The Contribution of Competition Policy to Improving ... · The Contribution of Competition Policy to Improving Regulatory ... Dirjen Perhubungan Udara DEPHUB ... [email protected]

The Contribution of Competition Policy to Improving Regulatory

Performance

Ahmad Junaidi Bureau of Policy

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Indonesia Competition Law

• Competition is regulated by The Law No.5 Year 1999 Concerning Prohibition on Monopolistic Practices and Unfair Business Practices

• The Law has been implemented for almost 11 year to enhance fair competition, since Indonesia economic policy and structure changes after crisis 1998.

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PRINCIPLES AND PURPOSES

The Principle (Article 2)

Business activities of business actors in Indonesia must be based on economic democracy, with due observance of the equilibrium between the interests of business actors and the interests of the public

The Purposes (Article 3)

The purpose of enacting this Law shall be as follows: a. to safeguard the interests of the public and to improve national economic

efficiency as one of the efforts to improve the people’s welfare; b. to create a conducive business climate through the stipulation of fair

business competition in order to ensure the certainty of equal business opportunities for large-, middle- as well as small-scale business actors in Indonesia

c. to prevent monopolistic practices and or unfair business competition that may be committed by business actors; and

d. the creation of effectiveness and efficiency in business activities.

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Structure of The Law

Prohibited Agreements:

(rule of reason’s approach)

Agreement with Foreigner

Exclusive Dealing

Oligopsony

Trusts

Vertical Intregation

Cartel

Boycott

Oligopoly

Price Fixing

Prohibited Activities

(rule of reason’s approach)

Monopoly

Monopsony

Market Control

Conspiracy

Dominant Position:

(rule of reason’s approach)

Dominant Position

Share Ownership

Interlocking

Merger and Acquition

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The Commission: KPPU

• The Commission for the Supervision of Business Competition (KPPU) was established in 2000 with the authority mandated by the Law No. 5/1999 concerning the Prohibition of Monopolistic Practices and Unfair Business Competition (“the Law”);

• The KPPU is consisted of 11 (eleven) Commissioners that work in collegial manner that is assisted by a Secretariat. A chairperson is elected annually amongst Commissioners.

• It has two major tasks, namely to supervise and enforce the competition law, and to create sound competition policy through policy recommendation in order to guide public interest and national efficiency for people prosperity;

• Until January 2011, It decided 184 decisions and submitted 91 policy recommendations

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Working with other Government Institutions

• In term of competition policy, the Commission has issued 91

(Ninety one) policy recommendations to the Government on several aspects in strategic sectors in Indonesia. Fifty out of said advices is accommodated by central Government or regional administration.

• Furthermore, The Commission has been involved with the formulation of several draft laws including the Law on micro-small-medium enterprises, minerals and coal, and free trade zone.

• A latest development is as part of policy maker’s acceptance to

competition policy, law, and institution, the Commission has now even been mandated with new authority under Law no. 20/2008 concerning Partnership to supervise partnership agreements between micro, small, and medium enterprises (MSME) and large enterprises. This indeed will take several adjustments within the Commission to fully optimize this obligation.

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Cooperation with other law enforcer

• Cooperation with other law enforcers is beneficial to support competition law enforcement in Indonesia.

• Acknowledging this, the Commission made a formal cooperation arrangement in 2010 with the Indonesia Financial Transaction Reports and Analysis Center (INTRACT) to assist the Commission in providing evidences of financial transaction suspected for collusion/cartel handled by the Commission

• Cooperation with the National Police also pursues to fully implement the competition law, especially to overcome the lack of authority given upon the Commission.

• In October 2010, the Chief of Police and the Chairman of KPPU are signed Memorandum of Understanding (MoU) concerning cooperation and coordination in competition law enforcement. This surely marks complete and systematic competition enforcement in Indonesia which involving three main elements, the competition agency, the judiciary, and the Police.

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Policy Recommendation

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KPPU Duties • …. • provide advice and opinion concerning Government policies

related to monopolistic practices and or unfair business competition;

(Article 35 e)

• The “advice and opinion” or Policy Recommendation is one of advocacy tools to harmonize government regulation into fair competition principle as regulated by The Law No. 5/1999

Policy Recommendation

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• Object of Assessment :

– Regulation issued by all level of Government institutions

– Bill of The Law (Draft)

– Any form of regulation issued by Ministerial and local administration

• Source of Information: Public Report or KPPU

Research

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When To Start Competition Assessment on Gov’t Policy?

In assessing competition impact of any policy, KPPU will look certain type of Government Policy which emerge as: – Type of Policy which giving more privelege to dominant business

player by creating an entry barrier for the new entrant. By having this situation, the dominant player can abuse the market more easy.

– Type of Policy which facilitate business player to do anticompetitive

behaviour which infringe fair competition principles as regulated by The Law No. 5. By having this situation, business player can manage price fixing the among them which can be considered as cartel practices by the law no. 5.

– Type Policy which allow Government to replace market mechanism process in selecting competent business player in the market.

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Policy Recommendation Statistics Number Policy Recommendations Issued by KPPU

4

2

10

3

12

5

11

17

1413

0

2

4

6

8

10

12

14

16

18

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Number of Policy Recommendation Issued by KPPU is Increasing after second

5 year terms

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Policy Recommendations by Sectors Policy Recommendation by Sector

5% 13%

9%

16%25%

11%

9%9% 3%

Public Service Trade Policy

Energy And Mining Telco

Transportation Finance and Investment

Construction and Tender Agriculture

Labour Policy

Finance, Transportation and Telecommunication are dominant, it could be a

picture of the regulator of those sector actively cooperate with KPPU 13

Policy Changes by Sectors

3

4

5

7

9

2 2

3

0

1

6

2

5

10

6

5

4

2

0

2

4

6

8

10

12

Public S

ervice

Trade P

olicy

Energy A

nd Mining

Telco

Transporta

tion

Finance and In

vestm

ent

Constructi

on and Tender

Agricultu

re

Labour Polic

y

Policy Change

No Policy Change

Number of Policy Changes in Harmonizing with fair competition principle

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Policy Changes Rate

70%

0%

40%

73%

50%

50%

33%

35% 36%31%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Percentage of PolicyChangeKPPU Target on Year2012

Policy change is fluctuated shows dynamic response of Government Position

toward policy recommendation

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IMPACT OF POLICY CHANGE TOWARD

COMPETITION PRINCIPLE

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Impact of the Competition Law Enforcement

• Extensive endeavors in competition enforcement have resulted in a

positive impact in two different ways. • The first one is the financial aspect for the state through potential state

income from fines and compensations impose by the Commission. Fines and compensations have accounted for up to total US$ 207 million (IDR 1.87 trillion) additional revenue.

• The second approach is consumer gain through direct and indirect impact resulting from KPPU’s decision. One of our successful examples was from telecommunication sector. Cartel behavior in text messaging service cancelled by the Commission had resulted in preventing potential consumer loss or creating income savings approximately for US$ 222 million (IDR 2 trillion) as result of reduce SMS tariff (40%-60%) after the decision.

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• Some Policy Change done by Government in response to harmonize the policy with principle of fair competition policy have been benefited public in many ways.

• For Example

– Sector Airline Industry

– Local Government Regulation on Poultry House

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Airline Industry

• Before 2001, INACA as an Association Airline facilitate all player to do fix price conduct. The Conduct is backed up by Ministerial Decree which give the Association an authority to set up the price. In July 2001, KPPU issued policy recommendation to Ministry of Communication and Transportation.

• The Policy Recommendation advised Government to abolished authority of Association in setting up the (floor) tariff as stated in Ministerial Decree No. 25 Year 1997.

• In Response to the Policy Recommendation, Goverment

Revised the Regulation and also deregulate the sector to enhance more fair competition in arline industry.

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Airline Industry

Impact of Policy Changes

Source : air tansportation Directorate General / red= growth, blue=operator

Increase Number of Player in The Market offer More Variety of Service For

Passenger 20

Increase Total Number of Passenger Means More Citizen Enjoy Air Transport Service --> More Access

Year Number of Passenger Growth

1996 13,493,810

1997 12,813,548 -5.04%

1998 7,585,853 -40.80%

1999 6,365,481 -16.09%

2000 7,622,570 19.75%

2001 9,168,059 20.28%

2002 12,333,035 34.52%

2003 19,181,294 55.53%

2004 23,763,950 23.89%

2005 28,813,515 21.25%

2006 34,015,981 18.06%

Source : Dirjen Perhubungan Udara DEPHUB

Airline Industry

Average of Growth

(1997-2001 / Befor Policy Change)

-4%

Increase Rate of Growth in

(2002-2006)

34%

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Average of Load Factor Increase 5% after Policy changes, Means More Capacity Utilization

Tahun

Jumlah

Penumpang Load Factor

1996 13.49 61.46%

1997 12.81 61.04%

1998 7.59 58.85%

1999 6.37 61.31%

2000 7.62 64.18%

2001 9.17 68.77%

2002 12.33 76.08%

2003 19.18 75.78%

2004 23.76 77.77%

2005 28.81 77.17%

2006 34.02 78.36%

Sumber : Dirjen Perhubungan Udara DEPHUB

Airline Industry

Average Growth of Load Factor

(1997-2001)

63%

(2002-2006)

77%

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Airline

Rate of Tarrif decrease untill 50% for every route service. This fact shows that before policy change, business player enjoy above normal profit and price by exploiting consumers. Policy Changes by Goverment help reduce anticompetitive conduct and promote more competition in the sector

Jakarta-Surabaya 2000 = Rp 600,000

2003 = Rp 250,000 – 300,000

Jakarta-Medan 2000 = Rp 700,000

2003 = Rp 460,000

Jakarta-Solo 2000 = Rp 460,000

2003 = Rp 270,000

(Source: Indah S, YLKI, 2004)

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Poultry house policy

• The Jakarta local government issued a Province Regulation No.4/2007 which determined a poultry house where the poultry trader from outside of Jakarta should place their product to be examined before distribute to Jakarta area. This caused higher transportation cost and less competitive level for traders that coming from many areas of outside Jakarta that used to place their product in their nearest poultry house in Jakarta

• In March 2010, The Commission had handed in a policy recommendation to restore past condition. In response, in December 2010, The Jakarta local government formally accepted the recommendation and would allow past condition as long as its fulfilled technical and sanitary standard

• Nowadays, the poultry trader may place and examine their product in many poultry house under Jakarta Government supervision

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THANK YOU

Sekretariat KPPU

Komisi Pengawas Persaingan Usaha

Jalan Ir. H. Juanda 36 Jakarta 10120 Indonesia Telepon: 62-21-350 7015, 350 7016, 350 7043 Faksimili: 62-21-350 7008 email: [email protected]

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