The joint committee is meeting to hear an overview of the operations of the Competition Authority, to discuss the effect on grocery prices following the abolition of the groceries order and the clearance by the authority of the sale of Statoil's Irish unit, Topaz. I welcome Mr. William Prasifka, chairman, Mr. Ciarán Quigley, Mr. John Evans and Mr. Declan Purcell of the Competition Authority. I draw their attention to the fact that while members of the committee have absolute privilege, the same does not apply to witnesses who appear before the committee. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise, or make charges against a person outside the Houses or an official, either by name or in such a way as to make him or her identifiable. I invite Mr. Prasifka to make the presentation.
Competition Authority: Presentation.
Mr. William Prasifka
I thank the Chairman for his introduction. We have an opening statement which has been circulated. It is not my intention to read completely from it. I will summarise parts of it and read others. I thank members of the committee for the invitation to attend.
Before I proceed I would like to introduce my colleagues. Mr. Declan Purcell is a member of the Competition Authority and the director of its advocacy division. Mr. Ciarán Quigley is the secretary to the authority and the head of administration. Mr. John Evans is the manager of the authority's policy division.
I have been asked to appear before the joint committee to discuss three items and in my opening statement, I wish to take them in turn. The joint committee has asked for an overview of the authority's operations. The opening statement provided to members has set out some background and some history. Our mission is to ensure that competition works for the benefit of consumers throughout the economy. We take it very seriously and it is appropriate that all our work is measured against it.
Rather than taking members through all elements, I wish to highlight some of the work done by the authority this year and will start with its enforcement divisions. This year, the Competition Authority has managed 15 criminal convictions for cartel cases and will proceed with another cartel case early next year. We have initiated proceedings against the Irish Medical Organisation that allege restrictive practices and have a number of other matters that are currently under investigation.
The advocacy division has been particularly active this year. At the request of the Minister for Health and Children, we have undertaken an extensive study of the private health insurance market. The major project we hope to complete this year is an analysis of the legal profession, which we believe will make an important contribution to both the legal profession and the general understanding of competition policy.
The mergers division has also been extremely active and I will provide extensive commentary on the Statoil-Topaz matter later. I make the point that since the mergers division was entrusted with responsibility for vetting mergers in this jurisdiction, it has cleared close to 300 mergers under that regime. This is by way of providing a background to the Competition Authority and its organisation.
The other matter the joint committee has asked me to discuss concerns recent price trends in the Irish groceries sector, particularly since the abolition of the groceries order. I refer members to the graph at the back of the presentation supplied to members that shows figures we have received from the Central Statistics Office, CSO. The CSO publishes a price index on a monthly basis for those matters that comprise the consumer price index, CPI. It also does so for those items that were covered by the groceries order, as well as for other items of grocery matters. Hence, effectively there are four indices, namely, the CPI, matters covered by the groceries order, grocery items not covered by the groceries order and a combined index.
Since April 2006, which was the first full month following the abolition of the groceries order, the CSO's data reveal the following findings. During that time, the consumer price index has increased by 2.1%, while the prices of items previously covered by the groceries order have fallen by 0.5%. The latter trend is represented by the red line on the graph. The combined prices of items previously covered and not covered by the groceries order — effectively the basket of grocery goods — have remained stable. The prices of items previously not covered by the groceries order, primarily fresh meat and vegetables, have risen by 1.8%.
It is too early to fully evaluate the abolition of the groceries order and obviously the data to hand do not take into account the most recent competitive practices and initiatives. Obviously, we must continue to monitor this matter.
The Competition Authority has also been given a monitoring responsibility by the Minister for Enterprise, Trade and Employment to review and monitor the structure and operation of the grocery trade for the foreseeable future and to ascertain how it responds to the new legislative environment. As a result of this, the Competition Authority has undertaken a project to monitor the groceries sector. We have consulted widely with stakeholders and have worked extensively on the appropriate methodology that will be used for such a project. We have been in discussions with the Office of Fair Trading and the Competition Council in the UK who also have extensive experience in this area. It is our intention to take four years worth of data and analyse it. It is intended that by June 2007, we will be in a position to publish an analysis of the developments in the groceries sector, focusing on pricing trends, market structure and barriers to entry. We believe that analysing four years worth of data is appropriate before we attempt to begin to draw some conclusions to longer standing changes in the structure of the market.
In addition, we have an ongoing enforcement responsibility in the groceries sector. The new regulatory environment is characterised not only by the removal of the groceries order but by the strengthening of certain aspects of the Competition Act with respect to the groceries sector. We now have particular enforcement powers in respect of certain grocery practices by way of resale price maintenance, unfair discrimination, predatory pricing and other types of behaviour. We have consulted widely with stakeholders in the area about the operation of such a process and enforcement mechanism. This is something we take quite seriously. As yet, the Competition Authority has not received any complaints about the groceries sector since the commencement of our enforcement powers under this section.
The last item I will discuss is the Topaz-Statoil merger. I will seek to be as clear and direct as possible. I know that this is a matter of great interest to the committee and the wider public. The Competition Authority failed to deal with the Topaz-Statoil merger within the prescribed time. Accordingly, under the legislation, the parties were legally permitted to complete the merger. I do not make any excuses for this error. It is not acceptable and should not have happened. I have publicly apologised for it and I do so again without reservation. I will point out three items to the committee. The first relates to how the error occurred. I will then explain the competition consequences of the error as clearly as possible. Following this, I will set out the action that has been taken by the Competition Authority since the discovery of the error to ensure it does not recur.
I will now discuss how the error occurred. We brought this matter to the attention of the Minister following a request by him. The Competition Act 2002 sets out the procedures the Competition Authority must observe in processing proposals for mergers. The Act prescribes time limits which the authority must take into account and within which it must take actions. In respect of this case, the Competition Authority has one month within which to make a determination following the satisfactory fulfilment of a formal request for information under section 22 of the Act. This is where we request further information from the parties in question. This period is substituted by a new period of 45 days, which starts from the date of compliance with the request for information if the parties submit a proposal to address competition concerns raised by the Competition Authority during its initial investigation. The error arose when the team conducting the merger investigation calculated the due date by adding 15 days to the original one month deadline, rather than recalculating 45 days from the original date. The consequence of adding 15 days was fatal to the processes of the Competition Authority as the one month period had 31 days.
Following the initial mistake, the calculation of the date was not rechecked. The original error was not discovered until the time within which the Competition Authority had to act had expired. I do not offer any excuses for what happened. I wish to focus on the consequences of the error from a competition perspective. I do this from a sense of responsibility to the committee and the public. By explaining the consequences I do not seek to minimise the gravity of the error.
Prior to the discovery of the error, the Competition Authority had conducted an extensive evaluation of the merger. This was revealed by the fact that we had requested additional information, and that a proposal had been put to us by the parties to address the competition concerns. As part of this assessment, a large amount of data was provided by the parties, and by third parties, including competitors, customers, Government bodies and other official bodies. A great deal of analysis of that underlying data took place.
This analysis revealed two basic competition concerns of the proposed merger. First, there was a concern at wholesale level, which from a competition perspective was the more significant concern. In addition, there was a second concern of a more limited nature at the retail level. Prior to the time running out, the Competition Authority was in extensive discussion with the parties to resolve the outstanding issues. Topaz had agreed to implement the proposals it had proffered to the Competition Authority prior to the passing of the deadline. In the view of the Competition Authority, the implementation of these proposals addressed the concerns we had raised during our analysis.
On the wholesale side, Topaz has agreed to take steps so that there is no concentration in the wholesale areas of concern to the Competition Authority as a result of the merger. By far the most significant concern was a concentration of terminal facilities in Galway. Topaz has agreed to divest itself of control of one of the terminal facilities. Whereas before the merger there were three independent terminal facilities, after the merger there will continue to be three independent facilities for the terminalling of fuel. This is a satisfactory conclusion from a competition perspective.
On the retail side, the Competition Authority has not had an opportunity to fully explain the analysis it has conducted. Initially, we looked at the retail networks from a national perspective. As a result of the merger, Topaz will own 115 retail service stations, approximately 5.4% of all retail service stations in the State. Topaz will supply 347 retail service stations. The difference is between company-owned stations and dealer-owned stations. The total of company and dealer-owned stations represents a nationwide market share of approximately 16%. Consistent with other decisions of the Competition Authority and other competition agencies, such a market concentration does not give rise to competition concerns at national level.
The Competition Authority proceeded to analyse competition from a local perspective and used an isochrone methodology to identify and analyse local markets in the motor fuels market segment. Perhaps unlike other people in the room I never heard of an isochrone before this. Unfortunately, I studied law rather than something more imaginative. I learned an isochrone is a line which joins together all points which can be reached within a constant journey time from a given starting location.
The Competition Authority constructed isochrones using a two mile radius in urban areas and a five mile radius in rural areas, pivoting around Topaz and Statoil sites. The results of the exercise carried out by the Competition Authority are summarised in the presentation document distributed to committee members.
The isochrone analysis revealed 13 geographic areas of possible competition concern. The isochrone analysis was the starting point of our local geographical analysis, not the end point. After we identified those 13 areas, the analysis took into account the nature of ownership of the retail station, whether dealer or company owned, the choices available to consumers post-merger, the proximity of major roads, driving patterns, and entry decisions by new suppliers.
As a result of this analysis, the geographic areas with true competition concerns were reduced to two which were in proximity to each other. Accordingly, with the divestiture of one retail station the concerns of the Competition Authority as to concentration in the retail network were addressed.
I will now outline to the committee what steps the Competition Authority took to ensure an error such as this does not recur. Immediately after we discovered the error, its cause was identified. We introduced new procedures to ensure all merger deadlines are subject to more robust internal procedures which require checking and re-checking of all relevant dates. An internal inquiry was conducted by a senior officer unconnected with the work which gave rise to the error, to determine the precise sequence of actions taken by the persons responsible for the error.
An internal review is under way to integrate our procedures with our systems to minimise the possibility of human error in the calculation of dates. In particular, we will have far more sophisticated electronic databases which can be more effectively integrated into the practices of the mergers division to ensure the elements of human error are minimised. The Competition Authority contacted its external auditors and requested they conduct a review of our processes to ensure they are done to the highest standards.
I understand the grave concern of the committee on this matter and I share it. All I can do is indicate the steps we have taken to ensure it does not happen again.
I thank Mr. Prasifka. We will now take questions from committee members.
I acknowledge the chairman of the Competition Authority's first meeting with the committee. I am sure he would expect the circumstances to be much different to those in which he must present himself. His statement clearly indicated to us the difficulties that arose. He has shown himself to be an example of accountability in terms of apologising unreservedly for that mistake. I accept in good faith all he has said. The systems he has put in place and outlined are appropriate to what one would expect. I know that in a previous existence he probably would have been sued but, in this case, the way he has put his hands up in an unreserved fashion is an example of what should be done on such occasions, and perhaps an example of what should happen in political life.
For the benefit of the committee, will we deal with the groceries order first and then the merger issue?
Is that agreed? Agreed.
The groceries order was quite contentious and there were arguments on both sides. However, the Competition Authority drew up a report which Mr. Prasifka's predecessor, Dr. Fingleton, presented to the committee. He made explicit recommendations as to what the removal of the groceries order would mean for the typical consumer and householder, and he explicitly stated that they would make savings of €500 per annum. His champion, Mr. Hobbs, suggested the savings would be €1,500 a year to typical householders. The CSO figures from which Mr. Prasifka has quoted indicate that items that were covered by the groceries have reduced slightly in price and the items not covered by the order have increased in price. Overall, the typical basket of goods has increased slightly in price.
The committee noted in 2005 that food price inflation was not a big issue and that food prices reduced to June 2005. We could not understand why Dr. Fingleton placed such emphasis on this issue when prices were falling. He indicated explicitly that it was an artificial intervention in the marketplace to prevent massive savings to consumers but this has turned out not to be the case. The National Consumer Agency and the consumer strategy group have referred to the immense secrecy in the trade. Has the Competition Authority plans, in line with what the committee requested in its report, to suggest increased transparency among multiples with regard to turnover and profitability, so we can see where the savings that are accruing from the pressure on suppliers are going? The savings are not going to the consumer, which is where we want them to go.
Recent months have seen high profile closures or proposed closures in the food sector at Cadburys, Lakeland Dairies and Castlemahon Food Products. Does Mr. Prasifka believe this is the consequence of globalisation or is it linked to higher cost and a tougher domestic competitive environment in Ireland?
I wish to be associated with the Deputy Hogan's remarks. I am as new to the committee as Mr. Prasifka is to the Competition Authority so I did not participate in the debate on the groceries order or the legislation that flowed from it. Following on from Deputy Hogan's questions, on the basis of what Mr. Prasifka's predecessor indicated to this committee and on the basis of what the CSO figures revealed, what is the current view of the Competition Authority as to why there seems to be a gap in the expectations and outturn?
Mr. Prasifka
I will take the last point first. In terms of the analysis of the data, we will undertake a very expensive groceries monitoring project, as I outlined. We are dealing with this issue with the utmost seriousness. We are insisting on examining a full year's data. Obviously, it is not appropriate for me to prejudge any of that. There was much talk with regard to the effect of the groceries order and even some talk of it in April, a few weeks after the order had been abolished. Our overall analysis is that prices of items covered by the groceries order have decreased. The magnitude of that decrease compared to other indices is not yet clear but it is important to note the downward trend of prices of items covered by the groceries order.
The effect of the groceries order meant that businesses could not pass on discounts for branded merchandise received from suppliers. It is expected that businesses will take time to implement changes in the structure of the market. Business models will have to be adjusted and new entrants may emerge with different models. It is too early to discern the effect of the abolition of the groceries order. I do not accept that the limited data available indicates that the abolition of the groceries order did not remove an impediment to competition. We must give it more time before coming to conclusions.
Regarding Deputy Hogan's question about the closure of certain suppliers, it is too early to judge whether this is related to the abolition of the groceries order. According to yesterday's edition of The Irish Times a number of the groups in the convenience sector are dedicated to expansion. We see no evidence of retraction on the retail side. The supply side must be studied as part of our grocery monitoring project.
Deputy Hogan also referred to transparency. Forcing disclosure is not traditionally within the remit of competition authorities. It is generally enforced by regulators, such as an insurance regulator requiring publication of information. When information is published it is done in such a way as to protect the commercial confidentiality of individual companies. The Competition Authority can bring enforcement actions and can seek damages or criminal sanctions in court but forced disclosure or regulation of a sector is not one of the tools we can use.
I welcome the delegation and wish to be associated with the acceptance of the unreserved apology.
Mr. Prasifka states that it is too early to evaluate the effect of the abolition of the groceries order. Does Mr. Prasifka have an opinion on the factors upholding prices? What is responsible for higher food prices? Mr. Prasifka states that the situation is stable since the removal of the order. Is it also too early to assess the impact on the supplier base? I am glad to hear Mr. Prasifka has been in touch with the Office of Fair Trading and the Competition Council in the UK. Is he keeping abreast of developments on the investigation taking place there? Has he a view on what parallels may exist here? I note that he has a project in mind, is gathering a year's data and is monitoring developments in the grocery sector, predatory pricing and other practices. The Competition Authority has extensive powers to procure information. This touches on Deputy Hogan's point about transparency. The authority has not yet used those powers. Could Mr. Prasifka expand on that in view of what he has said about monitoring? Does he envisage that the authority will use those powers?
I welcome the witnesses. Under Mr. Prasifka's predecessor, Dr. John Fingleton, the Competition Authority advocated the abolition of the groceries order. Dr. Fingleton made definite statements before this committee on the effect the abolition would have. He made those statements without having done any research. Mr. Prasifka tells us it is too early to tell the effect the abolition has had or will have. That contrasts with the view of Dr. Fingleton, who seemingly foresaw the post-abolition future clearly. This begs the question about the independence of the Competition Authority. The then Minister was hell bent on abolishing the groceries order. It suggests that the Competition Authority wanted to support the Minister and his views.
Mr. Prasifka
I will first respond to Senator Coghlan's last point about the procurement of information. I did not clarify that while we have extensive powers to procure information, which we regularly use, information once procured is not published. It is confidential and used for our internal investigations, many of which are criminal. We have an important mandate to promote competition. The publication of commercially sensitive data may jeopardise competition. Senator Coghlan asked me why I think grocery prices were high, what kept them high and the role of the groceries order in that. As the data indicates, since the abolition of the groceries order the prices of items covered by the order have declined slightly. However the important measure is the consumer price index. I do not want to make sweeping assertions before the committee. While it is too early to tell, the data points in one direction. It is my view, and that of the Competition Authority, that the groceries order was an impediment to competition. However, it is quite obvious that it is not the only possible impediment to competition. The Senator's own report indicates that other impediments may exist. We must examine these in a more analytical way and will do so in the grocery monitoring project. There may be other barriers to and restrictions on competition which are hindering proper competition in this area so I do not wish to discount this.
Senator Coghlan asked about the supplier base and whether we could draw any conclusions from the abolition of the groceries order. It is too early for us to tell. We need to study this matter in terms of the grocery monitoring project. We are very much in touch with the authorities in the UK. John Evans has visited the Office of Fair Trading and the Competition Council. We have very good relations with the Office of Fair Trading for obvious reasons. The office is very generous with its time and expertise. Given that it has far greater resources, we will be taking advantage of this. We will consider very carefully whether there are particular similarities between the Irish and UK markets. We would be foolish not to do so.
In response to Deputy McHugh's question, I can vouch for the absolute independence of the Competition Authority. I was a member of the authority from 1996 to 1999. During this period, many members took their independence too seriously. They thought it entailed being rude to people. I do not engage in this practice but I can say with absolute certainty that when it comes to reaching its own conclusions, the authority is completely independent.
The authority also has very good relations with the Department of Enterprise, Trade and Employment. We look to the Department for support and have very open lines of communication. I hope that we could establish such lines of communication with other stakeholders, such as this committee or other Deputies. We are always open for people to discuss any matter with us. From my personal knowledge of the authority and how it has worked over a number of years, I can say that it is totally independent.
The committee welcomes Mr. Prasifka's assertion that the Competition Authority is independent, which it is mandated by law to be. We want to see a strong Competition Authority but we deeply resent the assertions made by Mr. Prasifka's predecessor before this committee when he offered consumers the false hope that they would save €500 per annum in the typical household basket of goods by making one particular decision. Committee members resent this arrogant approach which is not backed up by any research.
It is clear from Mr. Prasifka's contribution today that his predecessor's assertion was completely false. We attempted to explain to Mr. Prasifka's predecessor and others in the Department that a rebalancing is taking place in the grocery sector whereby products not covered by the groceries order have gone up and products covered by the order have gone down to give the impression that something has happened. I believe it has now been acknowledged through the figures produced today that we are now on a level playing pitch in policy terms. We do not see the fruits of the assertions made by Mr. Prasifka's predecessor. Members of the committee are probably most annoyed by the false premise and the false hope given to consumers to the effect that they would have more disposable income, which has not happened.
Mr. Prasifka's predecessor's premise was shallow. However, he is not here and I do not wish to go into that matter. Mr. Prasifka has a much more balanced approach. We look forward to further communication.
And Mr. Prasifka is not rude to people.
Absolutely not.
Not yet.
Mr. Prasifka
As members of the joint committee have indicated, I was not here for the previous debate on the groceries order. However, I have read all the transcripts. I consider myself to be the first post-groceries order chairperson of the Competition Authority, and I mean that in a very literal sense. As I was completing my term at the Commission for Aviation Regulation, realising that one term was sufficient for any human being and thinking of what I might do, the position of chairperson of the Competition Authority became available.
May I share a personal anecdote to give the committee a slightly different way of looking at the groceries order? When the job first became available I said I would not apply. I saw the job as a poisoned chalice. Why? The primary function of the Competition Authority is to prosecute people who engage in cartel, or price fixing, activity. It is very important that this be prosecuted vigorously with criminal sanctions. The groceries order effectively facilitated an opportunity whereby suppliers could engage in price fixing by fixing the price at the wholesale level by setting the discounts. If any retailer attempted to cheat by charging below the price the suppliers did not need a complicated cartel monitoring mechanism. They could phone the Director of Consumer Affairs.
It is very difficult to achieve criminal prosecutions in this country for white collar offences, for economic crimes. It is vital that this authority change that culture. I was very concerned that an effect of the groceries order, completely unintended, was that it set up the Director of Consumer Affairs as a cartel enforcer. That was one element of the debate which I did not see in the previous transcripts.
I do not want to rehash the arguments about the effect of the groceries order.
They are on the record.
Mr. Prasifka
However, I would be remiss if I did not point out that it was the position of the Competition Authority that no such absolute predictions were made as to what would happen. I understand people will disagree.
There was a press release. Mr. Prasifka's predecessor is on the record.
He is on the record.
He knew exactly what was going to happen. He foresaw the future.
He cited the figure of €481 for the average Irish household. I simply wish to put Mr. Prasifka right. He may not have read all the transcripts.
Mr. Prasifka
As I understand matters — that was looking backward rather than going forward.
I am afraid not.
This raises the question of how integrated the Competition Authority is. Can someone do a solo run every so often and promote his own views without backup from the body of the authority? However, we are talking about history and we should move on.
Mr. Prasifka, in his opening remarks, indicated exactly what happened regarding the sale of the Statoil Irish unit to Topaz. We accept his account. He has also outlined the new procedures that have been put in place. He has dealt with some of the questions about which members of the committee have concerns.
It was striking to note from his contribution that his original worries have been voluntarily addressed by Topaz. I am satisfied that Mr. Prasifka has been open about the way in which this mistake was made and has taken the necessary steps to deal with the issue.
The decrease in the number of retail outlets for the sale of petrol and diesel is giving rise to a general concern. In Dublin outlets are being sold as building sites for apartments. Does the Competition Authority have a view on where customers will be able to buy diesel and petrol in due course?
I acknowledge that Mr. Prasifka has put up his hands and apologised for the failure of the Competition Authority to deal with the Topaz-Statoil merger. That is very much appreciated. I have a significant problem with the merger. The analysis reveals two basic concerns about competition in the wholesale and retail markets. I am from Galway and note the Competition Authority's comments on the wholesale market and that three independent facilities and two terminals will still operate in Galway. My concern is that nobody has the power to compel the companies concerned to retain these facilities. It is fine for companies to assure the authority that they will comply with its requests but do we have the power to compel them to do so? Topaz now accounts for 16.2% of the petrol and diesel supply. I contend that two companies control the supply of fuel and that there is very little competition between them. As a result of the analysis, the number of geographical areas with competition concerns was reduced to two; however, with the divestiture of one retail station, the concerns of the authority have been addressed.
The closure of petrol stations in rural areas is a major problem. I must drive six miles to buy petrol. The privately owned petrol station in question is finding it extremely difficult to stay in business. I understand the two major suppliers give certain discounts. Should they decide not to give a discount to the independent petrol stations, they would close within a month. People in certain areas may then have to travel up to 20 miles to a company owned forecourt. The market was regulated by price control. Does the Competition Authority have a strategy to ensure petrol stations are viable in rural areas? If people must drive to a major town to buy petrol, they will also do their shopping at the same time.
I have one final question. Would the Statoil-Topaz merger have been stopped, if the Competition Authority had not failed to comply with the time deadline?
I commend Mr. Prasifka for the way in which he dealt with this aspect in his report. If my memory serves me, the first legislation which provided for a defined time failure mechanism was the Planning and Development Act 1963 introduced by the then Minister for Local Government, the late Neil Blaney, whereby if a local authority failed to give planning permission within a specified period, the applicant would receive it by default. I think this happened to a local authority once and its reaction was similar to that of the Competition Authority in that the reason the mistake had been made was identified and mechanisms were put in place to ensure it would not happen again.
The isochrone analysis which resulted in the divestiture of one filling station, presumably to a competitor, to ensure competition rather than its closing down suggests the Competition Authority is reasonably happy that the outcome for consumers and competition in the Galway region is acceptable, in so far as it can measure it, notwithstanding the administrative and operational error which Mr. Prasifka freely acknowledges. Deputy Callanan's question on whether the regulator believes he can enforce the decision is a good one. How does the regulator feel about the outcome of the merger? If he had dealt with it within the time laid down, would the profile of the landscape be any different?
My point is also in line with that of Deputy Callanan. We are concerned that if there are fewer stations, there will be less choice and competition. The danger in rural Ireland is that one might have to travel further to buy petrol or diesel, as we have seen happen in some parts of Scotland where great difficulties have been experienced owing to the way fuel giants have operated. Am I correct in thinking subsidy arrangements have had to be made through local authorities in some parts of Scotland to keep filling stations open to ensure no one will have to travel more than 20 miles to obtain petrol or diesel? We do not want a similar scenario to develop here.
It is of major concern to people in Dublin too. In parts of my constituency people are forced to travel six miles to buy petrol. At one time there were three filling stations on the Howth Peninsula but now there is none, which means people must travel four or five miles to buy fuel. In a radius of seven or eight miles eight stations have closed, which seems to form part of a wider trend. It is an issue which should be addressed.
Does the Competition Authority have a view on the problems of private filling station operators who find it increasingly difficult to compete with the multinationals? If we reach a stage where we have a handful of multinationals serving the Irish market and very few private individuals, we will not have a healthy business landscape, especially in the retail fuel sector.
Mr. Prasifka
Many of the members' questions have focused on the wider retail petrol market and I will be happy to deal with them. However, it is important to put the Topaz-Statoil decision in context. It was made under merger regulations designed to analyse the competitive effects of mergers. It would not have been appropriate for the Competition Authority to use the regulations to impose a policy initiative aimed at addressing some of the wider issues involved.
It is clear that there are long-term trends in the retail petrol industry. There has been a reduction in the number of retail filling stations for very important reasons. Considerable environmental regulations have been put in place and they have had an effect. A significant proportion of the closures is accounted for by very small stations which may have been connected with retail shops but were not modern forecourt businesses as we understand them. Under current environmental regulations, many such stations have ceased to be economically viable. It is a simple fact of the regulatory environment. In certain areas the high price of real estate and the high price attracted by residential property have subsumed a great many traditional businesses, be they retail petrol stations, public houses or other small businesses. It is a fact that very high prices have been attracted by real estate in the economy.
In looking at the merger under discussion we were very concerned about concentration, which is always at the heart of any merger analysis. While recognising the longer-term trends, we considered the issue of concentration using our own standard analysis and could see no reason to block the merger on competition grounds. I addressed the reasons in my opening statement. While recognising the longer-term trends and using our own standard analysis, we could not see any reason to block the merger on competition grounds. I outlined the reasons for this in my opening statement.
I will now address some of the concerns members have appropriately raised. We are satisfied that the proposals will address the competition concerns. Questions were asked as to whether we can force them to do it or whether it is legally enforceable. I will address these questions in a straightforward manner. By acting in default of the timeline, we no longer have the ability to block the merger. In normal circumstances, we can block a merger before proposals have been completed. We missed the opportunity to do that. However, there are a couple of other issues about which I should inform the committee. The question was asked "how do we know if they have done it?" They have agreed to inform us when it is done and have agreed to our continuing to have a monitoring role. As members will understand, several of the proposals involve the company engaging in commercial transactions to divest themselves of certain things. Under standard merger analysis, a company is given a certain period within which to put its affairs in order. That is the agreement we now have with them. They have agreed to do it and have agreed to tell us when it is done so that we can monitor the situation. If they do not do it, there are several consequences, namely, everyone will know it has not been done and, competition concerns will arise requiring us to revert to our other powers under the competition Acts. I stress, having said that, that Topaz has acted honourably. The mistake is entirely ours. We have no reason to believe it will not complete the proposals. Also, we will have a continuing role in this.
A number of members asked whether if we had the opportunity we would have blocked the merger. Again, I do not wish to make absolute statements about what might have happened. I can say very clearly that when it became evident that the merger would take place, the division undertook an analysis of competition concerns. Proposals submitted to the authority for consideration were viewed to be broadly acceptable and the merger division then gave the direction to get on with the process and to work out the details. It is not appropriate for me to state categorically that this would have had happened regardless. However, I can state that the proposals were acceptable in broad terms to the Competition Authority though, obviously, the details remained to be worked out.
A number of questions were asked about the retail network and our concerns about competition, in particular, in regard to multinational companies and concentration. This issue was examined in the context of the merger which, despite the fact that it will provide one company with approximately 16% of the market, in terms of petrol stations, did not give rise to the type of competition concerns that would lead us to consider blocking it.
Another point worth making is that many dealer networks include a high proportion of dealer-owned networks which permit dealers to conduct business independently and to set prices as they see fit. As to whether there are issues between independent dealers and suppliers, I have no doubt that there are and that these are of continuing concern. This type of concern also arises in regard to retail distribution networks. However, merger analysis is not the appropriate method of dealing with this issue. Complaints in that regard can be made to the Competition Authority.
Senator Coghlan mentioned the Scottish stations. I travelled to Scotland a few times but I am not quite familiar with the situation there. Perhaps it is something we should look into in terms of access to retail networks because of the rural aspect there.
Putting it in a nutshell, the Competition Authority is reasonably assured that the proposals that have been put in place meet most of its concerns. The only difference is that the Competition Authority would otherwise have compelled the company but now it is being asked to do it.
Mr. Prasifka
It has volunteered to do it. It has behaved honourably. We expect it will continue to do that. I have a feeling that if it decided not to honour that commitment many people, including some people in this room, would have something to say about it.
In other words, we are depending on its good will at this stage.
Mr. Prasifka
We also have continuing enforcement powers under our legislation. It is not simply a matter of good will.
Does Mr. Prasifka think the Competition Authority should have an appeal mechanism?
Mr. Prasifka
The simple answer is that currently there is an appeal mechanism.
It is an expensive one involving the courts.
Mr. Prasifka
Absolutely. These are difficult questions which I also faced in my previous job. If there was an appeal mechanism whereby every decision of the Competition Authority could be appealed to another body, we would quickly find that it was not the Competition Authority which was the relevant body but the appeal mechanism. There is a better regulation group in the Department of the Taoiseach which has looked very extensively at this area. We have been examining this. I am fully aware that judicial review is a very expensive process. I have personal knowledge of that. We are looking at various models by which appeals can be pursued. It has been suggested that a combination of a judicial appeal and expert advisers may be able to give the balance required between judicial and technical expertise. It is a difficult area. The one thing it is important to understand is that in terms of the overwhelming number of enforcement decisions made by the Competition Authority, it is not the authority which is the decision making body but the courts. We bring cases to the courts. Criminal cases are brought by the Director of Public Prosecutions. We are one step removed from that. Our courts are designated as the competition decision making body for purposes of European law.
One of the great problems is the escalating cost of doing business. The Competition Authority has a role to play but so has the energy regulator. The Energy Regulator has come very much into focus in recent years in competitive matters. The energy regulator states quite explicitly that price must be increased to bring in more competitors. Unfortunately that is being done at the expense of the consumer and small businesses in particular. Many indigenous firms are suffering as a result of escalating costs. Will Mr. Prasifka comment on what the competitive issues here are? Would he agree with the energy regulator that prices needed to be increased on a regular basis to the tune of 90% to 100% in the past four years to bring in more competition, or does he regard that as nonsensical?
Mr. Prasifka
The Competition Authority has contributed very much to the electricity and the energy debate. We expect to do that moving into the future. On 1 October the Government published its Green Paper along with the Deloitte report. We do not share the view, if it is offered, that competition requires an increase in price. The Competition Authority has stated consistently that what is needed, particularly in the electricity sector, is increased competition. The Deloitte report requires careful analysis and we hope it will be the starting point for a wider debate on serious structural reform of the electricity sector. The Deloitte report points out clearly that there is a significant problem in this market, with the growing dominance of the ESB and the frustration of the development of competition. In addition, there has been a failure to separate the transmission grid from the ESB and to provide competition on the supply side. Moreover, new competitors have been reluctant to enter on the generating side because they are not satisfied with the market structure. Consequently, the authority believes serious structural reform of the sector is needed and will participate fully in the consultation process initiated by the Green Paper.
Will the Competition Authority issue a statement or report along such lines?
Mr. Prasifka
We will.
When will it do so?
Mr. Prasifka
I understand the deadline for consultation is 1 December.
The authority intends to make known its views at that time.
Mr. Prasifka
Absolutely, yes.
I thank Mr. Prasifka, Mr. Quigley, Mr. Evans and Mr. Purcell for their attendance and contributing to an interesting discussion. I wish to be associated with the views expressed by other members regarding Mr. Prasifka's opening statement. It was frank, open and honest, which is to be admired and was an example to many of us.
Mr. Prasifka
I thank members for their kindness and hope I will have happier news the next time I meet them.