VISEGRAD: Competition Czech'd

By bne IntelliNews January 17, 2011

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The Czech Republic's shambolic approach to protecting competition reached its nadir in November 2009 when European Commission anti-trust officials launched a series of unprecedented dawn raids on the offices of the country's largest utility CEZ - only to be met by a scrum of local press who had obviously been tipped off by the local authorities.

Since then, there's been a growing debate within the Czech Republic about whether the regulator, the Office for the Protection of Competition (UOHS), in its current form is capable of fulfilling its duties of, as its website declares, "creating conditions that favour and protect competition, supervision over public procurement, and consultation and monitoring in relation to the provision of state aid."

The UOHS' shortcomings over the 20 years since the first competition law was enacted in the country were painfully laid out by a recent article in the trade publication Antitrust by the competition lawyer Robert Pelikan of the Prague-based law firm Vrana & Pelikan. In it, Pelikan stresses that it's not the laws but their application which is key. "The main point here is the application: if competition law is applied frequently, the area will flourish; if it is not, it will be useless to have competent experts because their research will remain merely theoretical."

Looking at the area of cartels, Pelikan shows that only three cartels have ever been found guilty of operating by the UOHS and two of those were uncovered by the press. "So in five years, the only secret cartel found by the office, bid-rigging by construction companies, was fined less than CZK5m (€198,000)," he says. "If you see the way business is done in this country, everybody knows there's more than three cartels."

This performance is even more embarrassing when set against what is happening elsewhere in Europe; the French authorities in 2009 alone uncovered 15 cartels, which resulted in fines of €206.6m (the Czechs found none that year). And this is not just an issue of developed versus emerging markets - even in neighbouring Slovakia, the authorities there uncovered seven cartels in 2009, and another 42 between 2005 and 2009. "If we leave out the possibility that the Czech Republic is an island of free competition in the middle of a European economy rotten with cartels, we can only conclude that the office has been failing in its most important task," Pelikan notes.

Robert Neruda, a one-time head of the economic competition section of the UOHS, pointed out during a debate on this subject hosted by the British Chamber of Commerce and Candole Partners in December that given France has an economy more than 10 times that of the Czech Republic, it should come as no surprise that the authorities there uncovered more cartels. And in the sphere of abusing a dominant market position, Neruda noted in 2009 the UK competition authorities didn't prove any company guilty of that, "and you're not trying to tell me that the UK doesn't protect competition."

The UOHS too in 2009 didn't succeed in finding any firms guilty of abusing their dominant market position; in fact, between 2005 and 2010, it has only succeeded in having five companies fined for abusing their dominant positions (with fines totalling CZK731m, or €29m), and agreed with proposed commitments in four other cases. By comparison, France had 19 companies fined, while Slovakia had 11.

Here the UOHS' failure is clearer, as a company abusing its dominant position is plain for most people to see. Take Telefonica O2's 80-90% share of the ADSL broadband market as an example; ADSL prices in the Czech Republic are among the highest in Europe, yet the Office has not (yet) taken any action. Even if, as Neruda claims, action is likely in 2011, one person at the BCC debate wryly noted that ADSL could be obsolete by the time the competition watchdog gets around to taking up the issue. "A decision from the Office takes years and I'm not sure why it takes years to do this - I've read the Office's briefs and to me it looks as though this has only taken a week to put together," says Pelikan.

Off with the head

Perhaps the biggest sign of the UOHS' decline has been the appointment of a politician with no experience in the field of competition to head up the office.

The current chairman is Petr Rafaj, a former member of parliament for the Social Democratic Party, who succeeded the respected Martin Pecina in July 2009. "The office must be led a strong personality with a vision, who will not be scared of party secretariats, and who will enjoy respect nationally as well as internationally. It must be someone long active in the field of competition, not a mining engineer or an electrician; a person, who really fulfils the requirement of article 1(4) of the Competition Office Statute, which sets out that 'membership of a political party is incompatible with the function of Office chairman'," argues Pelikan.

Neruda at the BCC debate tried to shrug off the controversy over the appointment of Rafaj, yet a competition lawyer at a major international law firm told bne after the debate that Neruda's true attitude toward this could be discerned from his resignation, as well as that of several other top officials, just months after Rafaj moved into his office. The reported reason for Neruda's departure was that Rafaj had vetoed his anti-corruption proposals.

Critics say putting an independent professional lawyer at the top of the UOHS would go some way to retaining and attracting the high-quality professionals that are needed to turn the office into a respected authority once again. "Moving it from Brno to Prague might also help," the lawyer added.

Jana Hays, a consultant at advisory firm Candole Partners, helped with this article.

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