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Annual Report 2011

Annual Report 2009 ANNUAL REPORT 2011

 Dear reader,

Once again it is a pleasure to present the overview of the activities of the Estonian Competition Authority in 2011. Highlights from the previous year come to mind when writing this foreword. The first that is remembered is, of course, adopting the euro – as a year ago we automatically calculated the prices in Estonian kroons, and now more than a year later this habit has gradually started to disappear. Surely, the decision made by Estonia has caused many discussions and raised questions about whether we are in a position to help those in need that are in fact richer than us. 2011 has been equally important in terms of the development of the European integration. It has been seriously discussed if in the future the European Union will be more like the United States of America, and if we are heading towards deeper integration or not. These are difficult choices and there are no clear answers. In Europe, we are united by the Christian cultural background, at the same time we are faced with language barriers. Considering the economic power of the rest of the world and the English language being the lingua franca more and more nowadays, integration seems to be more inevitable than ever.

However, without the bad, there would be no good – the global economic crisis is indeed unpleasant and we all hope it would end sooner; however, such an intensive European integration would have probably not taken place without it. In addition it has pointed out the weaknesses in the world economy. Increasingly, it is stated, that economic growth is ensured by the competitiveness of the country and various restrictive factors of competition hinder economic development. It is, of course, impossible to achieve the ideal model of market economy, where the state is collecting taxes, ensuring the security and social protection of citizens, but the market barriers should be critically analysed. That is the reason why it is also one of the main aims of the Competition Authority to draw attention to possible bottlenecks and offer solutions for the promotion of competition. Although Estonia is an open, liberal economy, there are areas where things could be organized in a better way. An example of this is the restriction of the establishment of pharmacies. Seemingly it is nobly aimed at maintaining the pharmacies in the countryside, but there are cases where it has resulted in the fact that there are no pharmacies existing neither in the countryside nor in the densely populated areas. An activity licence is not granted to an undertaking that would be prepared for the free competition and to meet the strict quality requirements, but to whom that gains the licence in the form of drawing lots.

The subject, which also ties in with the Authority´s daily work are different subsidies for the generation of electricity. If in 2007 the subject was of minor importance, then today we are dealing with a significant part of our electricity bill. It is difficult to find producers who are not subsidised - starting with the largest power station in Estonia Narva Elektrijaam and ending with a few hundred kilowatt watermills. I do not dispute that it is the task of the state administration to guide the production towards environmentally friendly ways, but it must be conducted by a tax policy, not by wide subsidies. Tax policy gives equal conditions for everyone and the winners are those who are more effective and use better technology. The winners through subsidies are the best deal makers. The EU´s system of excise duties on motor fuels that has driven the producers to more effective models may be brought as an example here. Twenty years ago no one would have believed that a properly equipped comfortable passenger car only consumes on average 4 litres of fuel per 100 kilometres, but today it is reality. It would have hardly been achieved by other means than through the high fuel price, which has driven the producers towards innovation.

For the first year the Authority approved the prices both to all district heating as well as water undertakings. It has been widely discussed whether this step was right or not, but it is clear that in a small country like Estonia it is more effective to have one price regulator rather than many. It is also positive that prices for all undertakings shall be approved on the same basis. Now all the heating prices are comparable. It is also good to clear the problems – with today´s high prices for oil and gas there is no place for a heat supply where nearly half of the energy does not reach the consumers, but vanishes somewhere halfway. And once again we end up with competition matters; namely, the local self-governments have the right to designate district heating network areas, where this type of heating is the only possibility. Seemingly this is aimed at consumer protection, but regrettably, as a result the consumer lacks the money as well as the possibility to choose an alternative type of heating.

Fortunately, however the previously mentioned areas are rare examples, where free competition should be implemented more effectively. As mentioned above, Estonia may certainly be used as an example of a country where the emphasis is on promoting free and fair competition. This trend must undoubtedly continue in the future and the Estonian Competition Authority is responsible for making every effort to contribute to the goal.

With best wishes,  

Märt Ots
Director General