislation subject to ECA

• Policy debate required in appropriate forum to resolve conflicts

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Potential overlap in legislation

NERSA Acts (Electricity, Piped Gas and Petroleum Pipelines)

Competition Act

Refusal of third party access to facilities (pipelines, storage, etc)- various provisions of Acts/

Regulations

▪ Refusal of access to an essential facility (Section 8(b))

▪ Refusal to supply scarce goods to a competitor (Section 8(d)(ii))

Price regulation (including tariff setting and monitoring)

- various provisions of Acts/

Regulations

▪ Charging of an excessive price (Section 8(a))

▪ Selling below marginal/average variable costs (Section 8(d)(iv))

Price discrimination - various provisions of Acts/

Regulations

Price discrimination by dominant firm

(Section 9)

Cross subsidisation (vertical integrated companies)- various provisions of Acts/

Regulations

Tying of unrelated goods or services

(Section 8(d)(iii))

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Economic regulationElectricity Regulation Act• Aimed at regulating monopoly/ies • Electricity prices approved by NERSA• Efficient producer recoups investment and makes reasonable

profit• E.g. Eskom tariff: transparent and based on sector analysis• Competition challenge → undermines this processPetroleum Pipelines Act• Tariffs must enable the licensee to –

– recover the investment– operate and maintain the system– Make a profit commensurate with the risk

• Various provisions regarding non-discrimination• Competition challenge: based on different legislation, weakens

enforcement of energy legislation

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• Manner in which concurrency is exercised is determined by Memorandum of Agreement (MOA) between Competition Commission and sector regulators (clause 3(3)(b) of Bill)

• Clause 3(3)(c) of Bill problematic– Gives Competition Act prevalence over sector legislation if

unresolved conflict or inconsistency between Acts– No level playing field between regulators in MOA negotiation

• Competition Authorities “win” if MOA’s are ambiguous, but perhaps at the expense of public interest

– Bigger picture → Government has many objectives, including strategic sector objectives, for example ‘security of supply’

• Sector regulators and competition authorities take decisions ‘in the public interest’

• Concurrency is an opportunity for cooperation to take the best possible regulatory decisions

Concurrency

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• Legal status of MOA’s questionableProposal:

• MOA’s must be promulgated by Minister as Regulations• Publication by Notice in Government Gazette (transparency)

• Competition Tribunal not party to MOA– Forum shopping: practical dilemma; procedural nightmare– Complainants can refer cases directly to Competition Tribunal if

Competition Commission decides not to refer – Complainants can ask Competition Tribunal for Interim Relief– Complainants get second bite at cherry → Tribunal cannot ignore

legal obligation to hear these mattersProposal:

• Competition Tribunal must be party to MOA’s• Linked to clarification of roles

Memoranda of Agreements (MOA’s)

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Proposed approach• Clarification of roles needed

– Clearly assigned roles required• Where no sector legislation exists→ competition law to apply• Where specific sector mandate/functions, e.g. price

regulation and access to facilities → sector law to apply• Other situations → double hurdle principle respected:

translated into MOA

• No ceding of responsibility• Co-operation by authorities encouraged

– Common goal, i.e. public interest• Constructive relationship

– Joint teams – Complementary skills, technical sector expertise and

competition analysis (for example merger analysis)

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Proposed approach (continued)

• If conflict → dispute resolution mechanism

(“concurrency resolution mechanism”)• Key issues: neutrality and level playing field of

regulators in negotiations/dispute resolution• Thorough assessment of which authority is best

placed to address issue –– considering expertise in a specific sector/issue; and – legal framework in which each authority operates

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Proposed text for Amendment Bill• 3(3) In so far as this Act applies to any conduct arising within an industry

or sector of an industry that is subject to the jurisdiction of another regulatory authority in terms of any other legislation—

• (a) this Act, and that other legislation, must be construed as establishing concurrent jurisdiction in respect of any such conduct that is regulated in terms of both these Acts, subject to paragraphs (b), (c) and (d);

• (b) the manner in which any concurrent jurisdiction contemplated in paragraph (a) is to be exercised, must be determined by an agreement between the Competition Authorities and that other regulatory authority, as provided for in sections 21(1)(h) and 82(1);

• (c) any agreement as contemplated in paragraph (b) must be promulgated by the Minister as Regulations and must be published by notice in the Government Gazette; and

• (d) to the extent that any agreement as contemplated in paragraph (b does not resolve any conflict or inconsistency between— (i) this Act; and (ii) other national legislation, such agreement must be amended to resolve the conflict or inconsistency.

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Thank you