South Asia Watch on Trade, Economics & Environment (SAWTEE)

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Competition and sectoral regulators
Published: The Kathmandu Post, 2 April 2004
By: Ratnakar Adhikari

The Ministry of Industry, Commerce and Supplies (MoICS) is busy preparing the draft competition law for Nepal. Certain section of civil society organisations (CSOs) and business chambers had played critical roles in convincing the government to enact competition law in the context of the economic reform measures initiated by the government. Further, two interrelated events that took place in the current fiscal year provided a major push for the enactment of competition law.

First, the Finance Minister expressed his commitment to enact competition law during his budget speech for the ongoing fiscal year by January 2004. Secondly, while submitting the Legislative Action Plan (LAP) to the World Trade Organisation (WTO), as a part of Nepal’s Protocol of Accession, MoICS made a commitment to enact competition law by July 2004. However, there is a considerable lack of inter-ministerial coordination as is evident from the differing deadlines provided by different ministries to enact competition law, which is not something new for an illegitimate government like the present one. However, the purpose of this column is not to delve into this oft-repeated issue but to provide some information to the drafters of the competition law and other stakeholders on how to interface competition law with the issue of sector specific regulation to engage them in constructive debate on how to proceed ahead.

Despite massive changes in technology and economic reform measures, several segments of infrastructure and utilities sectors in a least developed country (LDC) like Nepal will remain in the form of natural monopolies. This is not only because of the limited size of markets, but also because of the lack of entrepreneurial zeal to take up risky investments in sectors with high gestation periods. Moreover, despite inclusion of certain services under the jurisdiction of competition commission, the role of sectoral regulators cannot be negated in certain sectors such as banking or insurance.

Furthermore, competition agencies, which are responsible for implementing competition law, do not have the required competence to deal with such complex issues as redistributive policy (through cross-subsidisation) and universal service obligations. Therefore, sector-specific regulators will continue to play a major role to ensure that natural monopolies do not abuse their position in the market, and make optimal arrangement for the supply of public goods, for which they are created.

In Nepal, we have different types of sector specific regulators in the country, whatever might be their level of effectiveness in terms of promoting competition within their sectors. While we have Nepal Telecommunications Authority (NTA) to regulate the telecommunications sector, we have Civil Aviation Authority of Nepal (CAAN) to regulate the air travel sector. While we have Nepal Rastra Bank to regulate the banks and financial sectors, we have Beema Samiti to regulate the insurance sector. Likewise, we also have Security Exchange Board to regulate the stock exchange sector. The list goes on.

In a dynamic setting, the task of sectoral regulators becomes challenging, not least because they cannot merely focus on maintaining a price cap. However, most of these regulators seem to have forgotten their major responsibility, i.e., to promote healthy competition in their sectors in order to provide benefits to the consumers and enhance the efficiency of the enterprises/institutions they are supposed to regulate.

Lack of clear cut demarcation of roles leads to conflict between competition agency and sectoral regulators. Therefore, the drafters of competition law in most countries are found to have confronted with two major challenges. First, to devise a mechanism to manage conflict between the competition agency and sector specific regulators, and second, to ensure that sectoral regulators are also brought upto speed to help them instill competition in the sectors under their jurisdiction.

One of the responsibilities of the sectoral regulators, as mentioned above, is to maintain price cap regulation in the sectors under their jurisdiction – an activity that impinges on competition. While simultaneous jurisdiction is not uncommon even in developed countries, this is a source of tension in most developing countries and LDCs because of a lack of clear cut demarcation of authorities and responsibilities.

Some degree of tension has already surfaced in a number of countries. It is necessary to look at the nature of conflicts in select developing countries and LDCs to ensure that a proper coordination mechanism is devised at the time of drafting the competition law so as to avoid conflicts when they do occur.

In Zambia, for example, clear overlap exists between the tasks of the Zambian Competition Commission (ZCC) and the Securities Exchange Commission (SEC). In a case where ZCC required the shares of the acquired entity to be floated in the stock exchange in order to prevent the concentration of stock in the hands of the acquirer, the SEC allowed the acquirer to offer the share to the minority shareholders. Although this resulted in the acquirer having total control over the company with negative implications for competition, ZCC could not prevent this as SEC’s decision prevailed.

The case of Tanzania is interesting as the sector-specific regulation was initially under the purview of the competition authority. Subsequently, some other sector-specific regulatory authorities were created. The conflicts between the competition authority and the Tanzania Communication Commission (TCC) became obvious when the former filed a complaint against the latter for permitting dominance of two cell phone companies (Mobile and Tritel) in the country. The TCC had to provide detailed explanations for its conduct and subsequently registered other cell phone providers, e.g., Vodaphone.

In Sri Lanka too, there is a considerable overlap of power and jurisdiction between FTC on the one hand and Telecom Regulatory Commission (TRC) and National Transportation Commission (NTC) on the other. The Sri Lanka Telecommunication Act (SLTA), which established the TRC, does not clearly set out the powers of the TRC and the FTC, and neither does the FTC Act. The FTC Act does not exclude telecommunications from its scope, while the SLTA provides for the regulation of telecommunications without excluding such power from the FTC. However, in practice, the exercise of powers of the FTC and the TRC do not overlap. This is so because the FTC refers to the TRC all matters that come before it regarding telecommunications. The FTC has not established steady links with the TRC, but they interact if any related matter arises during the functions of the TRC.

There could also be a temptation to look at the examples of advanced countries like the USA and the UK and draw inferences from those experiences. However, it was not considered necessary because regulatory institutions in Nepal simply do not have the required sophistication to deliver what is demanded of them by the set up such as that of the developed countries.

Therefore, as a humble beginning, taking a cue from Sri Lankan experience, the drafters of competition law should include provisions aimed at enhancing the interaction, information sharing, and opinion exchange between various sector specific regulators and competition agency. Further, it is necessary to entrust competition agency with the responsibility of competition advocacy, which entails, among others, creating ‘competition culture’ among the sector specific regulators.

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