Annual Report 2009
2009 was an extraordinary year for all of us. We all know from theory that economy is cyclical and every boom is followed by a recession. Hence it was natural that the 10-year economic growth in Estonia should one day be hit by a backlash but nobody in their worst dreams expected a backlash as vicious, with a 14% decline in economy. By mere chance, the downward trend in Estonian economy coincided with the global economic crisis. However, already in 2009 the first optimistic signs started to show in the deepest economic crisis. By now there is no doubt that the recession will be replaced by new growth and that our economy will emerge stronger than ever. We remember well how the whole economy went into depression after Lehman Brother’s bankruptcy and some prophets said that the global financial system would completely disappear. Some even recommended to change all one’s property to gold and then bury it in a pot. However, already in the second half-year of 2009 the first positive signals about the recovery of global economy started to arrive. Still, 2009 will most certainly be remembered as the year of the deepest economic crisis since the 1930s.
We may ask what is the impact of the economic crisis on competition. Lower inflation and the resulting price decline are certainly beneficial for the consumers. The tighter economic conditions should have a positive impact on the general competition and efficiency growth. The number of concentration applications submitted to the Competition Authority is a good indicator of the general economic situation. The number of applications submitted in both 2006 and 2007 was 34, in 2008 – 27, and in 2009 only 17.
It has been discussed extensively whether companies are more prone to making cartel agreements during an economic recession period. The number of investigations initiated by the Competition Authority (10 cases since 2008) may suggest that it is so. However, it is more probable that the figure is not so much related to the economic downturn but to our more vigorous fight against cartels.
In 2009 we were also more active in analysing various market barriers and deviations in the competitive situation. A suggestion to liberalise the overcounter sales of pharmaceuticals is probably the most outstanding among them. As a result, a discussion developed in the media, comparing the hazardousness of paracetamol and a chemical drain cleaner. Surely it is equally dangerous to take an overdose of a drug or to swallow a domestic cleaner but selling chemical cleaners in shops is allowed. The dangerousness of pharmaceuticals is one of the main arguments why overcounter drugs have not been released into the retail network. Though the liberalisation of retail market has not progressed, the question has been raised and hopefully we can also see some progress.
A similar market barrier exists for pension funds. An owner of fund shares can move from one fund to another only after a long notification period. If a person wishes to change a fund in the middle of november, it will take a year from the application to the transfer from one fund to another. Moreover, a person gathering money for the retirement period has no guarantee that his or her money is maintained and increased in the best possible way. Our media wrote about several cases last year, depicting the issue of junk bonds even in conservative funds, as a result of which owners of shares could only passively watch how their money vanished. In general, free choice for the consumers and functioning competition are the two conditions giving the consumers the best price and quality. Fortunately there is already some progress and the Ministry of Finance is already elaborating the necessary legislative amendments.
In the energy sector, 2009 will be remembered as the year of a sharp decline in natural gas price. This should have been followed by a lower price of heating for the consumers. Here, gaps in the legislation became evident – undertakings have the right to raise heating prices if fuel prices increase but are not obliged to lower heating prices in an opposite situation. Fortunately, our undertakings had enough common sense and understanding and heating prices dropped considerably in the first half of 2009.
2009 will also be remembered for Eesti Energia’s unverified power meters. It is especially striking about this case that it was evident from expert evaluations that in most cases the meters lied for the benefit of the consumer and not the undertaking. However, precise measurement of the consumed energy volumes is important. It is not an excuse that the unverified meters lied for the benefit of the consumers. The Competition Authority made a precept to Eesti Energia to solve the problem, requesting that the unverified meters should be replaced no later than by 1 August 2010. The result is positive: more than half of the unverified meters have been replaced by now and all consumers will receive precise meters by this deadline.
We can be glad about the progress in the communications market. First, it is one of the few sectors where prices have fallen during the last ten years. Secondly, competition functions well in this sector due to the rapid development of technology. Most consumers can now choose freely among various service providers. In the 1990s one or several cable TV networks were built in addition to the telephone network in apartment blocks. It was usual in those times that the telephone network provided telephone connection and cable networks provided the television service. Today, both television and communications systems are based on a digital signal which can be transferred by the telephone or cable TV network. Consumers can now choose among two or even three networks. For example, Elion now provides both communication and television services via its cable and Starman’s TV-cable makes it possible to make phone calls and to surf in internet. This is a positive example about price competition bringing a benefit to the consumer.
The Competition Authority is proud of having successfully protected free competition in 2009 and we promise to do our utmost to ensure its further promotion.
With best wishes