Annual Report 2004 Nma and Dte

Annual Report 2004 NMa and DTe

Key Figures NMa and DTe for 2004

2004 2003 2002 Reports and ines * Number of investigations in competition cases 22 53 27 * Number of reports based on a reasonable suspicion that 41 16 9 the Competition Act had been contravened * Number of cases concluded by means of alternative enforcement instruments 3 15 na * Number of cases in which investigations were discontinued 15 22 na due to a lack of evidence * Number of cases in which ines and/or injunctions were imposed 12 14 6 * Total ines in 1 million 78.7 135.5 99.6

Exemptions, complaints and informal opinions * Processed applications for exemptions from the prohibition of cartels 16 40 46 * Processed complaints about contraventions of the Competition Act 199 219 187 * Informal opinions 80 143 202

Concentrations * Notiications of mergers, acquisitions and joint ventures (concentrations) 83 69 77 * Withdrawn notiications 4 5 8 * Exemptions from waiting period 3 1 1 * Decisions in reponse to notiications of concentrations 71 71 66 * Licence required for concentrations 1 2 1 * Decisions on licence applications 0 1 0

Ofice of Transport Regulation * Processed cases regarding municipal transport companies 8 6 8 * Cases inalised by means of a legal ruling 14 5 3

DTe * Method decisions 14 18 17 NMa * Implementation decisions 212 346 329 * Enforcement decisions 46 43 29 Street address * Advice presented to the Minister of Economic Affairs 20 65 20 Muzentoren Wijnhaven 24 Administrative appeals 2511 GA The Hague * Finalised administrative appeals in competition cases 662 47 62 * Finalised administrative appeals in DTe cases 98 98 125 Postal address P.O. Box 16326 Judicial appeals 2500 BH The Hague * Finalised appeals in competition cases (Court of Rotterdam) 14 18 20 T +31 (0)70 330 3330 * Finalised appeals in competition cases (Trade and Industry Appeals Tribunal) 12 5 3 F +31 (0)70 330 3370 * Finalised appeals in DTe-cases (Trade and Industry Appeals Tribunal) 26 38 76 www.nmanet.nl/en/ Budget and personnel www.dte.nl/engels/home/ * Total budget in 1 million 35 36 32 * Number of employees as at 31 December 345 342 303 NMa/DTe Information Line T 0800–023 1885 (free)

1 In 2004 NMa issued four reports, three of which were in the construction industry. Two of these cases were very extensive; one case involved 379 companies. 2 Including ive cases at the Administrative Appeals Commission in Competition Cases (BAC).

Netherlands Competition Authority Annual Report 2004 NMa and DTe

Key Figures NMa and DTe for 2004

Ofice of Transport Regulation * Processed cases regarding municipal transport companies 8 6 8 * Cases inalised by means of a legal ruling 14 5 3

Netherlands Competition Authority Annual Report 2004 NMa and DTe Contents

Vision and Mission 4

Foreword 5

Reader’s Guide 7

Double interview | Tenders 8

Part 1: General Report

1 NMa in 2004 12 1.1 The year at a glance 12 1.2 NMa in dialogue 14 1.3 NMa’s parameters 19 1.4 NMa in the international context 22 1.5 NMa’s operations 26

Double interview | Liberal professions 38

2 Report per task 42 2.1 Supervision of the prohibition on cartels and the prohibition 42 on the abuse of a dominant position 2.2 Merger Control 47 2.3 Implementation of energy legislation: DTe 51 2.4 Supervision of the transport acts: Oªce of Transport Regulation 54

Part 2: Areas of Attention

3 Tenders 62 3.1 Applications for leniency in the construction industry 62 3.2 Investigations in the construction industry in 2004 62 3.3 Basis for ines imposed in the civil engineering and infrastructure sector 64 3.4 Other construction subsectors 66 3.5 Result 66

Double interview | Financial sector 68

4 Financial sector 72 4.1 Financial Sector Monitor 72 4.2 Compliance in the insurance sector 73 4.3 Sanctions imposed on Interpay 73 4.4 Other results 74

2 Annual Report 2004 NMa and DTe Annual Report 2004 NMa and DTe 3 Double interview | Energy sector 76

5 Energy sector 80 5.1 Results/activities 80

Double interview | Healthcare sector 86

6 Healthcare sector 90 6.1 Introduction 90 6.2 Subsectors 91

Double interview | Procurement power 96

Part 3: Reference

7 Quality reports of electricity grid and gas network managers 100 7.1 Quality reports of electricity grid managers 100 7.2 Quality reports of gas network managers 102

8 Monitoring of the electricity and gas network managers 104 8.1 Introduction 104 8.2 Supply market 104 8.3 Electricity wholesale market 105 8.4 Gas wholesale market 106 8.5 Conclusions 106

2 Annual Report 2004 NMa and DTe Annual Report 2004 NMa and DTe 3 Vision and Mission

Making markets work The statutory tasks of NMa and its Oªces which regulate speciic sectors include the enforcement of the Competition Act [Mededingingswet], the Electricity Act 1998 [Electriciteitswet 1998], the Gas Act [Gaswet], the Passenger Transport Act [Wet personenvervoer 2000] and the Railways Act [Spoorwegwet]. Central to the execution of these tasks is NMa’s mission to ‘make markets work’: the monitoring of competition and supervision of the preconditions for the functioning of these markets. A competitive environment promotes innovation and stimulates the competitive strength of the private sector. In addition, competition contributes to optimising the price/quality ratio of goods and services, and the eªcient use of (production) resources, which in turn beneits consumers.

Healthy competition A market which functions well requires healthy competition. Practices or dominant positions of companies may be the reason that market forces do not operate optimally. For this reason, NMa supervises competition. Companies are prohibited from restricting competition with their competitors by entering into agreements (prohibition on cartels). In addition, companies with a dominant position are prohibited from abusing this power, for instance by imposing unfair conditions on buyers or by excluding competitors. Dominant positions may also arise from mergers and acquisitions. NMa supervises the merging of companies to ensure that mergers do not arise which may obstruct the healthy operation of market forces.

Sector-speciic supervision In addition to supervising compliance with the Competition Act, NMa has certain sector-speciic tasks and powers, namely in relation to the energy and transport sectors. These sectoral tasks are carried out by NMa’s ‘Oªces’: the Oªce of Energy Regulation (DTe) and the Oªce of Transport Regulation. The system of oªces guarantees the consistent application of the instruments provided by the Competition Act and the instruments for sector-speciic regulation. In this way the advantages of healthy competition can be optimised within the regulated sectors.

4 Annual Report 2004 NMa and DTe Annual Report 2004 NMa and DTe 5 Foreword

NMa and DTe realise their mission to ‘make markets work’ on the basis of their statutory duties and powers. Their decisions and advice a¤ect the majority of markets which together constitute the Dutch economy. As a result, the performance of NMa’s and DTe’s duties is relevant to society as a whole. Social relevance is therefore the golden thread running through this annual report.

In this annual report, NMa and DTe report on their activities by consistently analysing the resources deployed and the results achieved from a legal, economic and social perspective.

Legal perspective NMa’s and DTe’s work has an unmistakable legal dimension. Dutch and European regulations demarcate the playing ield on which the regulator, companies and consumers-of necessity-meet. Although NMa’s and DTe’s approach is broader than the implementation of the statutory instruments, legally binding decisions continue to play a central role. This applies both to action taken against companies which disrupt the operation of market forces and to the regulation of parts of the energy sector in which the free operation of market forces is excluded by law. Testing of these decisions by the courts, where this occurs, streng- thens the authority with which NMa and DTe act. In 2004 the court recognised NMa’s power to decide on which cases it investigates in accordance with certain criteria. Part 3 of this annual report provides an overview of all the judgments of the various judicial bodies. Legal debate, however, is not limited to the courtroom: NMa and DTe are receptive to professional legal criticism, which was also heard in 2004.

Economic perspective The economic dimension is integrated into NMa’s and DTe’s decisions and advice. NMa and DTe focus on the determination of prices in line with the market, o¤ering greater freedom of choice and promoting innovation. For this it is necessary to know the markets well. Only then can realistic decisions be taken. In 2004 NMa and DTe again worked at strengthening their competence in the area of economics. Research was conducted into the quantiication of economic results to produce an analysis of relevant ‘outcomes’. NMa and DTe do so in this annual report with a certain degree of reserve, because they are aware that the methodology for quantifying ‘outcomes’ is still being developed.

Social perspective A realistic approach is central to what NMa and DTe do. It is established practice that they consult relevant ‘stakeholders’ and society as a whole on the basis of consultation documents before inalising policy rules. In this way they can align their tasks to issues of concern to society. On the other hand, NMa and DTe consider it their task to inform society about developments in the area of competition and energy, for instance by means of an Information Line and a Company Information Desk. They also give guidance by publishing opinions and organising lectures or workshops.

4 Annual Report 2004 NMa and DTe Annual Report 2004 NMa and DTe 5 NMa and DTe report on this on the basis of the areas of attention set out in NMa’s Agenda 2004. Diverse social interests play a role within each area of attention, as is evident from the double interviews. In addition, attention is given in this annual report to NMa’s and DTe’s operations, including the deployment of resources. Major progress has been made with the improvement of operations and personnel management to ensure that NMa and DTe will continue to carry out their duties and exercise their powers eªciently and e¤ectively.

The origin, aims and purpose of action taken by NMa and DTe focus on the realisation of healthy competition. Within the strict statutory frameworks, the social relevance of the action they take increases as both regulators become more accessible and realistic in their approach. The sta¤ of both NMa and DTe have worked hard to fulil these tasks. Their e¤ort is very much appreciated.

P. Kalbleisch Director General of the Netherlands Competition Authority

G.J.L. Zijl Director of the Oªce of Energy Regulation

The Hague, 20 April 2005

6 Annual Report 2004 NMa and DTe Annual Report 2004 NMa and DTe 7 Reader’s Guide

In this annual report NMa in DTe report on the deployment of their sta¤, resources and instruments in 2004 with the aim of making markets work. This annual report aims to give an insight into the results achieved by NMa and DTe in legal and economic areas. Central to this is the social relevance of NMa’s and DTe’s work.

Although the legal, economic and social dimensions are often interwoven in this report, the following three parts shed light on each of these dimensions separately. The lists of decisions, advice and court judgments, which are only available in the Dutch version of this annual report, expand on the legal dimension. The section on economic results, included at the end of the irst part, sheds further light on the economic dimension. Finally, the double interviews included throughout the annual report deal, in particular, with the social relevance of NMa’s and DTe’s work.

The table of contents at the beginning of the annual report and this reader’s guide provide starting points from which to search for information.

Part 1 | General Report The irst part of this annual report contains the general report by NMa and DTe for 2004. Chapter 1 provides an overview of the main items and discusses the approach, results and environment of the organisation, and the organisation’s operations. The summarised annual accounts included in this chapter are new this year. Chapter 2 describes the performance and deployment of resources for each task. The irst part concludes with the above-mentioned section on economic results.

Part 2 | Areas of Attention NMa’s Agenda 2004 announced that tenders, procurement power, the inancial sector, the healthcare sector, the liberal professions and the energy markets would be given special attention. The double interviews referred to above cover each of these six areas of attention. The second part of this annual report contains four chapters which discuss four of the six areas of attention in greater detail, namely tenders, the inancial sector, the healthcare sector and the energy sector.

Part 3 | Reference The third part of the annual report is the reference section. This contains reports on the quality of electricity and gas suppliers, monitors of the electricity and gas markets. Furthermore, it contains the above-mentioned lists of case law in 2004 in relation to competition and energy cases, which are only available in the Dutch version.

6 Annual Report 2004 NMa and DTe Annual Report 2004 NMa and DTe 7 We wished to be able to focus once again on the future.

Age Vermeer

The topics which brought NMa into the news most in 2004 Do you understand why the discussion has arisen within were the infringements of competition law in the construc- society about the way the construction industry operates? tion industry. The fact that the construction industry not only sat in the dock, but also actively contributed to a change Vermeer “It is right that this discussion takes place. of culture, is clear from the meeting between René Jansen, There was a certain ‘lifestyle’ in the industry with regard Deputy Director General of NMa, and Age Vermeer, to tenders, which had got out of hand. The way the sector a member of the Management Board of Dura Vermeer itself took action has also been trivialised. ‘There is so and Director of Dura Vermeer Infra Division. much talk’, is more or less the view expressed. The sector

8 Annual Report 2004 NMa and DTe Double interview | Tenders 9 The industry was caught in a Gordian knot.

René Jansen

has still not really been thrown o¤ balance by the discus- was that, if prohibited, the system would go ‘underground’, sion within society. Contractors have an image problem which is what happened. However this gave rise to a situa- and therefore we are used to receiving comments.” tion in the construction industry from which the industry Jansen “The case goes back a long way. Up until the could not escape when the old structure was prohibited. beginning of the 90s there was a ‘legal cartel’ of Cooperative The industry was not able to free itself from the relation- Price Regulating Organisations [Samenwerkende Prijs- ships and inancial settlements between companies.” » regelende Organisaties], partly because the government wished to organise the market to a certain extent. The fear

8 Annual Report 2004 NMa and DTe Double interview | Tenders 9 Will the action taken by NMa contribute to a change behalf of the government we took the lead in this complex of culture within the construction industry? situation, operated as e¤ectively as possible and o¤ered a quick sanctions procedure. The fact that there was mutual Vermeer “As a result of the action taken by NMa, at the respect for each other’s position played a role in this…” beginning of 2004, when the second parallel accounts Vermeer “… and NMa creatively looked for a solution, (of Boele & Van Eesteren) emerged, a change occurred in for which it deserves full credit.” the attitude of the construction companies. On the one Jansen “We also had an interest in settling the case quickly, hand, we saw that there was no way out, but also, on the so that we could soon focus again on ‘normal’ regulatory other hand, we were given an opportunity to emerge from activities. There were companies that took the lead in the this situation. In the end we clearly understood NMa’s construction industry and from within the industry the appeal to ‘come clean’.” importance in the longer term of a solution was raised.” Vermeer “Look, in the future more construction work Jansen “The industry was caught in a Gordian knot. will have to be done and there will be more scope for infra- The network between the companies had become so structure projects and a need for housing. How should complex that no one was actually able to o¤er a solution. we deal with this problem? How should we ensure that Furthermore the construction industry was confronted this does not happen again? Where is the borderline by investigations by various government oªces. It is between permissible and prohibited cooperation between perhaps NMa’s role to support markets which cannot companies? We will have to develop new structures and resolve these problems.” deinitions.” Vermeer “The construction world was also convinced of Jansen “NMa will not be actively involved in this. We focus the need for change. New structures were required which on infringements of the law and not on the organisation of we ourselves could not think up. The parties that issue the market. The construction industry will have to comply tenders are at a loss. There is a loss of trust between those with the regulations of its own accord.” issuing tenders and the construction industry. Afraid of the consequences, no one dares to enter into negotiations with us.” Jansen “From our side, the matter was also urgent from the end of 2001 onwards. The discussion within society increased the pressure. Parallel accounts emerged. There was a Parliamentary Commission of Inquiry. The public was indignant. Something had to happen. NMa gave the highest priority to the construction industry. A large team worked on the case and there was a considerable investment in knowledge and resources.” Vermeer “We once again wished to be able to focus on the future…” Jansen “… and NMa managed to enable the industry to settle accounts with the past in a credible way.”

Has the Competition Act acquired a place within the construction industry?

Vermeer “There has clearly been a change of culture and a need for a new approach and new agreements. Due to NMa’s relatively independent position, it could play an important role in solving the problem where other parts of the government could not maintain an overview of the situation. NMa also responded to our request for a practical and quick approach.” Jansen “This appeal came from Brinkman with his statement ‘Executioner, do the job quickly’. The construction industry was well aware of what had to happen. On

10 Annual Report 2004 NMa and DTe Double interview | Tenders 11 What will the construction market look like in 5 to 10 years’ time? Will there be a ‘shakeout’ of ineªcient companies?

Jansen “General’ prosperity is served by an industry that operates eªciently. In sectors with poorer performance, protective cartel structures arise when overproduction occurs. Poorer performance on a sector is a reason for us to give attention to the sector.”

Vermeer “Recognising the importance of competition has taken some time, but due to the action taken by NMa, overcapacity will disappear in time. Companies which General prosperity is underperform will probably not survive after the agreements between the companies have disappeared. You served by an industry that must remember that this is a very large industry. There operates eªciently. are approximately 6,000 construction companies. This is a many-headed entity which could beneit from some competition.” Jansen “Increasingly compliance with international regulations in the area of competition will be required. NMa already has to enforce European legislation. However, there is not a level playing ield at the international level.” Vermeer “I recognise this. We do a fair amount of business with foreigners. They need us, but for foreign companies the Dutch market is fairly diªcult. The barriers to entry are fairly high.” π

The construction industry could beneit from some competition.

10 Annual Report 2004 NMa and DTe Double interview | Tenders 11 1 NMa in 2004

1.1 The year at a glance

A market characterised by healthy competition gives rise to innovation. The advantages are to the beneit of consumers, entrepreneurs and taxpayers. NMa’s aim is to generate or to pass on these advantages and, in line with its mission, NMa takes decisions which have social relevance. In 2004, NMa achieved a number of clear results which were also socially relevant. While these results are central to this entire annual report, this paragraph sheds light on the main aspects of this. This brief overview relates to the six areas Note 1 of attention as set out in NMa’s Agenda 2004,1 which was formulated on www.nmanet.nl/nl/ the basis of broad consultation within Dutch society. Images/11_15944.pdf

Tenders Construction sector ‘comes clean’ Following the parliamentary inquiry into the construction sector, another set of parallel accounts came to light, providing evidence of cartel agreements in the construction sector. In the wake of this construction a¤air, it appeared that a large number of construction companies wished to ‘come clean’ after an appeal by the Minister of Economic A¤airs and the Director General of NMa. They indicated that they wished to make an active contribution to competition within the construction sector. The participants in a cartel may come clean by submitting evidence of the cartel of their own accord to NMa. NMa received 481 applications for leniency which related mainly to consultation between companies prior to submitting tenders. NMa introduced a shortened sanctions procedure to accelerate the settlement of these cases.

Energy sector Consumers are central to energy On 1 July 2004, Dutch citizens were free for the irst time to choose where they purchase electricity and gas. The Oªce of Energy Regulation (DTe) supervised the liberalisation of the gas and electricity markets intensively. This was done mainly from the perspective of consumers. DTe drew up mandatory transparency guidelines for energy bills and supervised compliance with the licensing conditions applicable to energy suppliers. NMa also assessed the acquisition of the electricity producer Reliant by Nuon to avoid the emergence of a dominant position.

Healthcare sector Monitoring competition in the healthcare sector In the healthcare sector steps are gradually being taken to introduce more competition. The aim is to achieve a better, cheaper, more eªcient and more innovative healthcare sector with attention to public interests. This process involves politicians, patients, healthcare providers, healthcare insurers and regulators. NMa set out a framework for this in white papers on hospital care and care provided under the Exceptional Medical Expenses Act [AWBZ]. These frameworks were applied in several merger cases involving home care institu- tions and hospitals. In addition, NMa took action against pharmacies which used their electronic networks that provide access to patient data in such a way that competitors and new entrants could be excluded.

12 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 13 Financial sector Results in the inancial sector Shop owners and retailers are charged for PIN transactions. Following reports from MKB Nederland, the umbrella organisation of SME companies, NMa investigated the high charges for PIN payments. It emerged from this that the provider, Interpay, charged excessive rates for executing electronic PIN payments. In April 2004, NMa decided to impose a ine of more than 4 30 million on Interpay. After this decision, shop owners and retailers had more scope for negotiating rates.

In response to an investigation by NMa, companies in the insurance branch and the Dutch Association of Insurers have started drawing up and implementing a sector-wide compliance programme. By doing so, the companies wish to guarantee compliance with competition legislation within their own organisations. It is the irst time in the Netherlands that a programme to ensure compliance with competition rules has been initiated on such a large scale.

Liberal professions Research into the liberal professions There is increasing discussion about codes of conduct and the degree of competition within the various liberal professions. The European Commission and various Member States have given increasing attention to competition between advocates, civil law notaries, real-estate agents and accountants.

The markets for the liberal professions are traditionally strongly regulated and are characterised by high barriers to entry. In 2004 NMa investigated the necessity and proportionality of the rules of the various organisations of the liberal professions. This investigation will be concluded in 2005.

Procurement power Abuse of procurement power not proven Procurement power was the topic of heated discussion in Dutch society in the retail sector, but also in the relationship between health insurers and physiotherapists. In 2004 NMa conducted research into the consequences of procurement power under competition law. During this research NMa did not encounter infringements of the Competition Act and ascertained that procurement power is to the advantage of consumers if there is suªcient competition between the procuring companies.

The examples above relate to cases in which considerable economic and social interests play a role. NMa gives priority to topics of considerable economic and social importance and of importance to consumers. The action taken by NMa is therefore often at the centre of discussion within Dutch society on the (economic) shape of society.

12 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 13 1.2 NMa in dialogue

In the course of their daily work, NMa’s sta¤ have contact with companies, consumers and non-governmental organisations. They have discussions with people who provide tips and people who submit complaints. They are involved in interrogations and hearings and give lectures at academic congresses or congresses for sectors of industry.

1.2.1 Outside-in To be e¤ective in removing restrictions to competition, NMa depends to a considerable extent on reports from society. Various instruments have been developed to facilitate contact ‘from the outside inwards’.

Consultation As has been noted, NMa attaches considerable importance to experience and knowledge obtained from society due to the social implications of its work. This Figure 1 is certainly the case if NMa enters new areas or makes use of new instruments. Contacts with the Information Line Companies, academics, consumers and organisations representing interest 16,000 groups are regularly invited to respond to NMa’s ideas and provisional standpoints. The aim of this is to increase the acceptance of and compliance 12,000 with competition rules. This occurs mainly through consultation processes. In 2004 NMa consulted stakeholders and interested parties about its Agenda 2005, 8,000 procurement power, competition on the insurance brokerage market and best practices in merger cases. DTe held consultations, for instance, on the imple- 4,000 mentation of the Implementation and Intervention Act and the Guidelines for Gas Transmission for the year 2005. 0 2003 2004 Information Line Consumers and companies can ask questions about the Competition Act or pass on tips about infringements of the Act through the Information Line. Figure 2 This is frequently used, as appears from the graphs. Contact by type and channel (in %) In 2004, 275 tips about supposed infringements of the Competition Act were handled. Approximately one in seven tips gives NMa cause to start a new investigation or is included in an existing investigation. All reports are used 28 24 by NMa to attain an impression of the behaviour of companies.

Monitoring 23 25 NMa closely monitors market behaviour and developments in various sectors. This is done in a structural, institutionalised way through the Financial Sector Monitor and DTe’s monitor. The Financial Sector Monitor conducts economic NMa: e-mail research into the level of competition in various submarkets of the inancial NMa: telephone sector, with a view to early identiication of possible risks to competition. In DTe: e-mail 2004 the most important conclusions of the Financial Sector Monitor were that DTe: telephone the preference of buyers for long-lasting relationships with the providers of

14 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 15 inancial products may have an adverse e¤ect on the level of competition within the inancial sector. This preference may even result in higher prices. The charging of costs, if a buyer switches to a di¤erent inancial service provider, may even strengthened this e¤ect.

DTe’s monitor focuses on the market for the supply of gas and electricity and the wholesale market for energy. In 2004 NMa also carried out a scan of the petrol market. This scan showed that competition between petrol stations on local and regional roads has increased, on the one hand, due to an increase in the number of unmanned illing stations and, on the other hand, due to the increasing use of discount cards by consumers.

Complaints Oªcer In 2004 NMa received ive complaints in accordance with chapter 9 of the General Administrative Law Act. These are complaints about the way in which NMa behaved in a particular case in relation to a citizen or a company. The complaints related to:

* the provision of information on the current situation with regard to the processing of an administrative appeal;

* failure to start an investigation into evidence which supposedly pointed to an infringement of the Competition Act;

* the procedure during a hearing regarding a notice of administrative appeal; * failure to exercise suªcient objectivity in taking action against a particular sector of industry; * failure after 1 August 2004 to process an administrative appeal against the extension of an exemption, due to the lapsing of section 17 of the Competition Act as of that date.

The Director General of NMa found that two of these complaints were partially well founded and were partially unfounded; he declared one complaint to be entirely unfounded. In the case of two complaints, an amicable settlement was reached in consultation with the complainant.

Customer satisfaction survey In 2004, NMa commissioned a customer satisfaction survey amongst advocates and companies, a survey of users of NMa/DTe’s Information Line and a name recognition and image survey amongst directors and owners of companies and amongst the Dutch public. NMa’s strengths, as they emerged from these surveys, are authority, professionalism and legal expertise. The areas for improvement are, in particular, decisiveness and transparency. The latter areas for improvement were the basis for an internal project entitled Timeliness & Transparency, in which the entire organisation was examined in relation to both of these points. Following this, management contracts were introduced, NMa has a more focused approach to its target groups and an activity calendar is published on its website. The website will also be revised in 2005.

14 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 15 1.2.2 Inside-out

Transparency in applying the law Contact ‘from inside outwards’ occurs frequently at NMa and in various ways. NMa regularly receives requests from non-governmental organisations and companies for guidance or direction in relation to competition issues.

In its decisions, NMa attempts to give as much clarity as possible on the application of competition law. In addition, NMa publishes guidelines where there is a widely felt need for guidance on the application of competition rules. In 2004 NMa published guidelines on best practices in relation to merger cases, guidelines in relation to the imposition of ines in several speciic cases in the construction industry and guidelines on the application of NMa’s powers to act as an amicus curiae (friend of the court). Furthermore, the Leniency Guidelines were amended and NMa published a white paper on procurement power and competition in the hospital sector and the healthcare markets governed by the Exceptional Medical Expenses Act. DTe drew up guidelines with minimum criteria for the compilation of and the items speciied in energy bills. In addition, DTe adopted Policy Rules for Procedural Disputes in Relation to Energy [Beleidsregels proceduregeschillen energie] and prepared Guidelines for Cancellation Charges [Richtlijn voor opzegvergoedingen], which were adopted at the beginning of 2005.

Publications and participation NMa attempts to provide clarity by means of publications and participation by NMa’s sta¤ in congresses and symposiums. In 2004 the Director General of NMa, Pieter Kalbleisch, gave a lecture at, amongst others, the seminar on ‘Consequences of the Modernisation of Competition Law’, organised by VNO- Note 2 NCW and Freshields.2 During ING Bank’s SME Advisory Council meeting, www.nmanet.nl/nl/ he emphasised the importance of branch associations in relation to compliance Images/11_18847.pdf with competition rules.3 In a di¤erent lecture, he dealt with NMa’s view of the Note 3 application of section 24 of the Competition Act on the abuse of a dominant www.nmanet.nl/nl/ position. On this occasion, the assessment of excessively high prices in testing Images/11_26406.pdf for abuse, in particular, was discussed.4 Note 4 www.nmanet.nl/nl/ The quarterly magazine NMagazine gives attention to various social themes Images/11_17437.pdf and matters relating to NMa and its environment. Approximately 3,000 external contacts receive the magazine. The magazine’s formula was changed following a survey amongst readers of NMagazine in 2004, to ensure that it meets the needs of the most important target group of the magazine, namely companies and branch associations.

16 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 17 Where can brochures, guidelines and frequently asked questions be obtained? NMa endeavours to achieve maximum compliance with competition rules. For this reason, it is important that citizens and companies are informed as well as possible of these competition rules. NMa regularly publishes brochures which give clear and concise explanations of what the regulations mean. For instance, in 2004 the brochure ‘Modernisation of European Competition Rules’ [‘Modernisering Europese mededingingsregels’] was published. All NMa’s brochures can be downloaded from NMa’s website (www.nmanet.nl/en/) under the heading of ‘News and Publications’. NMa publishes guidelines which provide an extensive legal explanation of law enforcement by NMa in the various sectors, using a diverse range of instruments. These are directed mainly towards companies, lawyers, consultants and students of competition law. These guidelines can be obtained from NMa’s website (www.nmanet.nl/en/) under the heading ‘Legislation’.

NMa, DTe and the Oªce of Transport Regulation provide consumers and companies with information in various ways through their websites. For instance, DTe, like NMa, issues press releases on its website (www.dte.nl/engels/news_publications/pressreleases/index.asp). NMa’s website o¤ers a considerable amount of information in iles on various topics (www.nmanet.nl/en/ under ‘News and Publications’). Answers are given to frequently asked questions in relation to, for instance, cable services, Internet and television, healthcare and NMa’s procedures. The website of the Oªce of Transport Regulation can be visited at NMa’s website (www.nmanet.nl/en/vervoerkamer.asp). DTe provides information through its own website (www.dte.nl/engels/home/).

Advocacy NMa is regularly asked to give advice on a variety of policy processes. Advocacy also plays a role in the areas of attention chosen by NMa in its Agenda 2004, as discussed in Part 2 of this annual report. NMa can use the knowledge it collects in advising government departments, particularly when these departments expect that policies will a¤ect competition in a sector.

For instance, on the basis of its knowledge and experience of the energy markets, DTe advised the Minister of Economic A¤airs in 2004 on a number of occasions with regard to market developments and possible measures. On 4 November 2004, the Minister asked the Director of DTe for advice on the tasks and activities of gas network and electricity grid managers after the splitting of energy companies. On 16 December 2004, the Director of DTe sent the Minister the advice requested. The creation of independent and autonomous electricity grid and gas network managers requires a precise deinition of the duties, responsibilities and permitted activities of the electricity grid or gas network manager in the situation after the split. The Minister has incorporated the advice in the bill in relation to the splitting of energy companies which is currently being prepared. In 2004 DTe gave advice, for instance, in relation to the heating market, the ministerial scheme for buyers and the independence of electricity grid and gas network managers.

16 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 17 At the request of the Minister of the Dutch Ministry of Agriculture, Nature and Food Quality, NMa gave its view of the monopoly position of Rendac, an animal rendering company. NMa stated that it had no evidence that Rendac had abused its dominant position. NMa also gave the Minister two considerations which could be used in reviewing the rendering system and the introduction of (more) competition.

At the request of the Minister of Economic A¤airs, NMa gave advice on various occasions in 2004. It gave advice, for instance, on KPN’s application for access to the cable, on the question of whether KPN should be allowed to acquire a greater interest in Digitenne and on the Decision in Relation to the Exemption of Joint Venture Agreements [Besluit vrijstelling combinatieovereenkomsten]. With regard to the latter case, NMa advised the Minister to conduct further research into whether it was desirable and possible to operationalise the norm for permit- ting joint ventures in the construction industry. A norm which is speciied in more detail would provide more clarity on which joint ventures are or are not permissible and the assessment (self-assessment by companies and by the public oªces which issued tenders) of the permissibility of joint ventures would be made simpler.

Academic dialogue The dialogue with scholars occurs in various ways. In addition to writing articles Note 5 in trade journals5 and giving guest lectures and presentations to (international) For example, J.J.M. Sluijs, academic congresses, various handbooks in the area of competition law and Gereguleerde marktwerking van socialezekerheidsbelangen: het competition economics have been produced by NMa’s sta¤ in their own time mededingingsrecht en het vrij and in their personal capacity. In 2004 the irst collection of reprints of articles verkeer van diensten voor zorgen appeared and the irst research memorandum was published. pensioenbelangen. PhD thesis. VU, Kluwer, Deventer, 2004; P.M.M.M. Beusmans and NMa strives to achieve a good exchange of ideas and a critical dialogue with aca- J.N. van Ommeren, ‘Collaboration demics, so that decisions can be made on the basis of relevant modern insights. and Defensive Behaviour: The Inluence of Competition Policy on Competition economics and competition law are disciplines which are subject Associations in the Netherlands’, to rapid change and new insights, both within the Netherlands and abroad. This European Competition Law Review, applies, in particular, to microeconomics and industrial organisation. For this 25 (2004), pp. 502–508; V. Bröcheler, S. Maijoor and reason, NMa continuously endeavours to strengthen its capacity to make sound A. van Witteloostuijn, ‘Auditor legal and economic analyses and, at the same time, to increase the practical Human Capital and Audit application of the academic research in the aforementioned areas. Firm Survival’, Accounting Organizations and Society, 29 (2004), pp. 627–646. Concrete steps have been taken since April 2005 to create an Economic Bureau within NMa which is intended to be fully operational on 1 January 2006. There is also regular contact with Vereniging voor Mededingingsrecht (the association for competition law), involving an exchange of opinions with regard to the practice of competition law and with regard to proposed policy and legislation.

NMa is involved in stimulating the development and strengthening the role of applied competition economics in the curriculum of universities and on the independent research agendas of leading academics. An example of this is the

18 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 19 activities of ENCORE, an academic network which focuses on competition and regulation issues. ENCORE runs research programmes, postgraduate programmes and congresses which NMa stimulates, as a co-founder of ENCORE.

Finally, biweekly discussion meetings are held with lawyers and economists at which in 2004, for instance, lectures were given by Prof. Joseph E. Harrington Jr. (Johns Hopkins University) and Prof. Arjen van Witteloostuijn (University of Groningen and University of Durham).

1.3 NMa’s parameters

The legislature determines NMa’s tasks and powers. In addition, developments within and outside NMa a¤ect the way it functions. In this paragraph, an outline is given of the developments which a¤ected NMa as a whole. The developments which are important for speciic parts of NMa will be discussed in chapter 2 of this annual report.

Competition (Independent Administrative Authority) Amendment Act On 7 December 2004, the Upper House of the Dutch Parliament approved the bill which will transform NMa into an autonomous administrative authority. NMa will acquire a Management Board which will have the status of an independent administrative authority. As of 1 July 2005, the Management Board of NMa will consist of three members. The most important amendment to the Competition Act is that the Minister of Economic A¤airs will cease to have the power to issue directives in individual competition cases. The Minister will remain responsible, however, for competition policy and may issue NMa with general directives. The Competition (Independent Administrative Authority) Amendment Act [Wet tot wijziging van de Mededingingswet in verband met het omvormen van het bestuursorgaan van de Nederlandse mededingingsautoriteit tot zelf- standig bestuursorgaan] provides, for instance, for the full integration of DTe into NMa. The Management Board will be responsible for DTe. Acquiring the status of an independent administrative authority has no consequences for the legal position of NMa’s employees. They continue to be employed by the Ministry of Economic A¤airs.

Creation of the Oªce of Transport Regulation The Oªce of Transport Regulation, which has functioned as a project of NMa since 2001, was given the status of a fully-ledged oªce of NMa. The reason for this was the assignment to the Oªce of Transport Regulation of the duty to supervise compliance with two acts, namely the Passenger Transport Act 2000 and the Railways Act. At the end of 2004, it became clear that the Railways Act would come into force on 1 January 2005. Supervision under the Act focuses on compliance with statutory norms and obligations, and relates to the provision of services in the transport sector and the market behaviour of companies.

18 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 19 Division of roles between NMa and the Oªce of Health Regulation (currently being established) To ensure clarity with regard to the division of tasks and roles between NMa and the Healthcare Charges Board [College Tarieven Gezondheidszorg]/Oªce of Health Regulation [Zorgautoriteit], which is currently being established, a cooperation protocol has been drawn up which will be signed in 2005. This protocol will contain agreements on cooperation and the division of work. These agreements will provide clarity for market parties on the tasks of these regulators in the healthcare sector and will clarify whom market parties should approach with their complaints. The cooperation with OPTA serves as an example for this. In this cooperative relationship, NMa contributed to deining OPTA’s new markets. It appears from an evaluation carried out by OPTA itself that the cooperation between OPTA and NMa has been satisfactory.

Direct Judicial Appeals Act [Wet rechtstreeks beroep] Before it is possible to ile a judicial appeal with a court against a decision taken by a public administrative authority, in accordance with the General Administrative Law Act [Algemene wet bestuursrecht] an administrative appeal must irst be submitted to the administrative authority. As of 1 September 2004, the Act provides for the possibility of skipping the administrative appeal procedure and iling a judicial appeal directly with the court, provided the interested parties request this and the administrative body gives its consent. A direct judicial appeal can reduce the time required for the proceedings by a number of months. In principle, NMa will give its consent to applications for direct judicial appeals where this relates to decisions imposing sanctions pursuant to the Competition Act. Where this relates to other decisions, NMa or DTe will assess whether the case is suitable for a direct judicial appeal on a case-by-case basis. A direct judicial appeal is not the most obvious course of action if the evidence or the standpoints of the parties are not clear or if opportunities still exist to resolve the dispute. In 2004 NMa received one request for a direct judicial appeal and consented to this.

New guarantees in sanctions procedures As of 1 September 2004, the evidence which an investigation produces will be presented to the parties involved for comment. The background to this is that, due to the coming into force of the Direct Judicial Appeals Act, it is possible to skip the administrative appeal phase in cases relating to sanctions and to ile a judicial appeal directly with the Court of Rotterdam against a decision imposing a sanction. The possibility of a complete reassessment of the primary decision on the basis of the advice of the Administrative Appeals Advisory Committee therefore no longer applies. Presenting the evidence for comment is in the interests of greater care in the decision-making process.

In addition, NMa has decided that as of 1 September 2004 reports on investigations into infringements of competition law will be signed by the Director of the Antitrust Department. The Director General of NMa has given the director the task of ‘having a report drawn up’. This reinforces the division between,

20 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 21 on the one hand, conducting the investigation and the drawing up of a report by the Antitrust Department and, on the other hand, the imposing of sanctions by the Director General of NMa.

Civil enforcement A company or consumer whose interests are a¤ected, may approach NMa or may initiate civil proceedings. He may argue that the competition rules have been infringed and that he has su¤ered a loss as a result. During the parliamentary proceedings in relation to the Competition Act, the legislature emphasised from the start that the enforcement of the Competition Act is not only the task of NMa, but interested parties may themselves also demand compliance with competition rules, in particular through the civil courts. Although interest focused on enforcement by NMa in the initial years after the Competition Act came into force, compliance with competition rules has also frequently been the subject of cases brought before the civil court. In 2004 the civil court passed judgment in approximately 25 cases.

Civil enforcement is expressly stimulated both at the European level and by the Dutch government. The possibility of civil enforcement is also one of the criteria Note 6 of NMa’s policy on priorities6 with regard to the eªciency and e¤ectiveness See NMa’s Agenda 2004: of action taken by NMa. In certain cases, the interested party is the best person www.nmanet.nl/nl/ Images/11_15944.pdf to demand enforcement of competition rules through a civil suit, for instance if he is a¤ected by a refusal to supply goods and services or a restrictive clause in a contract which is in conlict with the Competition Act.

Academic competence Cases are generally handled within NMa by multidisciplinary teams which are competent in the areas of both economics and law. Economic research, conducted either internally or externally, is often used in monitoring sectors, assessing mergers and detecting cartels, or determining whether a dominant position has been abused.

In 2004 NMa created a rotating advisory position for a leading academic economist appointed to a Dutch or foreign university from which the candidate is seconded to NMa. This position is modelled on the position of the Deputy Assistant Attorney General for Economic Analysis which exists in the United States. Other EU Member States have also created such a position. Depending on availability and after an evaluation of its experience with this position, NMa hopes to appoint a leading academic to this position, preferably every year. Dr M.P. Schinkel of the University of Amsterdam has been appointed to this position for 2005.

In 2004 several employees of NMa were awarded their doctorates or continued work on their doctoral research. NMa supports doctoral research, for instance by granting study leave and/or by contributing to study costs.

20 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 21 1.4 NMa in the international context

1.4.1 The modernisation of European competition law Note 7 In 2004 important reforms were introduced by Regulation 1/20037 and Council Regulation (EC) No. 1/ Regulation 139/20048 in relation to the application of the European prohibition 2003 of 16 December 2002 on the implementation of the rules on on cartels (Article 81 of the EC Treaty) and the European prohibition on the competition laid down in Articles abuse of a dominant position (Article 82), as well as the enforcement of 81 and 82 of the Treaty, OJEC L European competition rules. 001, 04-01-2003, pp. 1–25.

Note 8 1.4.1.1 Antitrust supervision Council Regulation (EC) On 1 May 2004 Regulation 1/2003 came into force and replaced Regulation No. 139/2004 of 20 January 2004 on the control of concentrations 17/62. Regulation 1/2003 abolished the possibility of obtaining an exemption between undertakings (the EC from the prohibition on cartels pursuant to Article 81(1) of the EC Treaty. Merger Regulation), OJEC L 024, 29-01-2004, pp. 1–22. Preparations and amendments In the irst six months of 2004, NMa gave considerable attention to preparations for the introduction of the Regulation. NMa contributed intensively to the Note 9 creation of the European Competition Network (ECN)9 and the promotion of In cooperation with ECN, the cooperation within the network. In addition, NMa provided information on the Commission has published a number of notices and announce- changes resulting from the Regulation through the publication of a brochure, ments which are important for its website and by means of information meetings. NMa advised the Ministry the implementation of Regulation of Economic A¤airs with regard to amendments to national legislation arising 1/2003 within ECN. The notices can be obtained from the from the Regulation. Finally, the introduction of the Regulation required changes European Commission’s website: to NMa’s internal procedures. The most important changes are discussed below http://europa.eu.int/comm/ in the text box. competition/antitrust/legislation/

Regulation 1/2003 The Regulation requires NMa to apply not only Dutch competition law, but also European competition law to cases in which trade between Member States may be a¤ected. This means that an additional test has to be carried out in each case handled by NMa. This also means that NMa has to notify the European Commission and ECN of all new investigations and draft decisions if these a¤ect trade between Member States. Furthermore under certain circumstances the Regulation makes it possible to exchange conidential information within ECN. A sta¤ unit within the Antitrust Department is responsible for the tasks resulting from this cooperation. A disclosure oªcer has been appointed for the exchange of information. Note 10 The regulation grants NMa the power to assist the courts in competition cases as an amicus curiae See the Act of 30 June 2004 (a friend of the court). NMa explains how it will exercise this power in its Amicus Curiae Guidelines. amending the Competition Act and several other acts in relation The regulation has made it necessary to introduce a number of transitional arrangements. In to the implementation of EC administrative appeal cases, in which a sanction was initially imposed for an infringement of sections 6 Regulations 1/2003 and 139/2004 and/or 24 of the Competition Act, Articles 81 and/or 82 of the EC Treaty have been applied if trade (Modernisation of EC Competition Law Act [Wet modernisering between Member States could be a¤ected. Examples of this are cases 2269 (shrimp isheries) and 2658 EG-mededingsrecht]), Netherlands (mobile operators). Government Gazette, 20-07–2004, After the abolition of the European exemption system, the Dutch legislature decided to abolish also p. 345. the national exemption system.10 The Modernisation of EC Competition Law Act [Wet modernisering 11 Note 11 EG-mededingsrecht] stipulates (in section IIIa(3)) that administrative appeal procedures in relation Idem. to exemptions will not be processed further.

22 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 23 Cooperation within ECN As of 1 May 2004, in addition to the European Commission national competition authorities enforce the European prohibition on cartels and the European prohibition on the abuse of a dominant position. Together with the other competition authorities in Europe, NMa takes action against infringements which may a¤ect trade between Member States. The national competition authorities and the European Commission work together in this regard within ECN. NMa Note 12 participates in ive policy working groups12 and the plenary meetings of ECN. These are the following working The policy with regard to the implementation of Regulation 1/2003 is prepared groups: ‘Transitional Issues’, ‘Ne-bis-in-idem’, ‘Leniency’, by these bodies. NMa is also represented in ECN’s sectoral subgroups. Finally, ‘Communication and NMa participates in the Directors General Meeting. Information’, and ‘Article 82’. Results Since 1 May 2004 NMa has notiied ECN of 17 new investigations within the framework of Article 11(3) of Regulation 1/2003 and has presented 10 draft reports or decisions to ECN. NMa also assisted the European Commission on four occasions in conducting inspections of companies in the Netherlands. In 2004 NMa applied Articles 81 and/or 82 of the EC Treaty, for instance, to cases 3031 (Temporary employment bureaux) and 3310 (Nederlands Tandtechnisch Genootschap, the Dutch association of dental laboratories).

1.4.1.2 Merger control As of 1 May 2004, a new European Merger Regulation (Regulation 139/2004) came into force. In addition to the revised formulation of the material test of mergers, a revised referral system took e¤ect. The clearer test makes it possible to prevent mergers if they ‘would signiicantly impede e¤ective competition (...), in particular as a result of the creation or strengthening of a dominant position’. Under the new referral system, companies have the possibility of applying for referral before a competition authority is formally notiied of the case. Companies therefore do not need to notify various European competition authorities of a merger. On the basis of this new referral procedure, one case of which NMa should have been notiied was referred to the European Commission in the prenotiication phase.

With the revision of the referral system, the ‘Principles on the Application by National Competition Authorities on Referrals of Concentrations to the European Commission’ of the European Competition Authorities (ECA) are also due for revision. The Principles form the basis of cooperation between the national competition authorities in relation to such referrals. The ECA meeting in Trier and Luxembourg in May 2004 was the starting point for the activities of the ‘ECA Multi-Jurisdictional Mergers Working Group’ with the aim of revising the Principles. NMa is an active participant in this working group.

1.4.2 Netherlands Presidency of the European Union NMa organised two activities within the framework of the Netherlands Presidency of the Council of Ministers of the European Union from 1 July 2004 onwards.

22 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 23 European Competition Day On 22 October 2004, NMa organised the ‘European Competition Day’ in cooperation with the Ministry of Economic A¤airs. The central theme was ‘Compete!’ and the topic of discussion was the opportunities for promoting civil enforcement within Europe. Another topic discussed was the setting up of compliance programmes by companies and the extent to which public authorities should promote this.

Seminar on ‘Competition Law and Liberalisation of the Polish Market’ On 7 December 2004 NMa organised a seminar on competition and liberalisation in Poland in cooperation with the Polish competition authority (UOKIK) and the Netherlands Embassy in Warsaw. The speakers were drawn from UOKIK, the European Commission, the legal profession and NMa. Dutch and Polish companies were well represented. The aim of the day was to outline the role that competition policy can play in the Polish market which is undergoing rapid liberalisation.

1.4.3 Promotion of European and international cooperation In 2004 NMa was an active participant in European and international meetings and working groups within the framework of the European Competition Authorities (ECA), the International Competition Network (ICN) and the Organisation for Economic Cooperation and Development (OECD). NMa adheres to the principle that cooperation between authorities promotes knowledge development and, by doing so, enhances the quality of regulation.

The meetings at which NMa made a major contribution were: * the ECA ‘Financial Services’ working group. In this working group the Irish, UK, Swedish and Dutch competition authorities cooperate in carrying out a comparative study of retail banking and payment systems. The aim is to develop a qualitative description of competition in the inancial sector, an analysis of the level of concentration, and a description and comparison of the various payment systems; * a two-day workshop of the ICN ‘Merger Subgroup on Investigative Techniques’ in Brussels (October 2004). On the basis of a practical case, the participants went through the stages of an investigation; * the ‘Energy Day’ organised by the European Commission on 21 September 2004 in Brussels.

In 2004 NMa also developed international activities on its own initiative. More information on this is provided in the text box.

24 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 25 NMa organises international congresses ‘Forensic IT’ NMa increasingly uses digital investigative techniques in its on-site inspections of companies. NMa collects evidence by investigating digital data. In 2003 NMa provided an insight into its procedures through the publication of the ‘Method of Operation in Relation to the Inspection and Copying of Digital Data and Documents’ [‘Werkwijze met betrekking tot het inzien en kopiëren van digitale gegevens en beschei- den’]. Other European competition authorities are also making increasing use of digital investigative techniques. Competition authorities can learn much from each other in this new area of work. It is important to consider how they can exchange digital information. For this reason, in 2004 NMa prepared the ‘3rd European Forensic-IT Meeting’ in cooperation with the Italian competition authority. This congress, which was held in Rome in April 2005, is a follow-up of earlier congresses on this topic.

‘International Conference on Simulation Models for Merger Cases’ On 23 November 2004 NMa organised an international conference to discuss the application of economic models in calculating the e¤ects of mergers (see also section 2.2.3). The conference was attended by a large number of prominent participants from the entire world. Approximately 20 competition authorities and speakers such as Prof. G.J. Werden (US Department of Justice), Prof. L.H. Röller (Chief Economist DG Competition) and Prof. M. Ivaldi (Université de Toulouse) were present.

Oªce of Transport Regulation Note 13 Directive 2001/14 EC13 stipulates that Member States must set up a regulatory Directive 2001/14/EC of the authority for the railway sector. The regulatory authorities of the various European Parliament and of the Council of 26 February 2001 on Member States, such as the Oªce of Transport Regulation in the Netherlands, the allocation of railway infra- are required to exchange information and cooperate in order to develop best structure capacity and the levying practices for regulation. In 2004 this directive was implemented. During six of charges for the use of railway infrastructure and safety certii- meetings the implementation of the directive in the Member States was dis- cation, OJEC L75, 19-03-2001, cussed. Attention was also given to the network declarations and problems pp. 29–46 obtaining access to the railways. The experiences of the UK and German regulators, in particular, were immediately applicable. The Oªce of Transport Regulation applied the newly acquired insights in its advice to ProRail and the Ministry of Transport, Public Works and Water Management.

In December 2004, the railway regulators of the Netherlands, Germany, Switzerland and Italy reached agreement on cooperation and activities to be developed jointly in relation to freight transport by rail on the route between Rotterdam and Milan. The agreements, which form the basis of this cooperation, are modelled on the agreements which the ministries of transport and the infrastructure operators in these countries have reached under the joint banner of the International Quality Improvement Corridor (IQC). The agreements are aimed at increasing the quality and quantity of freight transport by rail. The problems experienced by railway companies on this route can, in principle, be solved from the beginning of 2005 through cooperation between the regulators.

24 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 25 1.4.5 DTe

Internationaal TSO seminar On 27 and 28 May 2004 DTe organised a seminar in The Hague on ‘European Regulatory Transmission System Operator Benchmarking’. The aim of the 7 seminar was to exchange practical experience of benchmarking (comparing) 14 21 2 national electricity grid managers. Benchmarking plays an important role in 2 2 the regulation of the transmission tari¤s of TenneT, the national grid manager 5 in the Netherlands. 5 47

13 Madrid and Florence forums DTe participated in the ‘8th European Gas Regulatory Forum’ held in Madrid from 8 to 9 July 2004 and the ‘11th European Electricity Regulatory Forum’ NMa’s website held in Florence from 16 to 17 September 2004. Under the chairmanship of Third-party websites (central the European Commission, the most important topics of energy regulation government, mobility databases, were discussed. At the Madrid Forum, DTe presented a report, together with Ministry of Economic Affairs, other) the UK regulator Ofgem, from which it appears that a large number of TSOs Temporary employment agencies (Transmission System Operators) are heading in the right direction, but have Unsolicited applications not yet implemented adequate entry/exit tari¤ systems and capacity systems. Applications for work placements Network/direct approach CEER working group and ERGEG focus groups Internal applications DTe is an active participant in the working groups and meetings of the European Advertisements umbrella organisation, the Council of European Energy Regulators (CEER), and Fairs/company days the European Commission’s advisory body on energy regulation, the European Personnel search agencies Figure 3 Regulators Group for Electricity and Gas (ERGEG). The Electricity Working Other/unknown Number of employees Group has formulated responses, for instance, to proposed European regulation, per area of attention has initiated discussions on congestion management with European organisations representing interest groups and has worked on developing a system whereby TSOs can compensate each other. The Gas Working Group is working on a regulatory framework for new investments in infrastructure and ‘best 82 107 practices’ for gas storage companies. DTe, together with the Danish regulatory 3 authority, is leading the task group which is carrying out a benchmark of gas 8 transmission tari¤s. The Internal Energy Market Working Group drew up 57 24 market monitoring indicators and worked on the deinition of regional markets. 59 In 2004 regular consultation was held with the European Commission on competition in the energy markets and various reports. Antitrust Department Merger Control Department Legal Department 1.5 NMa’s operations DTe Office of Transport Regulation 1.5.1 Personnel External: Office of Health In the year under review, NMa grew to 369 permanent positions on a full-time Regulation (currently being basis (an expansion of 30 positions compared to 2003). This growth was the established)1 result of the intensiication and expansion of the activities of DTe, the Antitrust Staff Department, the Legal Department and the Strategy & Communications

1 Note in relation to the Office of Health Department. The formal expansion took e¤ect on 1 October 2004. As a result, Regulation: three members of NMa's staff actual staªng lagged behind in 2004 and the number of employees increased have been seconded to this Office. from 342 to 345. As at 31 December, the staªng level was 88%.

26 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 27 Figure 4 NMa’s HRM policy has three aims: attractiveness, innovative capacity and being Number of job applications a good employer. These main themes were developed further in a Balanced per recruitment channel Scorecard together with the results to be achieved (represented as ‘NMa’s norm’ (as %) in tables 1, 2 and 3).

7 14 NMa’s HRM policy focuses on achieving good name recognition amongst 21 2 2 the relevant target groups on the labour market. In addition, NMa o¤ers its 2 5 employees optimal opportunities to develop and work which is interesting, 5 47 visible and has social relevance.

13 1.5.1.1 Being and remaining attractive as an employer NMa maintains active contact with the labour market and with student associa- NMa’s website tions. In 2004 NMa organised two student days. In addition, NMa took part in Third-party websites (central business days on nine occasions, usually in the form of workshops in which government, mobility databases, potential employees could acquaint themselves with NMa’s work. The recruit- Ministry of Economic Affairs, other) ment of good personnel continues to have high priority, but recruitment is now Temporary employment agencies more a part of NMa’s ‘normal’ operations. Although there were fewer vacancies, Unsolicited applications the number of applicants increased by approximately 15% to 2,350. The inlow Applications for work placements of starters was brisk compared to the recruitment of senior sta¤. The latter Network/direct approach group, with at least ive years’ relevant working experience, is diªcult to recruit Internal applications in some cases. This is visible in the table below in the duration of vacancies. Advertisements NMa nevertheless tries to attract the interest of this group and uses a mix of Fairs/company days recruitment channels to do so. These include, for instance, the use of personnel Personnel search agencies search agencies and o¤ering NMa’s employees a modest reward for recruiting Other/unknown new sta¤. In 2005 the recruitment strategy will be reconsidered.

Table 1: Balanced Scorecard HRM – Attractiveness Figure 5 Origin of new employees Critical Critical Actual 2004 NMa’s norm success factor performance indicator in the primary process (as %) Attractiveness – Maximum duration of 81% 85% vacancies is three months 14 9 – Leavers within 1 year 3% < 5% 14 – Ratio of men/women 53 – 47% 50 – 50% – Number of women 1/3 1/3 9 36 in MD positions 9 – Staªng level 88% 95% 9 – Integrity No incidents No incidents

Legal profession Consultancy In 2004, 126 members of sta¤ were appointed, of whom more than half on Other companies the basis of a temporary contract. The relatively large proportion of temporary Research employees is the result of the additional work necessary to process the appli- Semi-government cations for leniency in the construction industry and the investigations which Central government followed this. Starters

26 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 27 Figure 6 Of the applicants, 54% were informed of a vacancy at NMa through the Internet. Overview of new hires 2004 Only 4% of these responses resulted in an appointment. Most appointments (in numbers of employees) resulted from internal applications. The networks of NMa’s sta¤ also scored high.

19 In the past year the administrative processing of applications was computerised 42 further. As a result, the speed with which applications were processed was increased.

The majority of employees involved in the ‘primary process’ have a background 65 in law (49%), economics (20%) or the sciences (9%).

Permanent NMa endeavours to ensure that its employees come from a wide range of Temporary backgrounds, both with regard to their knowledge and professional experience, Students on work placements and the sector in which they were employed.

1.5.1.2 An organisation with innovative capacity Figure 7 In 2004 mobility fell slightly (from 16% in 2003 to 14%). The turnover of sta¤ Mobility remained constant, but the movement of sta¤ within NMa/DTe fell slightly. (in %) This was partly due to limits on the number of permanent positions within the 100 organisation and consequently the more limited opportunities for promotion of employees. 75 At the end of 2003, NMa carried out a sta¤ satisfaction survey. It emerged from 50 this that NMa’s employees required greater clarity on their career opportunities within NMa. To give form to this, in the second half of 2004 a management 25 instrument was developed to give structural attention to career policy. The career model focuses on obtaining clarity with regard to the potential of employees in 0 addition to their performance. It is the aim of NMa’s management to implement 200220032004 the model as soon as possible after conclusion of consultation with the Works Council. New hires Leavers Table 2: Balanced Scorecard HRM – Innovative capacity Internal transfers/promotions Critical Critical Actual 2004 NMa’s norm succes factor performance indicator

Innovative capacity – Mobility (the sum of leavers and 14% 10 – 20% internal transfers/promotions) – % of total salaries spent 2.4% 1 3% on training

1 This percentage is the actual expenditure on training in relation to actual salary expenses. In terms of expenditure, this percentage is higher (3.7%).

Due to budgetary constraints, NMa adjusted the budget for training downwards in the past year (from 5% to 3% of total salaries). For the irst time in 2004 centralised training budgets were used by each unit and sta¤ department.

28 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 29 The experience with this has been largely positive. Managers have become more selective in their training expenditure and show considerable creativity in identi- fying and organising learning solutions. This has resulted, for instance, in more in-company training, which has reduced costs. In-company training promotes an active internal learning process, the deepening of knowledge and a shared culture. In 2005 in addition to the inancial expenditure NMa will also monitor the expenditure of time on training to obtain a more reliable impression of the total investment in training.

1.5.1.3 Being a good employer As a follow-up to the sta¤ satisfaction survey held at the end of 2003, two management conferences were organised. During these conferences attention was paid to leadership style (including giving feedback) and career opportunities for NMa’s employees were discussed.

Although considerable attention was paid in 2004 to greater involvement of the management in absenteeism, absenteeism due to illness rose from 3.9% in 2003 to 4.4% in 2004. This is due to an increase in ‘long-term absenteeism’. It should be noted in this regard that there are large di¤erences between the various parts of the organisation. Although the level of absenteeism is not a cause for concern, NMa wishes to reverse this upward trend. In 2005 measures will be taken tar- geted at returning absenteeism due to illness to its 2003 level.

The number of exit interviews with employees who left NMa and DTe was lower than NMa wished to achieve. This was due to practical reasons. Improvements will be made in this regard in 2005.

Table 3: Balanced Scorecard HRM – Being a good employer

Critical Critical 0 Actual 2004 NMa’s norm succes factor performance indicator

Being a good employer – Absenteeism due to illness 4.4% < 3.8% (excluding maternity leave) – Results of exit interviews 60% 75% of leavers (organising feedback) are given an exit interview

1.5.2 Finances in 2004 NMa wishes its inancial operations to be modelled increasingly on the private sector. This is a trend which can be observed more broadly within the public sector. For two years, the inancial management of NMa has been based on accrual accounting (liabilities are entered at the moment an order is placed) rather than on cash accounting (cash expenses are entered at the moment that they are actually paid). To make comparisons with previous years possible, the changes have not been implemented in this annual report. In addition, NMa’s budget, as an item in the budget of the Ministry of Economic A¤airs, is a

28 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 29 so-called cash item. The revenues are also estimated on a cash basis. The tables below specify whether the igures relate to liabilities, cash payments or cash revenues. All amounts are included at their nominal value. Accounts receivable are recognised at their full value until they are declared to be uncollectible debts.

1.5.2.1 Total overview for 2004

Table 4: Actual liabilities and cash revenues relative to the internal budget of the Ministry of Economic A¤airs

Description Liabilities Cash expenditure (in 1) (in 1)

Internal budget of the Ministry of Economic A¤airs 35,113,000 33,725,489 Actual 34,988,733 32,983,124 Budget underrun 124,267 742,365 As a percentage 0.35% 2.20%

1.5.2.2 Liabilities

Table 5: Total liabilities

Description Actual 2004 Actual 2003 (in 1) (in 1)

Personnel NMa, including Oªce of Transport Regulation 18,606,736 18,037,717 and Healthcare Charges Board/Oªce of Health Regulation (currently being established) Goods and services NMa, including Oªce of Transport 8,273,516 8,332,892 Regulation and Healthcare Charges Board/Oªce of Health Regulation (currently being established) Total NMa 26,880,252 26,370,609

Personnel DTe 4,385,646 3,657,103 Goods and services DTe 3,722,834 3,519,567 Total DTe 8,108,480 7,176,670

Grand total 34,988,732 33,547,279 Internal budget of the Ministry of Economic A¤airs 35,113,000 33,571,000 Budget of the Ministry of Economic A¤airs 34,823,000 34,046,000

The liabilities incurred have remained within the internal budget of the Ministry of Economic A¤airs. Transfers have occurred between expenditure on personnel and expenditure on goods and services due to changes in the allocation of costs. There was a slight overrun of the budget of the Ministry of Economic A¤airs due to movements in the so-called Appropriation (Final Amendments) Act [Slotwet].

30 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 31 1.5.2.3 Cash expenditure The following are a number of statements of cash expenditure.

Table 6: Overview of cash expenditure

Description Actual 2004 Actual 2003 (in 1) (in 1)

Personnel NMa 17,042,586 16,766,983 Goods and services NMa 7,015,716 7,120,464

Personnel Oªce of Transport Regulation 985,358 1,745,444 Goods and services Oªce of Transport Regulation 334,367 264,144

Personnel Healthcare Charges Board/Oªce of Health Regulation1 317,367 196,145 Goods and services Healthcare Charges Board/Oªce of Health Regulation1 95,372 154,002

Grand total personnel NMa 18,345,311 18,708,572 Grand total goods and services NMa 7,445,455 7,538,610

Personnel DTe 4,118,338 3,986,011 Goods and services DTe 3,074,020 4,388,818

Total 32,983,124 34,622,011 Internal budget of the Ministry of Economic A¤airs 33,725,489 36,047,000 Budget of the Ministry of Economic A¤airs 35,358,000 36,577,000

1 This overview includes all salary expenses of employees seconded to the Healthcare Charges Board/Oªce of Health Regulation. The expenditure on goods and services of the Oªce of Health Regulation only relates to the period from 1 January to 1 April 2004. From 1 April onwards expenditure on goods and services was paid directly by the Healthcare Charges Board and no longer by NMa.

The expenditure of NMa, the Oªce of Transport Regulation and the Oªce of Health Regulation included the apportioning of costs to the Oªce of Transport Regulation and the Oªce of Health Regulation. The Oªce of Transport Regulation and the Oªce of Health Regulation are inanced through the budget of the Ministry of Economic A¤airs by the Ministry of Transport, Public Works and Water Management and by the Ministry of Public Health, Welfare and Sport respectively. The actual expenditure for 2003 deviates for this reason from the actual igures included in the Annual Report for 2003.

NMa’s expenditure remained within the internal budget of the Ministry of Economic A¤airs and within the cash budget of the Ministry of Economic A¤airs’.

30 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 31 The total expenditure for both goods and services and personnel fell slightly in 2004 compared to the previous year. NMa’s sta¤ grew slightly in 2004, but NMa deployed fewer (relatively expensive) interim sta¤. Personnel expenses within the Oªce of Transport Regulation fell sharply because the interim sta¤ were replaced by permanent sta¤ in 2004.

There was a slight fall in expenditure on goods and services, which could be explained, in particular, by the smaller number of external research projects.

Table 7: Expenditure on personnel and goods and services (total and per employee)

Desription Actual 2004 Per employee Actual 2003 Per employee (in 1) (in 1)

Total personnel 22,463,649 65,112 22,694,583 66,358 Total goods and services 10,519,475 30,491 11,927,428 34,876 Total 32,983,124 95,603 34,622,011 101,234

Expenditure on personnel and expenses (payments) have been subdivided in the tables below for NMa’s entire organisation.

Table 8: Breakdown of all expenditure on personnel

Cost categories Actual 2004 (in 1)

Salaries 18,274,605 Incidental extra payments/small special payments 561,072 Hiring of temporary employees/interim sta¤ 1,447,154 Hiring of specialists 1,616,301 Training1 380,043 Recruitment and selection 49,989 Other personnel expenses 134,485 Total personnel expenses 22,463,649

1 The amounts under training exclude expenses incurred by the Ministry of Economic A¤airs (NMa’s employees receive management training through the Ministry of Economic A¤airs) and training expenses which are inanced for various reasons from the budget for goods and services

32 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 33 Tabel 9: Breakdown of all expenditure on goods and services

Cost categories Actual 2004 (in 1)

Total cost of premises 4,504,231 Total oªce expenses 1,126,029 Total travel costs 798,107 Total computerisation costs 954,233 Total cost of purchases 376,643 Total communication costs 55,427 Total cost of research 2,699,539 Other costs 5,267 Total expenditure on goods and services NMa 10,519,475

1.5.2.4 Revenues The table below gives the revenues of NMa/DTe. NMa’s revenues consist mainly of the payment of ines. DTe’s revenues are based on the Decision in Relation to the Recovery of Costs for the Energy Sector 2004 [Besluit kosten- verhaal energie 2004]. In accordance with this decision, DTe’s costs are charged to the sector. The revenues are included in the budget and the report of the Ministry of Economic A¤airs.

Tabel 10: Total revenues

Description Actual 2004 Actual 2003 (in 1) (in 1)

NMa 5,537,191 6,355,209 DTe 4,230,880 640,851 Total 9,768,071 6,996,060

1.5.2.5 Memorandum entry of ines receivable by NMa and DTe’s contribution scheme

Tabel 11: Memorandum entry of ines receivable by NMa and DTe’s contribution scheme

Description 31 December 2004 31 December 2003 (in 1) (in 1)

NMa 279,482,202 242,384,100 DTe 1,532 0 Total 279,483,734 242,384,100

The accounts receivable relate to ines imposed on companies by NMa, increased by accrued legal interest. The level is high due to current administrative appeal and judicial appeal procedures, which suspend the obligation to pay the ines.

32 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 33 1.5.3 Organisation

1.5.3.1 Computerisation of information and processes In 2004 NMa’s network was separated from the computer network of the Ministry of Economic A¤airs and NMa acquired its own domain. NMa’s new domain name is www.nmanet.nl. In addition, the servers migrated from Windows NT4 to Windows 2003. A migration of the desktops from Windows 98 to Windows XP also took place.

1.5.3.2 Administrative organisation and inancial management In 2004 the extensive Process Description project was successfully completed, resulting in the irst description of all NMa’s primary and support processes. These process descriptions include a worklow diagram and discuss risks and measures to be taken. The process descriptions are accessible to all employees through NMa’s intranet.

In 2004 steps were also taken to improve further NMa’s inancial management. In this regard, a so-called Management and Control Plan was drawn up and implemented for the irst time. The results of the speciied internal audit were reported to the Director General of NMa.

1.5.3.3 New sta¤ units of the Antitrust Department In 2004 the Investigation Information Unit was created. This involved the combination of employees from three areas of expertise: investigations, forensic IT, and information management and research. The aim of this new unit is to increase the Antitrust Department’s investigative capability. In addition, other departments increasingly make use of the services of this unit. In 2004, for instance, the unit supported the Merger Control Department when it carried out its irst unannounced on-site company investigation. The Investigation Information Department also provides training in the exchange of information throughout the organisation within its areas of expertise.

A sta¤ unit for International and Strategic Programme Management (ISP) was set up within the Antitrust Department. This unit initiates and coordinates cooperation with the European Commission and the European competition authorities within the framework of the European Competition Network (ECN). NMa is represented by ISP in European working groups and meetings in which policy with regard to the enforcement of Articles 81 and 82 of the EC Treaty is prepared. In addition, ISP is involved in the programming of strategic research activities and quality management.

Apart from the above-mentioned changes, NMa’s organisational structure has remained unchanged (see the organisational chart).

34 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 35 Organisational chart

Director General NMa

S&C FEZ Strategy & Financial & Communications Economic Department Affairs

Leniency I&B Office Information Management & Administration

HRM Human Resource Management

CT CoCo JD DTe VK Antitrust Merger Control Legal Office of Office of Department Department Department Energy Transport Regulation Regulation

Units: Units: Units: * Trade * Competition * Supervision * Communication * Energy and * Regulation Technology, Transport * Market Media and Infrastructure Transport * Financial * MSC Taskforce Services * Liberal * Information Professions & Data and Healthcare Management * Basic and Processing Industry

* Construction Industry Taskforce

* Investigation Information Unit * International and Strategic Programme Management

34 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 35 1.5.3.4 Works Council NMa’s Works Council has 10 members. NMa aims to maintain a balanced representation of the various parts of the organisation within the Works Council. Consultation with the Director General of NMa takes place every six weeks. In 2004 the Works Council gave advice on training and career policy and the following topics received considerable attention: the transformation of NMa into an independent administrative authority, ‘P-direkt’ (the future shared HRM service centre for central government) and the inancial economies within central government, including the consequences of these for NMa (such as the voluntary early retirement plan for employees aged 57 or older).

The Works Council is represented by one member in the Departmental Works Council of the Ministry of Economic A¤airs. The Works Council keeps employees informed through its own link on the intranet.

36 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 37 36 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 1: NMa in 2004 37 It is time for the entire profession of civil law notaries to o¤er services appropriate to the 21st century.

Madeleine van der Wal

The sector comprising the liberal professions appeared How do you experience competition amongst civil law for the irst time in NMa’s Agenda in 2005. The reasons notaries? Does NMa have a role in this? for this, the initial insights and the irst cases are discussed by Madeleine McLaggan, Deputy Director of the Antitrust McLaggan “Civil law notaries play an important role in the Department and Madeleine van der Wal, civil law notary economy. Many other sectors of the economy make use of with CMS Derks Star Busmann. the services of this sector. Healthy competitive relationships amongst civil law notaries can have a positive e¤ect on

38 Annual Report 2004 NMa and DTe Double interview | Liberal professions 39 The question we ask is: are the rules governing the branch necessary and proportional?

Madeleine McLaggan

the economic performance of other sectors of the economy. Organisation for Economic Corporation and Development Paying attention to developments which promote compe- and the European Commission have called for regulation tition therefore seems to be a good investment. and a position on competition between civil law notaries. In a broader sense, civil law notaries are also receiving In the Netherlands, legislation governing civil law notaries attention within society, not only in the Netherlands. Other was recently liberalised in answer to the present needs of Member States of the European Union are also taking the corporate sector and consumers. At present the market action, while international organisations, such as the for notarial services is developing. New initiatives have »

38 Annual Report 2004 NMa and DTe Double interview | Liberal professions 39 emerged on the market, however, which are not embraced any notary of their choice. This ixed amount is the result by everyone.” of cost price management and eªcient work processes. Van der Wal “I am in the midst of this development. I have The professional organisation, KNB, argues that this new launched a new product in cooperation with the Postbank. product contravenes the law and the code of conduct Customers of the Postbank can have their mortgage deeds applicable to this profession. KNB refers to the civil law and deeds of transfer executed for a ixed amount. Of notary’s ‘professional duties’ and argues that the product course, these customers are at liberty to do business with contravenes the Competition Act.”

What is the nature of action taken by NMa in this sector?

McLaggan “As in any sector, we consider the rules applicable to the branch. What public interests are served by these rules and are they necessary and proportional? In the The analysis is meant autumn of 2004, we started a broad consultation. This may result in an initial cleanup or consensus. After this we will to establish both what also look beyond the branch. We will include stakeholders is really necessary to in the investigation. This will be followed inally by a report and an assessment of the rules which the profession serve the public interest imposes on itself. Which rules are and which are not essen- and what can possibly tial and proportional and which rules unnecessarily restrict competition between, in this case, the civil law notaries? be done to achieve We expect the report in 2005.” healthy competition. Van der Wal “The di¤erences between civil law notaries are considerable. There are fellow professionals who are keen to develop new initiatives. There are also calls for a return to the ixed rate structure of the past. Cross-substitution would then occur whereby the family law practice will be partly subsidised by the real estate practice.” McLaggan “This is, of course, the easiest path. It o¤ers protection to entrepreneurs in the sector, but every trace of di¤erentiated valuation is missing. This restricts competition if it is not balanced by sound arguments, such as the protection of public interests. Consumers no longer have freedom of choice with regard to costs.” Van der Wal “My initiative shows that by sound budgeting and sound planning of the standard activities, a lower fee can be charged while maintaining quality. Part of the profession experiences this as a threat. Although I approached NMa beforehand for an informal opinion (which I received within a week), I was still confronted by the negative response of the professional organisation. I had expected that the positive informal opinion which NMa issued would have worked. However, KNB has not withdrawn its objections with regard to competition.”

What di¤erent interests are there on the market? What innovative initiatives do you observe on the market?

Van der Wal “There is a clear rift of opinions in the sector. I approached NMa because the application of the Compe- tition Act in the sector is relatively new. In ive years’ time, this path will probably be well beaten, but I still have to negotiate my way.”

40 Annual Report 2004 NMa and DTe Double interview | Liberal professions 41 McLaggan “We hope that the consultation which we have now started will result in a dialogue and that the e¤ect will be that attention will be given to unnecessary obstacles to new initiatives. Unnecessary obstacles restrict competition. It is good to draw attention to this. People have to become accustomed to the Competition Act, which applies to the entire economy and to all sectors. Previously civil law notaries only had to consider legislation relating to notaries. To achieve the desired operation of market forces, initiatives have to come from the sector itself. These are already present. For instance, forms of cooperation are emerging with market parties within and outside the civil law notaries sector and initiatives are being taken to outsource simple activities to third parties. Such initiatives can help to reduce costs, which may have a favourable e¤ect on the price that My initiative shows consumers or businesses have to pay. It is our task to that a lower fee can remove unnecessary restrictions, as these are called…” Van der Wal “… but here and there people are resisting. be charged while The activities of civil law notaries are not transparent. maintaining quality. It is not clear to consumers what they are actually paying for. What is the basis for the prices paid for the various activities? If I purchase an expensive or, for that matter, a cheap car, the price of the car meets my expectations-but this is absolutely not transparent to customers in the case of notarial services and is diªcult to assess.”

What is your view of the Liberal Professions Consultation as an enforcement instrument to increase competition?

McLaggan “We have opted for consultation as the instrument precisely to pre-empt infringements of the Compe- tition Act and to enter into dialogue on the various interest groups within the sector. What is of importance to us is that nothing is included under the heading of ‘public interest’ which does not belong there. If the rules applicable to civil law notaries are not necessary or are disproportional, we will draw attention to this. If the branch then does nothing about it, we will intervene.” Van der Wal “Modern civil law notaries will beneit from a cleanup of the regulations. Digging in one’s heels and longing for the past to return will not help. The world around us has changed and it is about time that the entire profession of civil law notaries o¤er services appropriate to the 21st century. There is considerable fear of a loss of quality, but there is absolutely no need for this.” McLaggan “This is a market in transition, which is also the reason why we create opportunities for dialogue. This consultation is meant to ascertain what is really necessary to serve the public interest. We are keen to discuss solutions with both those who are for and those who are against these solutions.” π

40 Annual Report 2004 NMa and DTe Double interview | Liberal professions 41 2 Report per task

2.1 Supervision of the prohibition on cartels and the prohibition on the abuse of a dominant position

The prohibition on cartels means that companies cannot make agreements which restrict competition. For instance, competitors may not enter into agreements with each other on the prices they charge or divide their sales area amongst themselves. Branch associations may also not issue their members with recommended prices or divide the market up amongst their members. Companies with a dominant position may not abuse this situation. For instance, they cannot treat similar buyers di¤erently (without a objective justiication for this) or charge excessively high prices. In 2004 investigations were carried out in various sectors into infringements of the prohibition on cartels and the prohibition on the abuse of a dominant position. In this regard, emphasis was placed on the sector-wide, and therefore complex, investigations in the construction industry. In addition, alternative law-enforcement instruments were deployed to ensure compliance with the Competition Act (in this regard, see section 2.1.1.4). The large number of applications for leniency received by NMa in 2004 from the construction industry attracted interest. In August 2004 the possibility which companies had to apply for an exemption from the prohibition on cartels ceased to apply (in this regard, see section 2.1.1.1).

2.1.1 Results in 2004

2.1.1.1 Complaints and exemptions The number of complaints assessed in 2004 totalled 299. This is an increase compared to 2003, in which 221 complaints were assessed. This increase emphasises the importance of a clear policy on prioritisation to ensure that people and resources are deployed to cases of considerable economic importance and of considerable importance to consumers, in which serious infringements are committed and in relation to which action taken by NMa is most e¤ective Note 14 and most eªcient.14 See NMa’s Agenda 2004: www.nmanet.nl/nl/ Images/11_15944.pdf As a result of an amendment to legislation – the coming into force of Regulation 1/2003 – the (European) system of exemptions was abolished. The criteria set out in Article 81(3) of the EC Treaty have become criteria for exception and may be tested by the national regulators and national courts. As a result of an amendment to the Competition Act derived from this, the possibility which companies had to apply to NMa for an exemption from the prohibition on cartels was revoked as of 1 September 2004. Companies themselves now have to assess whether they comply with the criteria. In 2004 16 applications for exemption from the prohibition on cartels were processed.

2.1.1.2 Leniency Since 2 July 2002 NMa has o¤ered participants in cartels the possibility of obtaining ine immunity or a reduction in their ine through a leniency programme, by voluntarily providing information on the cartel. In 2004 the Leniency Guidelines were adjusted due to the modernisation of European

42 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 2: Report per task 43 Note 15 competition rules;15 The Guidelines relate to notiication of infringements www.nmanet.nl/nl/ of section 6 of the Competition Act, but also of Article 81 of the EC Treaty. Images/11_18467.pdf

Tabel 12: Reduction in the ine

NMa: an investigation has NMa: an investigation not yet started has started

First party to notify NMa Right to immunity Right to a 50% reduction in the ine or possibly full immunity

Second or subsequent Possible reduction in the ine Possible reduction in the ine party to notify NMa of 10 to 50% of 10 to 50%

Through its leniency programme, NMa aims to achieve openness, reliability and predictability. The result is that an increasing number of participants in cartels make a well-considered choice to provide NMa with information. Leaving aside the applications for leniency in the construction industry, 19 participants in cartels notiied NMa of the existence of cartels in 2004: approximately double the number in 2003. Karteldeelnemers massaal te biecht

27-11-2004 | Het Financieele Dagblad In 2004 the leniency programme played a crucial role in NMa’s investigation (Participants in Cartels Confess in Droves) into the construction industry. This is discussed extensively in the section on tenders, one of NMa’s areas of attention (see chapter 3). In turn, this investigation played an important role in promoting the leniency programme because general awareness of the programme increased signiicantly.

2.1.1.3 Reports The Antitrust Department carries out investigations into compliance with the prohibition on cartels and the prohibition on the abuse of a dominant position. In 2004, 21 investigations were carried out.

Four investigations resulted in a report. A report sets out the suspicion that the prohibition on cartels and/or the prohibition on the abuse of a dominant position has been infringed. Only after the parties have given their written and oral response to the report, after inspecting the investigation ile, does the Director General of NMa decide whether an infringement has been committed and whether he will actually impose a sanction. The four reports referred to above contained two very extensive and comple. investigations into the construction industry. As part of this, some sectors of the construction industry

42 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 2: Report per task 43 were investigated. As many as 379 companies were involved in one of these two investigations. Such sector-wide investigations are unique both in the Netherlands and internationally. The three reports on the construction industry are discussed in more detail under the theme of tenders. The fourth report in 2004 was a report on the education and training sector.

Some of the other remaining investigations conducted in 2004 will bear fruit in mid-2005. These include investigations into the construction industry, including the installation engineering sector and the civil engineering and utility engineering sector. In addition, investigations will be completed into sectors other than the construction industry, including the energy sector, the parks and gardens services sector, the telecommunications sector and the healthcare sector.

2.1.1.4 Alternative enforcement instruments Following an investigation, a decision may also be taken to use an alternative enforcement instrument rather than imposing a sanction. An example of such an enforcement instrument is the ‘compliance programme ‘drawn up within the insurance sector. Section 4.2 provides more information on this.

In general terms, the choice of a method of enforcement can be described as follows. NMa is aware of the various styles of regulation which it can employ. The way in which regulation is exercised has a considerable e¤ect on the e¤ectiveness of any action taken. For instance, the style of regulation is more directive with a focus on veriication in situations where a clear norm is deliber- ately infringed by a company. The style of regulation can and will acquire a more communicative character with a focus on consultation if it appears that the norm is not clearly stated and the company cooperates constructively with the regulator. Di¤erent situations usually require di¤erent (combinations of) regulatory styles.

Alternative enforcement in practice, with a focus on the outcome rather than output After intervention by NMa, the branch association Orthobanda appealed to its members at the end of 2004 to cease applying the collective system for calculating prices. If this had not been done, NMa could have started an investigation. Orthobanda is the branch association for orthopaedic instrument makers, who o¤er both tailor-made and standard orthopaedic products and prostheses. A large number of orthopaedic instrument makers calculated their prices on the basis of a collective system for calculating prices developed by Orthobanda. After studying the practical e¤ects of this system, NMa concluded that it obstructed competition in the branch. Orthopaedic instrument makers ought to determine their prices independently of each other through negotiations with healthcare insurers. This message was also communicated to all healthcare insurers in the Netherlands. Competition in this branch is expected to increase due to the termination of this collective system. This provides a favourable incentive to improve eªciency and innovation, and will result in a better price/ quality ratio. The prices charged by orthopaedic instrument makers are paid from sick fund contributions and private health insurance. In cases like this, in cooperation with the branch association, NMa aims to have a favourable e¤ect on the market in an eªcient manner. On 8 April 2004, at a meeting of MKB-Nederland, the umbrella Note 16 organisation of SME companies, the Director General of NMa emphasised that branch associations play www.nmanet.nl/nl/ an important role in ensuring compliance with the Competition Act.16 Images/11_18233.pdf

44 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 2: Report per task 45 In 2004 NMa gave eighty informal opinions. At the request of companies, NMa gives its opinion on the permissibility of agreements and decisions of associations of undertakings in accordance with the Competition Act. The abolition of the possibility of applying for exemption from the prohibition on cartels may result in a further increase in requests for informal opinions. To avoid this, NMa decided to adopt a new policy with regard to honouring such requests.

In honouring a request to give an informal opinion, NMa will adhere to a policy of approval subject to provisos. An informal opinion is given if the following cumulative criteria are met. The criteria are: (i ) the legal question must be new; (ii) the question must be of considerable social and/or economic importance; (iii) it must be possible for NMa to draw up an advisory letter on the basis of the information provided by the applicant, in other words without the necessity of a further investigation of the evidence by NMa. In addition, NMa will not give an informal opinion if: (a) a similar case is under consideration by NMa or is the subject of a current court case; (b) a similar case is under consideration by the European Commission or by other competition authorities.

Important informal opinions given in 2004 related to the sale of Dutch Premier League television rights and the underwriting by insurers of risks relating to terrorist attacks by means of a Terrorism Pool. NMa gromt niet alleen maar kan vanaf nu ook hard bijten

03-08-2004 | De Telegraaf 2.1.1.5 Decisions imposing sanctions (NMa Not Only Barks but In 2004 NMa took 10 decisions to impose ines and two decisions to impose Occasionally Also Bites Hard) an injunction due to infringements of the prohibition on cartels or the abuse of a dominant position. Of the decisions imposing a ine, eight were related to companies. Fines totalling approximately 4 80 million were imposed on 25 companies. The highest ines were imposed for charging excessive rates for PIN transactions. Two ines imposing sanctions related to price recommendations by associations of undertakings: ines amounting to more than 4 800,000 were imposed on ive associations. In most of these cases, the parties iled administrative appeals against the decisions imposing the ines. Infringements were imposed on two occasions in the pharmacy sector. On one occasion NMa decided not to impose a sanction.

In the light of modernisation within the EU, in several cases the ine was based on the infringement of the competition rules contained in Article 81 and 82 of the EC Treaty.

44 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 2: Report per task 45 No ines were imposed on companies in the construction industry in 2004 in relation to the construction industry a¤air. In the autumn of 2004, however, the formal procedure for imposing ines was determined for an important sector of the construction industry, namely the civil engineering and infrastructure sector. Guidelines were issued along with the publication of two reports on this sector of the construction industry, in which 379 construction companies were listed as ‘suspects’ (see section 3.3.2).

In 2004 ines were imposed, in particular, on the bicycle branch and the banking sector. Fines were imposed in the banking sector on Interpay and eight banks which are shareholders of Interpay (see paragraph 4.3).

2.1.1.6 Administrative and judicial appeals In 2004 NMa completed six administrative appeal procedures against decisions imposing sanctions in 2003. In three decisions on administrative appeals the ines were reduced signiicantly, namely in the case of mobile operators (from 4 88 million to 4 52 million), in the shrimp isheries sector and in the case of BOVAG. In addition, 66 other decisions on administrative appeals were completed. An important part of these decisions related to the refusal by NMa to process complaints for reasons of prioritisation. Garnalenvisserij roept om sanering

17-07-2004 | Haagsche Courant In 2004 a total of 18 judicial appeals were concluded, while appeals were iled in (Shrimp Fisheries Call for 12 cases. In various judgments, the Court of Rotterdam conirmed NMa’s power Rationalisation) to set priorities.

2.1.1.7 Transparency directive The Director General of NMa, at the request of the European Commission, may request data from companies which are required to comply with the directive of the European Commission of 26 July 2000 in relation to the transparency of inancial relationships between Member States and public undertakings. After receipt of the data, the Director General of NMa passes these data on to the European Commission. In 2004 the Director General of NMa received no such requests. NMa is also entitled to inspect the administration of companies which fall under this directive. There was no cause to do so in the year under review.

46 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 2: Report per task 47 Figure 8 2.2 Merger Control Sectors in which mergers were assessed in 2004 NMa exercises preventive supervision of mergers, acquisitions and the formation of certain joint ventures in the Netherlands. NMa must be notiied of all mergers 2 2 2 3 17 which involve companies with an annual turnover that exceeds certain statutory 6 limits before the transaction is realised. The European Commission must be notiied of very large companies with an international dimension which exceed 7 the turnover limits set out in the European Merger Regulation. NMa assesses 13 8 whether the transaction, of which notiication is made in the Netherlands, 11 will give rise to or strengthen a dominant position, which restricts competition. If this is the case, NMa may attach conditions to the merger or acquisition, or Financial services prohibit it. The initiative to notify NMa lies with the companies. NMa regularly Manufacturing of and trade checks whether companies comply with this obligation to notify. in goods Retail and wholesale trade In 2004 the transparency of the assessment procedure was increased by the Other services publication of ‘Best Practices in relation to Merger Cases’ [‘Spelregels bij Concen- IT services and tratiezaken’]. The trend towards a more economic focus in merger control, both telecommunications nationally and internationally, in 2004 was expressed, for instance, in the new Healthcare European Merger Regulation. The more economic approach was also expressed Construction industry in the assessment by NMa of a number of notable cases. Agriculture and fisheries1 Media1 In addition, in 2004 a sector-speciic investigation of the healthcare sector was Transport carried out (see also section 6.1). Finally NMa supervised compliance with con-

1 These sectors were not ditions imposed earlier, for instance in the case of De Telegraaf – De Limburger. included in previous years. 2.2.1 Results In 2004, 71 decisions were taken in relation to the notiication of mergers Figure 9 (71 decisions were also taken in 2003). Most of these cases related to acquisi- Combined turnover of the companies tions. In most of the cases it was possible to approve the merger after an initial involved in 2004 investigation. Approximately one third of all cases were completed within four (as %) weeks. In approximately a quarter of the cases, NMa discussed the cases with the parties involved prior to notiication. More than was previously the case, NMa 19 dealt with cases in the healthcare and inancial services sectors in 2004. There 33 was a decrease in the number of cases in the construction and energy sectors. 8

14 16 10

Up to 1 250 million 1 250 – 500 million 1 500 –1,000 million 1 1,000 – 2,000 million 1 2,000 – 5,000 million More than 1 5,000 million

46 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 2: Report per task 47 Tabel 13: Figures relating to merger control 2002–2004

2004 2003 2002

Notiication of mergers 83 69 77 Withdrawn 4 5 8 Decisions in the notiication phase 71 71 66 Licence required 1 2 1 Decisions in the licensing phase 0 1 0

Decisions pursuant to section 40 of the Competition Act 3 1 1 (exemption from the waiting period) Decisions pursuant to section 35(3) of the Competition Act 0 0 1 (conidential data) Not applicable due to the turnover threshold 1 3 2 Not applicable, not a merger 0 1 1

Decisions in relation to mergers, in terms of section 27(a) 9 5 5 of the Competition Act Decisions in relation to the acquisition of control in terms 59 49 50 of section 27(b) of the Competition Act Decisions relating to the formation of a joint company in terms 3 13 8 of section 27(c) of the Competition Act

Short-form decisions 30 23 17 Cases in which the deadline was suspended 51 58 51 Completed within four weeks 21 22 21

Prenotiication discussions 19 16 16 Informal opinions 12 19 18

The most important decisions in relation to mergers in 2004 related to the healthcare sector. An example of this was the merger between the only two hospitals in the Gooi region. The assessment of the notiication resulted in the requirement of a licence for the merger. This means that the parties have to apply for a licence and that NMa conducts a more extensive investigation. Another case related to a proposed merger in the homecare branch. This could be approved because one of the three original parties to the merger decided not to participate in the new entity which was to be created. In both cases, an assessment of the geographical dimension of the market played an important part. In the homecare case, the conditions under which the parties exercised competitive pressure on each other in the adjacent markets was also considered. A merger in the publishing sector was also approved after the parties had submitted an amendment to the notiication.

48 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 2: Report per task 49 2.2.2 Best practices in relation to merger control On 15 July 2004, NMa published the ‘Best Practices in relation to Merger Note 17 Cases’.17 After more than six years’ experience with merger control, by means www.nmanet.nl/nl/ of this publication NMa wished to make the way it operates more transparent, Images/11_20205.pdf facilitate the relationship between NMa and companies and their advisers and achieve greater eªciency in merger control. The following topics are dealt with in the ‘Best Practices’: * the initial contact that companies have with NMa prior to the formal notiication of mergers (informal opinions and so-called ‘prenotiication’ meetings); * the communication with the notifying companies; * the involvement of third parties; * the conidentiality of information; * research into certain sectors by NMa on its own initiative; and * cooperation with other competition authorities.

As is usual in the case of such documents, NMa published the ‘Best Practices’ as a consultation document in the irst half of 2004. NMa maakt spelregels van fusies openbaar

27-08-2004 | Netherlands 2.2.3 Strengthening the economic approach to merger control Government Gazette (Staatscourant) In 2004 the number of economists within the Merger Control Department (NMa Publishes Best Practices exceeded 50%, which was a strengthening of the department compared to for Mergers) previous years. As a result, NMa is better able to apply sound economic analysis in measuring the e¤ects of notiied mergers. In addition, research is currently being carried out into the application of quantitative economic methods and Note 18 techniques to merger control.18 At the ECOMOD 2004 conference, ‘International Policy Conference on Economic In November 2004, NMa organised an international conference entitled Modelling’ a provisional version ‘Simulation Models for Merger Cases: Theory and Practice’. Central to this of the following article was conference was the exchange of knowledge on quantitative economic models presented: B. Postema, M. Goppelsröder, and between national competition authorities and the European Commission. P.A.G. van Bergeijk, The application of these models in concrete cases also received considerable ‘Cost and Beneits of Merger attention. Control in the Netherlands 1998–2002: An Applied Game Theoretic Analysis of Prices’. Di¤erentiated products In cases where a clear deinition of the market causes problems, it is sometimes possible to use economic models to estimate whether a proposed merger could give rise to competition concerns.

Market deinition is the basis for determining the market positions of the undertakings involved and for assessing the e¤ect of mergers on competition. However, it is not always possible to deine a market clearly. This is diªcult,

48 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 2: Report per task 49 in particular where products are di¤erentiated but di¤er only slightly from each other with regard to some characteristics. In the case of such products, it is not easy to determine which variant consumers regard as substitutes. Since the degree of substitutability is smaller or greater in the eyes of consumers, it is diªcult to deine the market. Where an explicit market deinition is not possible or does not result in clear outcomes, NMa can sometimes use other methods to assess whether a proposed merger restricts competition. In such cases, for instance, the degree of competition pressure exerted by various competitors may be considered. If two notifying parties are each other’s closest competitors prior to the merger, more competitive pressure is removed by the concentration than if this were not the case.

To determine whether the emerging parties are each other’s closest competitors, NMa can apply various quantitative techniques. In assessing the proposed acquisition of Malmberg by Werner Söderström, so-called correlation analysis was used. In the case of the acquisition of PinkRoccade by Getronics, NMa carried out a bidding study. On the basis of data on tenders, conclusions could be drawn about the proximity of competition (as in the case of the notiication Ahrend-Gispen merger, which, however, was withdrawn by the parties).

Case 4140 Both parties are active, for instance, as publishers of (youth) magazine. Sanoma (the parent company Werner Söderström – Malmberg of Werner Söderström) is the market leader in the Netherlands in the area of the publication of publicly distributed magazines (including Donald Duck and Libelle). Malmberg is a publisher of educational youth magazines, such as Okki. By applying economic analysis, the notifying parties examine the extent to which the various magazines of the parties were each other’s closest competitors. By means of price/ volume correlations, the extent to which the sales of Okki depend on changes in the price of Donald Duck was determined and vice versa. Such analyses were also carried out for other magazines of the parties to the merger. It appeared from the analyses and further research by NMa that the magazines of Werner Söderström and Malmberg are not each other’s closest competitors. NMa concluded that a licence was not required.

Case 4308 The activities of the parties overlap in the area of the sale of hardware and software to end users and Getronics – PinkRoccade in the area of IT services. Most assignments in these sectors are obtained through tenders. NMa carried out a bidding study which involved writing to approximately 170 buyers/organisations which issued tenders. It appeared from this study that the parties are not each other’s closest competitors and that other market players exercise suªcient competitive pressure and must continue to do so, even after the proposed merger.

Minority shareholding Holding a substantial interest in a competitor may result in a reduction in the level of competition. If customers turn to the competitor, as a result of a price increase, this results in extra proit for this competitor, which in part lows back Note 19 to the company with the minority shareholding.19 As a result of the minority NMa reported earlier on the topic of shareholding, the incentive to compete may be weakened. In the case of cross shareholdings in the ‘Financial Sector Monitor 2004’. Sdu – Ten Hagen & Stam, the interest which Wolters Kluwer would obtain in its competitor Sdu played an important role.

50 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 2: Report per task 51 Case 4100 The publisher Sdu intended acquiring another company in the same branch, Ten Hagen & Stam, from Sdu – Ten Hagen & Stam Wolters Kluwer. In 2002 the parties had already notiied the proposed acquisition, following which NMa had given its approval in 2002. However, this transaction was not e¤ected. In 2002 the parties again notiied NMa, but this time the notiication included a number of di¤erences compared to the transaction approved in 2002. The most important di¤erence was that to inance the transaction Wolters Kluwer would obtain a minority shareholding of 25% in Sdu. The activities of Wolters Kluwer and Sdu overlap, particularly on the market for legal publications, on which they are the largest and the second-largest players respectively. On assessing the notiication, NMa considered (i) the e¤ects on the incentive to compete with each other; (ii) the opportunities created to exchange information; and (iii) the possibilities for entering the market for legal publications. After the parties had given guarantees that the minority shareholding was of a temporary nature, NMa concluded that this merger did not require further investigation.

2.3 Implementation of energy legislation: DTe

2.3.1 Mission and main tasks of DTe DTe’s mission is ‘ to make the energy markets work as e¤ectively as possible and to protect consumers. DTe realises this mission by contributing to creating conditions under which the market can function as e¤ectively and eªciently as possible and the interests of consumers can be suªciently guaranteed.

DTe has four main tasks: 1 DTe stimulates the e¤ective functioning of a liberalised energy market Freedom of choice must result in greater eªciency, competitive prices, better quality and greater innovation in the sector. DTe stimulates, for instance, the access of trading partners to networks subject to fair conditions and tari¤s. In addition, DTe attempts to encourage energy consumers to exercise choice. This results in a situation where critical consumers compel suppliers to o¤er competitive prices and good services. 2 DTe regulates where necessary Competition between electricity grids and between gas networks is not possible. In these cases, DTe regulates the electricity grid and gas network managers to ensure that services are provided at realistic prices. To ensure that services are provided at realistic prices and to guarantee eªcient operations, DTe regulates the electricity grid and gas network managers. For instance, DTe determines maximum tari¤s for the services o¤ered by electricity grid and gas network managers and DTe encourages them to guarantee the quality of their grids and networks. 3 DTe supervises parties in the energy sector On a regular basis and through reports from the sector, DTe analyses whether parties comply with the legal requirements. To do so, regular and incidental audits of electricity grid and gas network managers and suppliers are carried out. 4 DTe monitors the operation of the energy markets By doing so, market imperfections can be dealt with in a timely manner. DTe conducts research, for instance, into the liquidity of markets and consults

50 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 2: Report per task 51 the sector on the experience of market parties. To monitor developments on the electricity market in the Netherlands, NMa and DTe have set up a joint monitoring system (‘Market Surveillance Committee’).

DTe’s tasks with regard to implementation and supervision are closely allied to the tasks of the Minister of Economic A¤airs, who is responsible for policy in this area. The Minister is responsible for formulating policy within the boun- daries of the European directives. The Director of DTe is responsible for implementing the policy and regulating the market. The Director of DTe advises the Minister on the development of new policy. DTe’s (formal) advice to the Minister is published to promote transparency.

2.3.2 Implementation of the Intervention and Implementation Act Within days of the liberalisation of the market for small consumers on 1 July 2004, the Intervention and Implementation Act ([I&I-wet], amending the Electricity Act of 1998 and the Gas Act in relation to the implementation and tightening of supervision of the electricity grids and gas networks) resulted in a far-reaching amendment of the Electricity Act of 1998 and the Gas Act. The amendment, which came into force on 14 July 2004, was necessary to implement a number of European obligations and to tighten the supervision of electricity grid and gas network managers and electricity and gas suppliers. For instance, DTe was given the power to impose ines and to monitor the marketing practices of energy suppliers. Furthermore the Director of DTe has the power to resolve disputes between buyers of energy and electricity grid and gas network managers. To provide clarity with regard to the disputes procedure, the Director of DTe adopted ‘Policy Rules in relation to Dispute Procedures in the Energy Sector’ [Beleidsregels proceduregeschillen energie] in 2004.

For the irst time in its history, DTe supervised the introduction of an extensive bill and the process of its implementation. DTe enabled energy companies to obtain information on the practical changes resulting from the Intervention and Implementation Act at an early stage and they were given the opportunity to comment on this. The consultation session which DTe organised together with the Ministry of Economic A¤airs took place in August 2004 and was well attended by the energy sector. The comments were included in the implementation plan. Following this, action was taken to ensure the precise and timely introduction of the new statutory provisions. DTe monitors the progress it makes with its own implementation activities. If there is reason to do so, companies are informed of changes to the activities or plan. DTe takes such initiatives to make the energy markets work better and to protect customers e¤ectively.

52 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 2: Report per task 53 2.3.3 Liberalisation of the market An important event in 2004 was the liberalisation of the market, which opened up the energy market for small consumers. In the lead up to the opening of the market on 1 July 2004, DTe monitored the market parties closely and encour- aged them to ensure that preparations for the opening of the market progressed as smoothly as possible. Market parties worked to ensure that their administrative processes were in order to facilitate consumers’ freedom of choice. Small consumers must be conident that the energy companies’ administrative processes (such as switching to a di¤erent supplier, changing address and billing) are in order. Furthermore DTe issued 57 new supply licences before the opening of the market. Market parties who wish to supply energy to small consumers require such a licence. In addition, DTe took great e¤ort to provide public information on the opening of the market by publishing the necessary information on its website and answering questions in cooperation with the Information Line. Consumers can obtain greater insight into the performance of their supplier, or electricity grid or gas network manager, through the overview of complaints which DTe publishes every quarter on its website.

2.3.4 Administrative and judicial appeals In 2004 98 administrative appeal procedures and 26 judicial appeal procedures in relation to the legislation were completed. In a number of procedures, the administrative or judicial appeal was withdrawn. Two procedures are summarised below, of which one has practical relevance to buyers and the other to companies in the energy sector.

Case 101531 The Director of DTe issued the electricity grid manager Continuon with binding instructions in 2004, Continuon to the e¤ect that a group of houseboats had to be connected to the electricity grid before 1 July of that year. Continuon objected to these instructions on the grounds that it was not obliged to connect movable property, such as houseboats. The Director of DTe declared the administrative appeal to be unfounded: the deciding factor is not whether a houseboat is movable property, because even if it were movable property, the statutory obligation to provide a connection would apply to immovable property in the vicinity, such as the quay to which the houseboat is moored. Continuon has now connected the houseboats to the electricity grid.

Case 100261 In 2004 the Trade and Industry Appeals Tribunal declared the judicial appeal brought by Essent Energy Essent Energy Trading Trading in relation to the imbalance fee to be unfounded. Certain suppliers of electricity are required to pay a fee if they cause an imbalance. Imbalance occurs when the actual electricity taken from and fed into the network deviates from the programme submitted beforehand. The supplier also has to pay the fee if the imbalance is due to factors beyond its control. The Tribunal ruled that the judicial appeal brought by Essent Energy Trading was unfounded, partly because the supplier was in the best position to limit its losses and recover these from any party which caused the imbalance.

52 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 2: Report per task 53 2.4 Supervision of the transport acts: Oªce of Transport Regulation

2.4.1 Mission The mission of the Oªce of Transport Regulation is linked, of course, to NMa’s mission and is ‘to make transport markets work’. The Oªce of Transport Regulation realises this mission, on the one hand, by carrying out its statutory tasks as e¤ectively and eªciently as possible and, on the other hand, by commu- nicating with the sector and the legislature during phases in which legislation is still being prepared.

2.4.2 Tasks In 2004 the Oªce of Transport Regulation only had statutory powers based on the Passenger Transport Act of 2000. At the end of 2004 it was decided that the Railways Act would come into force as of 1 January 2005. The Oªce of Transport Regulation advised the Ministry of Transport, Public Works and Water Management both on this legislation and on legislation for aviation and pilotage services, for instance by participating in working groups and by providing implementation and enforcement assessments.

2.4.3 Passenger Transport Act of 2000 The aims of the Passenger Transport Act of 2000 [Wet personenvervoer 2000] are to improve the eªciency of public transport and to increase the number of pas- sengers. To realise these aims, the legislature opted for periodically putting the concessions out to tender. The municipal transport companies have an exclusive position on the market for municipal transport and they receive government subsidies to fulil these public tasks. The legislation prohibits them from abusing this position by competing on other markets subject to more favourable conditions.

Hiving o¤ of non-public transport activities To ensure that municipal transport companies do not use government funds on related, commercial markets and, as a result, occupy a favourable competitive position relative to regular market parties, the Oªce of Transport Regulation investigates whether municipal transport companies carry out activities other than public transport or activities directly related to this (section 69(1) of the Passenger Transport Act of 2000). All other activities must be divested and brought under the control of separate legal entities under civil law.

It has been ascertained that the municipal transport companies of Rotterdam and Utrecht, RET and GVU, correctly implemented their proposal to divest their non-public transport activities. The evidence submitted to the Oªce of Transport Regulation by HTM proved to be incomplete. This assessment was concluded at the beginning of 2005.

54 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 2: Report per task 55 In his legal opinion of 23 June 2003, the Director General of NMa determined that GVB was required to hive o¤ the operation of ferry services across the IJ (section 69(1) of the Passenger Transport Act of 2000. The administrative appeal submitted by GVB was declared inadmissible on 15 July 2004 because the legal opinion could not be regarded as a decision in terms of the General Administrative Law Act and an administrative and judicial appeal was therefore not possible. The Oªce of Transport Regulation gave GVB until 1 January 2004 at the latest to hive o¤ the ferry services. GVB was the only municipal transport company which did not comply with its obligations under section 69(1) at the end of 2004.

As a result of a review of the legal opinion in the form of an amendment of section 64(2) of the Passenger Transport Act of 2000, the municipal transport companies of Maastricht and Nijmegen, SBM and Novio, were placed under supervision in 2004 (section 69(1) and (5) of the Passenger Transport Act of 2000). It was determined that SBM and Novio should be regarded as municipal transport companies and they were therefore required to comply with the criteria set out in section 69(1) and (5) of the Passenger Transport Act of 2000. The Director General of NMa informed SBM in a legal decision that SBM carried out no activities which had to be hived o¤. The same applied to Novio. “Concurrentie leidt tot beter busvervoer”

07-09–2004 | de Volkskrant In addition to his legal opinion of June 2003, the Director General of NMa Peter Kortenhorst, determined that the transportation of ADO The Hague football supporters General Manager of Connexxion by HTM may be regarded as public transport. HTM may continue to provide (“Competition Leads to Better this transport. Bus Transport”) Statement of inancial intracompany relationships The municipal transport companies must draw up an annual statement which sets out the relationship between the municipal transport company and its subsidiaries and sister companies (in accordance with section 69(5) of the Passenger Transport Act of 2000). This provides insight into whether the municipal transport companies favour their subsidiaries and sister companies (cross subsidisation) and, by doing so, occupy an unfair competitive position.

In 2004 NMa tested the statements submitted by HTM, GVU, GVB, RET and SVD for the inancial year 2002 against the criteria. Since SVD had not made these requirements in the inancial year 2001, NMa also assessed this statement. With regard to SVD and HTM, it was established on 17 May 2004 that the relevant documents were not available for inspection at all the oªces of the municipal transport company. They were required to ensure that this was done

54 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 2: Report per task 55 before 24 June 2004. Both companies dealt with these shortcomings before this date. The declarations submitted by GVU and GVB appeared not to meet the requirements. The new statements with regard to the inancial year 2002 submitted by GVU and GVB did not appear to meet the requirements (legal opinion of 5 August 2004). GVU was instructed to make the relevant documents available for inspection at all its oªces. In its letter of 31 August 2004, the Oªce of Transport Regulation determined that GVU had complied with this. With regard to the inancial year 2002, RET met the requirements (legal opinion of 7 April 2004).

To improve the quality of the statements and to ensure quicker submission, the Oªce of Transport Regulation drew up a veriication protocol. This protocol was published in the Netherlands Government Gazette (No. 186) on 28 Septeber 2004. When it sent the veriication protocol to the municipal transport companies, NMa requested submission of the statements for the inancial year 2003. The statements have since been received.

By legal opinion of 10 December 2004, with regard to the statements submitted by HTM and SVD it was stated that both municipal transport companies had met the stipulated requirements with regard to this statement of the inancial relationships between their sister companies and subsidiaries. The other statements were not assessed in 2004 due to the amendment of section 64 of the Passenger Transport Act of 2000. Consultation on this with the Ministry of Transport, Public Works and Water Management took place until the end of 2004.

2.4.4 Railways The Railways Act had not yet come into force in 2004. In 2004 the Oªce of Transport Regulation prepared itself for its tasks under the Act and provided those parties subject to supervision with an explanation of its interpretation of the Act. The Oªce of Transport Regulation visited companies to obtain insight into the most important obstacles to compliance with the legislation and regulations.

No supervision on the basis of the Railways Act, but preparation and policy advice The Oªce of Transport Regulation carried out an implementation and enforcement test with regard to both the management and the transport concessions. In both cases, the Ministry of Transport, Public Works and Water Management adopted the advice. The concessions were debated in the Lower House and were signed by the Minister (end of 2004).

The Oªce of Transport Regulation assessed ProRail’s request to assess the system and procedures in relation to the user fee on the basis of the legislation and regulations. The investigation into the level of the tari¤s and the allocation of costs will be completed in 2005. The tari¤s for 2005 were determined in 2004 under the former legislation.

56 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 2: Report per task 57 ProRail was given advice with regard to the Network Declaration 2005. The recommendations were included in ProRail’s inal network declaration for the year 2005.

In December 2004, the railway regulators drew up a joint open letter of intent with regard to cooperation between the regulators of Germany, Switzerland, Italy and the Netherlands in relation to the international goods corridor between Rotterdam and Milan.

Together with the Railways Directorate of the Ministry of Transport, Public Works and Water Management, an amendment act was drawn up to address problems in relation to enforcement identiied by NMa. The Railways (Amendment) Act [Veegwet Spoor] was adopted by the Upper House of the Dutch Parliament in December 2004.

2.4.5 Aviation The Oªce of Transport Regulation contributed to the evaluation of the Aviation Bill which was presented to the Lower House of the Dutch Parliament in the autumn of 2004. In accordance with the bill, the Oªce of Transport Regulation will be assigned the task of regulating the tari¤s of the aviation-related activities of NV Schiphol Airport. Processing of the bill is planned for the spring of 2005.

2.4.6 Pilotage sector The Oªce of Transport Regulation gave advice on the Cabinet’s position with regard to the regulation of tari¤s for marine pilotage services. The Cabinet intends to introduce legislation under which NMa/Oªce of Transport Regulation will be given powers to determine tari¤s for marine pilotage services. In the autumn, the Oªce of Transport Regulation worked hard to develop the Cabinet’s position by actively participating in two working groups of the Directorate-General for Freight Transport. In this way the Oªce of Transport Regulation contributed its expertise and experience in the area of sector-speciic tari¤ regulation. The preparation of the new act and the development of a new tari¤ system will be completed in the autumn of 2005.

56 Annual Report 2004 NMa and DTe Part 1: General Report | Chapter 2: Report per task 57 Outcomes: the economic results of enforcement in the years 2002–2004

1 Introduction 3 In cases where NMa makes use of alternative enforcement instruments, which do not result in a formal decision, positive Due to the action it takes, NMa contributes to healthy competitive e¤ects of its actions can also be observed. relationships. This results, for instance, in more and qualitatively 4 NMa’s actions have a preventive e¤ect. As a result, for instance, better products and lower prices, and innovative and more eªcient companies decide against forming cartels or entering into a production methods. In addition, it results in more eªcient use of merger which restricts competition. The e¤ect on the economy scarce production factors within companies, by sectors and between in such situations is also favourable due the action taken by sectors. NMa.3 NMa attaches importance to giving an insight into the outcomes An initial attempt at an analysis of the direct e¤ect of formal inter- (e¤ects) of its actions. Given the present state of economics and ventions, as described under 1 and 2 is given below. In addition, the problems of measurement with which economic researchers are the text box on page 60 gives a concise illustration of the direct confronted, it is diªcult to quantify all the e¤ects which may result price and allocation e¤ect which may be achieved by using alter- from action taken by a competition authority. In the medium-term, native enforcement instruments. The positive e¤ects on prevention it is probable that the positive e¤ects of market dynamics on labour of NMa’s actions, the deployment of production factors and inno- productivity (for instance, due to innovation) are an important vation are not taken into account here, but are potentially conside- consequence of healthy competitive relationships. No deinitive con- rable. clusions can be drawn about such e¤ects, because the Competition Act dates from 1998 and the irst interventions of consequence occurred after 2000.1 These medium-term e¤ects will therefore not 2 Method be included in this analysis.2 The action taken by the competition authority, however, generally brings an end to direct losses caused To estimate the e¤ects of competition regulation, consisting of an by distortions of competition, for instance in the form of artiicially estimate of the price and allocation e¤ect associated with various high prices and restrictions on production. The analysis described forms of competition infringements, a simple model was applied to here is a irst step to providing an estimate only of the last-men- the years 2002 to 2004, which is explained below. Any cases where tioned economic e¤ects. an infringement of the Competition Act was proven (and a sanction NMa attempts to inluence the economy in various ways. was imposed) and interventions on the basis of merger control4 1 By intervening NMa attempts to bring an end to the losses are included in these estimates. The method was applied to indivi- su¤ered due to cartels and the abuse of dominant positions. dual cases and the results were then aggregated. In estimating As a result, prices fall and the production of the goods involved the above-mentioned e¤ects, a distinction is made according to increases. This has positive e¤ects on the deployment of the so-called price e¤ect (the consumer has paid ‘too much’) production factors due to the increase in production. and the allocation e¤ect (the consumer has purchased less of 2 By intervening within the framework of merger control, the product in question). economic losses due to the emergence or strengthening Since NMa’s analysis is based, for instance, on conidential of dominant positions can be prevented. business data relating to individual cases and this individual

Notes 1 Berenschot, Evaluatie Mededingingswet: Doelmatigheid handhaving m-wet, Utrecht, 2002. 2 The possible e¤ects of errors of the irst category (erroneous interventions by the competition authority) and the second category (erroneously failing to intervene) are not included. The costs incurred by NMa for enforcement are also not included. 3 ‘Competition Act and Prices’, in the Annual Report 2002 of NMa and DTe, pp. 52–55. 4 This may relate to a prohibition, a remedy, or the withdrawal of the notiication as a result of intervention by NMa.

58 Annual Report 2004 NMa and DTe Outcomes: the economic results of enforcement in the years 2002–2004 59 business information cannot be disclosed, it is only possible to give Allocation e¤ect aggregated results. This means that the results will generally not be After a price e¤ect has been estimated, an initial estimate can then veriiable by external researchers. be made of the damage due to allocation,7 or the allocation e¤ect. After all, due to the increase in prices fewer production factors will Price e¤ect be deployed. An intervention by NMa brings an end to this e¤ect, To give an estimate of the damage caused by an infringement of resulting in an increase in production. As a result, expanding pro- section 6 or section 24 of the Competition Act, the price e¤ect must duction has additional positive e¤ects on other sectors of the irst be estimated. The price e¤ect is determined by multiplying economy. This allocation e¤ect can be understood as a reduction in the price increase as a result of the infringement by the quantity the distortion of the market. Initially the increase in activities results of products sold. As a result of this price increase, consumers pay in additional demand for suppliers of the sector and secondly the more than they would without the infringement. In the case of a extra sales serve partially as an input into business processes proposed merger, the size of the market must irst be determined, throughout the economy. These radiating e¤ects, which may occur which would result if the merger were to proceed without change. outside the respective market, branch or sector, may be substantial. As in the case of competition infringements, the resulting losses The consequences for buyers and suppliers may be taken into con- incurred by consumers consist of the price di¤erence resulting sideration using an input-output analysis. This research strategy from the merger in question multiplied by the quantity of products was developed by the OECD to calculate the economic e¤ects of purchased at the higher price. removing market distortions8 and has been used in the Netherlands, for instance, to measure the e¤ects of liberalisation and sector- The extent to which prices are driven upwards in the cases analysed speciic market supervision in ive important sectors.9 can be derived from various sources. In any event, the following sources are consulted: Figure 1 illustrates the essential characteristics of the method. a the case ile; In igure 1, a market is modelled on the basis of a demand curve b public price and volume information obtainable from the sector; (D) in relation to a certain product, with price (p) on the vertical axis c internal estimates of elasticities and Lerner indices at the level and quantity (Q) on the horizontal axis. In the igure, Pc is the price of sectors and branches. which would have occurred without restrictions on competition, Where insuªcient data is available to draw concrete conclusions where the corresponding quantity Q* applies. Area 1 shows the about the level of price increases, the method used by the US price e¤ect of the loss due to the infringement and area 2 shows Department of Justice and the Federal Trade Commission were the allocation e¤ect. The method used here may be used mutatis used. A study was recently published by the UK Oªce of Fair mutandis to estimate the e¤ect of a merger which restricts compe- Trading explaining this method.5 In concrete terms, this means tition and which would have the e¤ect of driving up prices. that the principle applied in making estimates of price e¤ects is The most important limitation in applying this research strategy that these are limited to the duration of one year and the estimated is that the e¤ect of only part of NMa’s work is made transparent. price increases are limited to one percent unless supplementary economic research gives cause to use di¤erent assumptions.6

Notes 5 S. Davies and A. Majumdar, The Development of Targets for Consumer Savings Arising from Competition Policy, Oªce of Fair Trading Economic Discussion Paper 4, London, June 2002 (www.oft.gov.uk/nr/rdonlyres/ 3c6643ae-d297-43b2-bda4-dd89d3d40893/0/oft3861.pdf). 6 P. Nelson and S. Sun, ‘Consumer Savings from Merger Enforcement: A Review of the Antitrust Agencies’ Estimates’, Antitrust Law Journal, 69 (2001), pp. 921–960. 7 Also referred to as ‘deadweight loss’. 8 OECD, The Economy-Wide E¤ects of Structural Reform, Paris, 1997. 9 R.C.G. Ha¤ner et al. (eds), Regulatory Reform in The Netherlands: Macroeconomic Consequences and Industry E¤ects (Electricity, Airlines, Road Transport, Telecommunications and Distribution), The Hague: Ministry of Economic A¤airs and OCFEB, Erasmus University, Rotterdam, 1997.

58 Annual Report 2004 NMa and DTe Outcomes: the economic results of enforcement in the years 2002–2004 59 As was noted above, this report only includes cases where: E¤ects on wealth of a decrease in termination tari¤s for mobile a an infringement has been proven (and a sanction has been telephony imposed); A terminating tari¤ is the amount that a telecom company charges b a merger has been prohibited; for delivering calls on its own network. The ive mobile operators in c a proposed merger has been withdrawn due to intervention the Netherlands each have a dominant position on their own mobile by NMa; or networks with regard to the termination of calls. A mobile operator, d remedies have been imposed. after all, experiences no serious competition in determining its Other e¤ects, which have already been outlined above, and the tari¤s for the termination of calls on its own mobile network. This beneits of alternative enforcement instruments, which are no less means that there is a separate market for termination services for lawful or e¤ective, are not quantiied and are not take into account. each mobile operator. This emerged from a quantitative and qualita- A striking example of the e¤ect of alternative enforcement instru- tive study carried out by NMa in August 2002. Every supplier is ments is the reduction in the terminating tari¤s of mobile operators. therefore regarded as a monopolist with regard to the termination The case of the terminating tari¤s is presented in the adjacent text of calls on its own network. This meant, in particular, that further box and the outcomes of an analysis based on the research method research could be started into the possibly excessive nature of ter- outlined above are presented. mination tari¤s about which various market parties had expressed concern, but against which OPTA could not take action due to the sector-speciic regulations applicable at the time. Due to the considerable reduction in tari¤s which was agreed, NMa ceased this investigation and, as a result, the investigation is not taken into account in the reported economic e¤ects of NMa’s action. Nevertheless, it may be concluded that this policy choice, which opened the way to a fall in tari¤s of 48% over two years, resulted in a substantial beneits to consumers (approximately 1 780 million in the period from 2004 to 200510) and also vastly improved allocation. The reduction in the deadweight loss amounts to between 2% and 9% of the turnover involved, or 1 19 million and 1 87 million. On the basis of further analysis of the Table of transactions between companies in the National Accounts, it appears that the impact on other sectors could amount to more than 1 35 million.

Sources: Oxera, Cost and Beneits of Market Regulators: Application of the Conceptual Framework, The Hague: Ministry of Economic A¤airs, Policy Studies, October 2004, pp. 12–18; and London Economics, The Deinition of the Relevant Market Comprising Mobile Termination Services, London, June 2002.

Figure 1 Price e¤ect and allocation e¤ect on a model market

P* 1 2 Pc

Notes Q 10 All amounts in this chapter are expressed at the value Price effect of the euro in 2004. Q* Qc D Allocation effect

60 Annual Report 2004 NMa and DTe Outcomes: the economic results of enforcement in the years 2002–2004 61 3 Outcomes 4 Conclusions

In total, 33 cases were analysed. Of these, 26 related to intervention The method of analysis demonstrated here and the results of this is on the basis of antitrust supervision.11 The other seven cases are the irst step towards quantifying the economic e¤ects of com- related to interventions on the basis of merger control.12 More than petition regulation in the years from 2002 to 2004. In the Annual half of these cases had a turnover involved exceeding 1 100 million. Report 2002 of NMa and DTe, attention was paid to price e¤ects The e¤ects of competition regulation are estimated to exceed as a result of the introduction of the Competition Act.14 This 1 900 million for the period from 2002 to 2004 on the basis of the annual report takes a step in this direction, which is partly based method outlined. on estimates and is limited to an estimate of the e¤ects on price The estimated e¤ects achieved by merger control depend mainly and production as these relate to infringements of competition law. on whether large mergers are considered and whether notiication It should also be noted that these are conservative estimates of of these is given. As a result, there is considerable variation in price the e¤ects. The extent of the price increase used in NMa’s analysis movements. Trends over time are therefore less signiicant than the to estimate the above-mentioned e¤ects resulting from the infringe- fact that the average for the period amounts to more than ments is conservative compared to other similar empirical research. 1 200 million per annum. For instance, the estimates for merger An example of recent research is that by Connor and Lande into the control may be attributed to a considerable degree to case 3386 amount cartels raise prices. This research makes use of all relevant (Nuon – Reliant). The Ministry of Economic A¤airs commissioned economic studies of cartels and all inal decisions in cartel cases, independent researchers to analyse this case and the estimates including data on price changes. This involves a total of more than resulting from the research in question were adopted in full.13 700 case studies of cartels. It appears from the results that the Due to the limited information value of the estimated e¤ects of average price increase due to cartels is between 15% and 36%.15 merger control on an annual basis, igure 2 only gives the trend Further and more extensive research is possible and desirable, of the estimated e¤ect of antitrust supervision for the period from and the analysis in this section must therefore be seen mainly 2002 to 2004. as an initial answer to the wish within society for a quantiication A further analysis of the result for antitrust supervision appears of the e¤ects of competition regulation by NMa. Where possible, to indicate that the e¤ects of supervision by NMa are relatively NMa encourages more, and more detailed, research by independent greatest in relation to interventions involving abuses of dominant academics. Research into e¤ects is also one of the tasks of the positions and hardcore cartels, including cartels in relation to Economic Bureau which will be set up within NMa. tenders (bid-rigging).

Figure 2 Estimated e¤ects of antitrust supervision (in 3 millions)

160 Notes 11 These relate to more than 100 companies in ten branches. 120 12 Report on the price e¤ects of merger control in the years from 1998 to 2001, in the Annual Report 2002 of NMa and DTe, pp. 52–54. 80 This relates to 11 cases in 9 branches with a turnover involved of 1 11 billion (at the value of the euro in 2002). 40 13 Oxera 2004, op. cit. 14 See note 3. 0 Price effect 15 J.M. Connor and R.H. Lande, How High Do Cartels Raise Prices? 2002 2003 2004 Allocation effect American Antitrust Institute, 2004.

60 Annual Report 2004 NMa and DTe Outcomes: the economic results of enforcement in the years 2002–2004 61 3 Tenders

The activities in relation to tenders, one of NMa’s areas of attention, were domi- nated in 2004 by the investigations into the construction sector. NMa opted for a sector-wide approach with investigations conducted per subsector. The investigations focused on applications for leniency by companies in the construction industry, sector-wide investigation reports and a speciic sector-wide sanctions procedure.

3.1 Applications for leniency in the construction industry

The continuous, systematic approach to the construction industry resulted in a number of important developments in 2004. In January 2004, the Director General of NMa called on the construction industry to voluntarily notify NMa of practices which contravened the Competition Act. In February 2004, a whistle- blower brought to light a new set of parallel accounts originating from the civil engineering and utility construction sector. This gave rise to discussion within society. The Minister of Economic A¤airs repeated the call and set a deadline of 1 May 2004.

In total 481 companies in the construction sector heeded the call to come clean. All the large construction companies came forward, as did many companies in the small and medium enterprise sector. The notiications received originated from the civil engineering and infrastructure sector, the installation engineering sector, the civil engineering and utility construction sector and various other subsectors of the construction and related industries.

Of the 481 notiications, 379 could be regarded as applications for leniency in accordance with the Leniency Guidelines. One application for leniency could be regarded as an application in relation to a cartel in which tens or even hundreds of companies were involved. The information provided via these notiications was added to the current subsector-wide investigations in the construction industry and contributed to e¤ective enforcement by NMa. Together with information from NMa’s own investigation, these notiications provided a comprehensive overview of the construction industry.

3.2 Investigations in the construction industry in 2004

The irst investigation based on the applications for leniency gives the impression of a culture in which there was little competition between construction companies. Allowing each other to take on work and respecting each other’s customers were the characteristics of this culture. Many companies indicated that the division of work and the mechanism of price formation, which was expressly prohibited by the European Commission in 1992, was tacitly continued. This resulted in agreements between the companies on the division of work and price formation in relation to individual tenders.

62 Annual Report 2004 NMa and DTe Part 2: Areas of Attention | Chapter 3: Tenders 63 In the light of the large number of companies and projects involved within the construction industry, NMa opted for an approach in which various subsectors were investigated consecutively. This involved the following subsectors: * civil engineering and infrastructure; * installation engineering; * civil engineering and utility construction; and * other subsectors

The civil engineering and infrastructure sector (GWW-sector) More than 100 applications for leniency originated (in part) from the civil engineering and infrastructure sector. These included declarations and documents regarding the existence, operation and extent of the system of prior consultation in relation to tenders. Two reports on this subsector (case 4155 and case 3183) were issued on 13 October 2004. Verstarde bouwsector moet innoveren

25-05-2004 | Cobouw In the reports it is alleged that approximately 400 companies in the civil (Rigid Construction Sector engineering and infrastructure sector infringed the Competition Act in the Must Innovate) period from 1998 up to and including 2001 by participating, in groups of varying composition, in prior consultations in relation to tenders, with the aim of coordinating their bidding. In addition, it appears that several construction companies expressly agreed to enter into pre-prior consultations in relation to certain projects. This related mainly to large infrastructural projects, such as the construction of the high-speed railway line (HSL).

Case 4155 The irst report on the construction industry (case 4155) relates to the system of prior consultations, GWW sector which is alleged to have existed in the civil engineering and infrastructure up until the end of 2001. NMa has no power to impose sanctions for practices prior to 1 January 1998. For this reason, this data is taken as the starting date. According to the declarations made in the applications for leniency, the system of prior consultations covered tenders in the civil engineering and infrastructure sector throughout the Netherlands. Approximately 450 construction companies, including a number of foreign companies, were suspected of participating in the system. The system of prior consultation involved meetings of interested construction companies shortly before each tender in order to determine amongst themselves who would submit the lowest bid (the so-called ‘claimant’) and at what price. The other participants in the prior consultation then had a claim against the claimant, consisting of an entitlement to work or turnover from a subsequent project. The accumulated entitlements could be used in future prior consultations to claim a project. Such entitlements and obligations were recorded precisely by each company in their own claims administrations. The suspected system of prior consultation is qualiied in this report as an infringement of Article 81 of the EC Treaty and section 6 of the Competition Act.

62 Annual Report 2004 NMa and DTe Part 2: Areas of Attention | Chapter 3: Tenders 63 Case 3183 In case 3183 NMa drew up a report on two suspected cartels of a structural nature, consisting of six of Road Construction Consultation 6/ the largest road construction companies (Road Construction Consultation 6) and six of the largest Civil Engineering Consultation 6 concrete and hydraulic construction companies in the Netherlands (Civil Engineering Consultation 6).

Road Construction Consultation 6 (WO6) The participants in Road Construction Consultation 6 are suspected of coordinating their market behaviour on a structural basis in a group with a ixed composition and for a long period (1997 to 2001) in relation to large future road construction projects, including the asphalting of part of the high-speed railway line (HSL) and the Betuwe railway line. The participants in Road Construction Consultation 6 set out their agreements in a contract. This describes the market relationships between them for a period of four years, expressed as percentages of turnover and quantities of asphalt to be processed. Projects for an amount of at least 40 million guilders and 100,000 tonnes of asphalt fell within the scope of the agreement. Prior to bidding for the project, a ‘claimant’ was appointed within Road Construction Consultation 6, who was entitled to submit the lowest bid. NMa suspects that coordination occurred within the context of Road Construction Consultation 6 in relation to large motorways and the asphalted parts of the Betuwe railway and the high-speed railway line (HSL).

Civil Engineering Consultation 6 (C6) NMa suspects that participants in Civil Engineering Consultation 6 entered into agreements in a group with a ixed composition for a long period (1998 to 2001) in order to coordinate their market behaviour in relation to large future concrete hydraulic engineering projects, including a number of parts of integrated projects, such as the high-speed railway line (HSL) and the Betuwe railway line. The aim of this was to secure the market relationships between them and – insofar as this relates to the high-speed railway line and the Betuwe railway line – as far as possible to exclude foreign companies. It follows from this, according to the report, that the participants in Civil Engineering Consultation 6 coordinated their bid prices. NMa suspects that the participants in Road Construction Consultation 6 and Civil Engineering Consultation 6 must be distinguished from the system of prior consultation described in case 4155. The agreements were separate and could exist independently of each other. The agreements were qualiied in the report as an infringement of Article 81 of the EC Treaty and section 6 of the Competition Act.

Investigation reports are still to be sent to subsectors of the installation engineering sector, the civil engineering and utility construction sector and other (smaller) subsectors to including, for instance, the concrete products sector. The information received with applications for leniency will also play an important role in this.

3.3 Basis for ines imposed in the civil engineering and infrastructure sector

3.3.1 Accelerated procedure The results of the investigation into the civil engineering and infrastructure sector are set out in two reports. The reports were sent to the companies involved in October 2004 to give them an opportunity to present their opinions. At the same time, the Director General of NMa proposed that the companies shorten the time required for the procedure, as far as possible by formulating generic

64 Annual Report 2004 NMa and DTe Part 2: Areas of Attention | Chapter 3: Tenders 65 opinions and by not contesting the evidence and legal assessment in the report. It was suggested that in order to arrive at a generic response, the companies involved ought to authorise one person to represent them. Companies which cooperated in such an accelerated procedure were promised a 15% reduction in their ines. The vast majority of companies appeared willing to cooperate in this. Mr J.C. Blankert was authorised to represent the companies. Bouwsector kan 20 tot 25% goedkoper werken

25-02-2004 | De Telegraaf The aim of this procedure was to settle the infringements which had grown (Construction Sector Can Work 20% historically and were committed throughout the industry and, by doing so, to to 25% More Cheaply) ‘come clean’, as was desired. This was also the reason that special norms were set for the ines to be imposed for infringements in the civil engineering and infrastructure sector. In the irst quarter of 2005, NMa expects to conclude the procedures for companies in the civil engineering and infrastructure sector which have opted for the accelerated procedure. The procedure for companies that have opted for the regular procedure will last until far into 2005, so that they will not be able to ‘come clean’ quickly.

3.3.2 Rules for setting ines The above-mentioned special norms for setting ines are set out in the Notice in Relation to the Setting of ines in Respect of Certain Activities Which Restricted Competition in the Civil Engineering and Infrastructure Subsector [Bekendmaking boetetoemeting aangaande bepaalde mededingingsbeperkende acti- Note 20 viteiten in de GWW-deelsector].20 In accordance with the Notice, the maximum www.nmanet.nl/nl/ ine is 12% of the turnover which a company realised through tenders for civil Images/11_28331.pdf engineering and infrastructure activities in 2001. In addition, a maximum ine of 3% may be imposed for each prior consultation in which a company is guilty of participating. BAM-groep regelt bescherming klokkenluiders

27-01-2004 | Cobouw In the generic response to the reports, it was argued that cartel agreements (BAM Group Organises Protection for were not made in relation to all tenders. It was for this reason that the Director Whistleblowers) General of NMa set the deinitive ine for prior consultation in case 4155 at 10% and imposed an additional ine of 1.5% (Road Construction Consultation 6) and 2% (Civil Engineering Consultation 6) for participation in prior consultation, as referred to in case 3183.

64 Annual Report 2004 NMa and DTe Part 2: Areas of Attention | Chapter 3: Tenders 65 The ine of a company which has submitted an application for leniency is reduced by a maximum of 50% in accordance with the Leniency Guidelines depending on the added value of the information submitted with the application.

Of the almost 400 construction companies in the civil engineering and infrastructure sector which received a report in terms of the Competition Act in October 2004, 136 companies gave notice voluntarily within the framework of the leniency programme. In case 4155 these companies received a reduction in their ines varying from 30% to 50%. In so far as the companies had also participated in prior consultations (case 3183), they were granted leniency in relation to such prior consultation, varying from a 10% to 30% reduction in the ine. In addition, the ines of companies which were willing to cooperate in the accelerated procedure were reduced by 15%.

3.4 Other construction subsectors

In 2004 NMa imposed a ine of 4 1,056,060 on 12 companies in the rooing branch for entering into cartel agreements.

Case 2112 NMa also issued a report on 11 luid concrete producers. NMa suspected that these luid concrete Price of Fluid Concrete producers had informed each other of all proposed price changes for the following year in the period from 1998 up to and including 2002. On the basis of this price information, the producers set the inal price of luid concrete for the coming year. As a result, the parties involved applied almost the same price increases in this period. The agreements were limited to the provinces of Zuid-Holland and Utrecht.

3.5 Result

In summary, it may be stated that NMa contributed to the construction industry’s ‘coming clean’ and the restoration of normal competitive relationships by paying attention to the construction industry systematically and on a large scale. Although it is still too early to determine whether the competitive relationships have actually been normalised, positive reports have already been received (for instance, reports from organisations issuing tenders that the amounts of bids for projects have generally been lower than they were previously). Even after the current investigations have been concluded, NMa will, of course, continue to monitor developments in the construction industry closely.

66 Annual Report 2004 NMa and DTe Part 2: Areas of Attention | Chapter 3: Tenders 67 66 Annual Report 2004 NMa and DTe Part 2: Areas of Attention | Chapter 3: Tenders 67 Dynamism in a market results from non-conformity.

Tjark Tjin-A-Tsoi

The inancial sector has been receiving NMa’s attention for How does the future of the insurance sector look from some time. The interests of the economy and consumers in the perspective of competition? this sector are great. In 2004, in cooperation with the NMa, the insurance branch imposed a compliance programme on De Boer “The Dutch market has been very competitive for itself. Tjark Tjin-A-Tsoi, Director of the Antitrust Department a long time because many Dutch and foreign providers are of NMa, discusses the branch with Leo de Boer, Director of active on the market and the barriers to distribution are low. the Dutch Association of Insurers. In general, large players are achieving economies of scale,

68 Annual Report 2004 NMa and DTe Double interview | Financial sector 69 Coordination is necessary to ensure that this enormous market remains manageable and a¤ordable.

Leo de Boer

while smaller players are specialising. A new Invalidity Fiscal measures, new products, the Financial Services Act, Insurance Act, a new healthcare system and lifespan plans internet et cetera give rise to new demands, attention, are approaching. For us, these represent as many new opportunities and threats. For the time being, insurance markets and products. Between the large international is a strongly national product. Certainly in the case of companies and the specialists, there is also a group of private individuals, for the time being I do not envisage companies which are considering which course to take. any cross-border underwriting of policies.” » There is considerable movement on the distribution side.

68 Annual Report 2004 NMa and DTe Double interview | Financial sector 69 Tjin “Economies of scale and concentration may, of course, maintains its dynamism. We think that the new products give rise to dominant positions. However, on a market mentioned will have an impact on the market. We think such as the insurance market economies of scale may also it is very important that distribution is transparent for have favourable e¤ects on the economy and consumers. consumers, certainly because a large part of this is still We regard specialisation, both amongst insurers and insur- channelled through insurance brokers. What does an ance brokers, as a good sign. It develops the market and insurance broker earn from a consumer? In addition, internet will have a considerable e¤ect.”

If bottlenecks in the distribution of insurance products (through insurance brokers) could be identiied from the perspective of competition law, what would they be?

Consumers do consider Tjin “Our main concern is transparency for consumers. On the other hand, consumers hardly demand this at all. their options, but This gives rise to a remarkable balance: ‘Don’t ask, don’t consider insurance tell’. The fact that consumers hardly consider their options under present market circumstances, however, does not policies, not insurance mean that they would not wish to do so if they knew what brokers. was happening. Transparency also generates interest.”

De Boer “Consumers do consider their options, but consider insurance policies, not insurance brokers. In general, I am in favour of providing good information and transparency. However, this must serve a purpose and, bearing the United Kingdom in mind, this is not always the case.” Tjin “The fact that consumers do not make a choice between insurance brokers is partly also due to the fact that it is not clear to consumers what the beneit of an insurance broker is. Linking remuneration to turnover volume and not to the provision of service is perhaps not prohibited, but it is remarkable. It promotes the interests of the insurer through the sale of more expensive products. However, consumers expect to get the best deal. This is why they make use of an insurance broker.” De Boer “In part I agree with this. Remuneration on an hourly basis is conceivable. However, in the case of smaller insurance policies this remuneration is probably out of proportion to the product itself. There is some solidarity within the system.”

What is the relationship between the role of the Dutch Association of Insurers as a consultative body and the autonomous operation of individual insurers?

De Boer “Within the Association we discuss sector-wide issues: mainly promotion of the industry, but also monitoring of our image and collective services. In addition, the Association has a social function. The members depend on each other. Coordination is necessary to ensure that this enormous market remains manageable and a¤ordable.

70 Annual Report 2004 NMa and DTe Double interview | Financial sector 71 One has to be able to make a good risk assessment. The facilitate collusion. Dynamism in a market results from exchange of data is necessary for this.” non-conformity. This may become more diªcult in a Tjin “To some extent we can understand the point with culture in which everyone knows each other and the regard to statistical data. Good risk assessment results in relationship between competitors becomes too intimate eªciency and therefore in gains. However, the collective a ‘we-feeling’.” nature of this also has a cultural side which must not De Boer “We are aware of this. The reputation risk is enormous, so we are also alert.”

What, according to you, are the critical success factors with regard to the compliance programme?

De Boer “The Association already had an internal com- Consumers expect pliance programme, but now there is also one for individual members. The programme was discussed with NMa. The to get the best deal important success factors are far-reaching awareness of from an insurance competition legislation in the market, good tools for implementing the programme and good veriication of compli- broker. ance by the Association. I am optimistic about this.” Tjin “The success of the programme will stand or fall with its implementation. A positive aspect is that awareness of the role of the Competition Act has increased. Unfortunately not a single insurer has made it compulsory to report the existence of cartels openly and honestly to its supervisory directors and/or NMa. The sector should wish to encourage this. This would inspire conidence.” De Boer “This idea does not surprise me, but yet this is not something we will do. In our view, this is part of NMa’s repressive role. The compliance programme, as such, relates to NMa’s preventive role. It would not be right to mix up these roles. This would only discredit the programme amongst insurers. We should also not forget that the programme is an enormous step forward.” Tjin “I fully endorse the fact that this is a step forward. However, a compliance programme is not only about prevention. It is also curative. The latter means that any wrongdoing should be reported openly and honestly. This generates trust.”

What do companies in the insurance sector think of the way NMa operates?

De Boer “NMa shows considerable understanding for the sector and contributes to our deliberations in matters that arise, such as the terrorism clause or the millennium pool. We experience this as a constructive contribution.” Tjin “From our side, we note that the original distrust has turned into something positive. For instance, companies see opportunities in such a compliance programme. This is also good for the image of the sector.” π

70 Annual Report 2004 NMa and DTe Double interview | Financial sector 71 4 Financial sector

4.1 Financial Sector Monitor

The Financial Sector Monitor conducts economic research into competition in the various submarkets of the inancial sector. The characteristics of these markets are analysed and the extent to which competition is at risk on a particular submarket is also analysed. In most cases, the Financial Sector Monitor investigates various indicators which, considered together, provide an estimate of risk from the perspective of competition. Where possible, NMa attempts to enter into dialogue with the sector on these insights, with the aim of realising changes that promote competition. This cuts both ways. On the one hand, monitoring and publishing the insights acquired promotes autonomous enforcement. After all, it makes the companies involved more aware of the norms contained in the Competition Act and the importance of complying with them. On the other hand, monitoring promotes adequate setting of priorities and concrete investigations to uncover infringements of the Competition Act. The monitoring function also supports NMa’s merger control in the inancial sector, the assessment of mergers and acquisitions.

In addition to the banking and insurance sectors, the stock-trading sector also received attention from the Financial Services Monitor in 2004. In addition, the Financial Services Monitor carried out broad research into the share market to identify risk segments from the point of view of competition.

Research was carried out largely in 2004 into the transfer to the banks of PIN contracts with retailers. Previously these contracts were entered into with Interpay and there was no competition from other suppliers. This situation has changed. It is no longer Interpay but the banks that o¤er PIN services. The Financial Services Monitor analysed whether and the extent to which actual competition has emerged on this market following the transfer of these contracts at the beginning of 2004. The conclusion drawn is that only limited competition has emerged between the banks because the banks do not appear to compete actively for PIN contracts and retailers have only negotiated contracts to a limited extent. The indings were presented to a symposium entitled ‘Electronic Payments: Competition in a Changing Market’ [‘Elektronisch betalingsverkeer: concurreren in een veranderende markt’] which was held in The Hague at the beginning of 2005.

In December 2004 the second edition of the Financial Sector Monitor was Note 21 published.21 This is focused on the research mentioned above and other research www.nmanet.nl/nl/ conducted by the Financial Sector Monitor in 2004. Images/11_26567.pdf

In 2004, relationships with other regulators, namely the Financial Markets Authority [Autoriteit Financiële Markten (AFM)] and the Dutch Central Bank/ Pensions & Insurance Supervisory Authority of the Netherlands [De Neder- landsche Bank/Pensioen- & Verzekeringskamer (DNB/PVK)], were intensiied with the aim of exchanging insights and preventing the emergence of an overlap in their activities.

72 Annual Report 2004 NMa and DTe Part 2: Areas of Attention | Chapter 4: Financial sector 73 Financial Sector Monitor 2004 A fairly general conclusion in the Financial Sector Monitor 2004 is that the providers of inancial products appear to compete more on relationships than on price. Buyers also strive to establish a long-term relationship. In addition to tangible advantages of such a situation, such as an increase in eligibility for credit, buyers also look for security and convenience and not infrequently prefer this to inding the most competitive price. The strategies of suppliers of inancial products, which focus on relationships with their customers, can therefore partly be explained by the preferences of customers. This mutual focus on a long-term relationship has a dampening e¤ect on the intensity of competition on the market and may result in higher price levels. Switching costs strengthen this e¤ect.

4.2 Compliance in the insurance sector

In section 2.1.1.4, alternative enforcement instruments are discussed. One example of such an instrument is the compliance programme for the insurance sector. NMa was involved in drawing up the model ‘Competition Compliance Programme’ in cooperation with insurance companies and the branch association for the insurance sector, the Dutch Association of Insurers. The aim of the scheme is to create a sector which is visibly and veriiably free of restrictions on competition. During the irst quarter of 2005, the programme was implemented by the 200 individual insurance companies aªliated to the Dutch Association of Insurers. NMa breekt lans voor compliance

01-10-2004 | Aanbestedingskrant The implementation, use and e¤ectiveness of the programme will be investi- (NMa Leaps into the Breach gated by NMa in the future. Experience with this irst sector-wide approach for Compliance) in the area of compliance will be evaluated by NMa to see whether broader application of this is possible.

4.3 Sanctions imposed on Interpay

In 2004 the Director General of NMa imposed ines on Interpay and eight banks which are shareholders of Interpay. Interpay has a monopoly in the area of network services for PIN transactions: payments which are made using a retailer’s point-of-sale terminal and a pincode.

Interpay has a dominant position on the market for network services for PIN transactions in the Netherlands. Although Interpay has reduced its tari¤s in recent years, the tari¤s were still high in NMa’s opinion in relation to the cost of network services. On the basis of economic research, the Director General of

72 Annual Report 2004 NMa and DTe Part 2: Areas of Attention | Chapter 4: Financial sector 73 NMa decided that Interpay had charged retailers excessive tari¤s in the period from 1 January 1998 up to and including 31 December 2001. Interpay abused its dominant position, causing damage to retailers and consumers. Interpay was ined more than 4 30 million. Banken betalen te duur pinnen met miljoenenboetes

30-04-2004 | de Volkskrant The shareholder banks had structured Interpay in such a way that network (Banks Pay for Excessive PIN Charges services to retailers could only be sold through Interpay up until March 2004. with Fines Amounting to Millions) This went further than simply the maintenance of the network for processing PIN transactions. By allowing only Interpay to sell the network services, the banks excluded the possibility that they themselves could provide these services in competition with each other in the period from 1 January 1998 to 1 March 2004. By doing so, they infringed section 6(1) of the Competition Act. Fines ranging from 4 0.5 million to 4 3.9 million were imposed on the banks.

An initial e¤ect of these measures involving the imposition of ines is that the banks have acted as Interpay’s customers since March 2004 and sell network services to retailers in competition with each other. Interpay and the banks have iled an administrative appeal against the decisions imposing ines.

4.4 Other results

4.4.1 Applications for exemption The Dutch Association of Insurers [Nederlandse Vereniging van Verzekeraars] submitted an application for exemption from the prohibition on cartels pursuant to section 17 of the Competition Act (which was applicable at that time). This application related to the underwriting of terrorism risks by Nederlandse Herver- zekeringsmaatschappij voor Terrorismeschaden (NHT). Due to the amendment of the Competition Act the application for exemption was settled by means of an informal opinion. It was concluded that it was plausible that competition would be restricted since the members would be obliged to have all their Dutch insurance policies underwritten by NHT. The Dutch Association of Insurers presented a plausible case that its policy complied with the conditions for the legal exception from the prohibition on cartels contained in section 6(3) of the Competition Act. NHT o¤ers higher cover for terrorism risk. NHT is to the advantage of the policyholders of the participating insurance companies, because they can beneit from higher cover. Cooperation is necessary to make this higher cover possible. There is suªcient remaining competition because the participating insurers are free not to pass on the cost of underwriting by NHT.

74 Annual Report 2004 NMa and DTe Part 2: Areas of Attention | Chapter 4: Financial sector 75 The Dutch Bankers Association [Nederlandse Vereniging van Banken] applied for exemption from the prohibition on cartels pursuant to section 17 of the Competition Act (which was applicable at the time) for a multilateral interbank fee for the authorisation of PIN transactions. This multilateral interbank fee is meant to cover the costs which the cardholder’s bank incurs to authorise a PIN transaction. This gives retailers the security that the payment is guaranteed. The application for exemption was ultimately settled as an informal opinion due to the revocation of section 17 of the Competition Act. It is plausible that the multilateral interbank fee restricts competition in terms of section 6(1) of the Competition Act. The retailer’s bank has to charge the cardholder’s bank a ixed fee, which therefore prevents them from developing their own individual pricing policy at this level. The applicants did not present a plausible case that the multilateral interbank fee complied with the legal exception contained in section 6(3) of the Competition Act because it was insuªciently plausible that the introduction of a multilateral interbank fee would appreciably improve production or distribution, or promote technical and/or economic progress. Interpay krijgt concurrentie

02-06-2004 | Het Financieele Dagblad (Interpay Encounters Competition)

74 Annual Report 2004 NMa and DTe Part 2: Areas of Attention | Chapter 4: Financial sector 75 Consumers must be able to switch on the basis of a well-considered decision.

Peter Plug

On the basis of a report from a relative newcomer, the transmission of energy. Peter Plug, Deputy Director of Greenchoice, DTe investigated the risks to competitive DTe and Rob van Rees, Director of Greenchoice meet each relationships on the energy market of the design and other. application of the model supplier agreements. The supplier model ensures that energy bills are clearer for consumers. What was the reason for Greenchoice to contact DTe with Consumers receive a single bill from their supplier rather reports about the supplier model? than one bill for the supply of energy and another for

76 Annual Report 2004 NMa and DTe Double interview | Energy sector 77 The government took the right approach to the liberalisation of legislation.

Rob van Rees

Van Rees “As with other suppliers, we wish to o¤er our reports such as this seriously, in the sense that we are customers a single package. In our experience we were investigating whether this is an incident or a structural at a disadvantage because we do not have our own grid. situation. In this case, it proved to be a structural feature.” We could not ind a solution within the branch, so we turned to DTe.” What action did DTe take after receiving this report from Plug “Greenchoice wished to launch a product on the Greenchoice? How did Greenchoice experienced DTe’s market and encountered a inancial inequality. We take approach?

76 Annual Report 2004 NMa and DTe Double interview | Energy sector 77 Van Rees “As a newcomer without our own grid and without customers, we had to ight our way into the market We are investigating with a speciic o¤er. The grid managers demanded a two months’ advance payment. For a small provider like us whether this is this was not feasible.” an incident or a Plug “We look at the way the market works. The security required was viewed by us as a barrier. We also looked at structural situation. the way in which administration costs were passed on. In the supplier model, suppliers collect the payments for transmission costs from their customers. The collection of transmission fees results in higher administration costs for the supplier and the supplier also wishes to pass on these costs to the grid manager. On the other hand, the grid managers argued that they also incurred costs for administering these fees which are passed on. However, we established that these costs were not in proportion to the supplier’s costs. DTe also looked at the method of charging and the debtor risk. This is the risk of bad debts. New suppliers are in a less favourable position than grid managers to make a sound assessment of this risk. After all, grid managers have historic data on this risk while newcomers have no or fewer reference years at their dis- posal. Finally, DTe considered the risks with regard to the transparency of the market if suppliers and grid managers were to use Shared Services Centres.”

What is the present situation?

Plug “There are two model agreements, the supplier and the grid manager models. In the case of a new entrant, such as Greenchoice, which does not have its own grid, the latter model results in two accounts being sent to consumers. We are therefore in favour of using the supplier model because both items are speciied on a single bill.” Van Rees “DTe did what we hoped it would. The government took the right approach to the liberalisation of legislation and learnt from experience in other countries. Solutions are sought in consultation with the branch. DTe makes suggestions and constructive discussions are being held within the branch. For instance, the possibility of setting up a guarantee fund to cover risks is being considered.”

78 Annual Report 2004 NMa and DTe Double interview | Energy sector 79 What do DTe and Greenchoice expect will happen in the future if the supplier model is applied? We could not ind Plug “I expect unnecessary inequalities between established and new players will be eliminated within the next a solution within year. The energy market must be made more transparent the branch, so we for consumers with regard to the price/quality ratio, the product (green or grey energy) and the quality of services turned to DTe. (timely and correct). On the basis of a well-considered decision, consumers must be able to switch to a di¤erent supplier. Transparency is necessary for this. The switch itself must go smoothly, also from an administrative point of view. The sector must know that DTe will intervene, as occurred recently when we ined a company for using improper acquisition methods.” Van Rees “Of course, I would prefer the largest possible market share for green energy… But in any event there should be no fear of switching. At the moment there still is a fear of doing so. With regard to the future, I still see other obstacles ahead. Electricity is a strange product. It is not possible to store it. For this reason, producers have considerable power. This must be considered carefully. At the moment, it is mainly the smaller companies which are for sale. We expect foreign entrants. Look, for instance, at what has happened on the mobile telephone market.” Plug “What is important is that we ind a solution soon to the current problem of administrative processes. We expect the branch to do this itself. We have applied pressure to this process by reserving the right to intervene. In addition, we are analysing what still has to be done. We constantly consider what we ourselves should do and what should be left to the branch.” Van Rees “In general, we expect the market to become more transparent and competitive after the splitting of suppliers and grid managers as of 1 January 2007. We have every conidence in this.” π

78 Annual Report 2004 NMa and DTe Double interview | Energy sector 79 5 Energy sector

5.1 Results/activities

5.1.1 Supply market

5.1.1.1 Supply licences All suppliers of small end-users (consumers and small businesses) must have a supply licence as of 1 July 2004, the date on which the market was liberalised. This gives customers the guarantee that the suppliers have the necessary organisational, inancial and technical qualities to carry out their task properly, namely the supply of electricity or gas.

Before 1 July 2004 DTe decided on the applications for supply licences submitted before 1 March 2004. A total of 59 licences were issued (35 for electricity and 24 for gas). This involved intensive contact with a number of market parties in order to have the general terms and conditions which they will apply amended. In doing so, DTe paid attention, for instance, to periods of notice for the cancellation of contracts to ensure that consumers are not restricted in their freedom of choice. DTe also assesses whether the supplier can adequately handle complaints. In addition, DTe took action against parties which wished to convert contracts automatically. Without the intervention of DTe, customers would have had to remain with a particular supplier for at least a year. Due to action taken by DTe, all supply agreements can be terminated at any time with a maximum period of notice of 30 days.

Furthermore, new legislation (the Intervention and Implementation Act) provides greater protection for consumers since it prohibits the use of unfair and misleading trading practices. DTe has informed companies of the consequences of this new legislation and will monitor compliance with it. Energiesector: Wij zijn klaar voor liberalisering markt

18-03-2004 | Netherlands 5.1.1.2 Fair tari¤s in a liberalised supply market Government Gazette (Staatscourant) Since the full liberalisation of the market for the supply of electricity and gas (Energy Sector: We Are Ready for on 1 July 2004, energy tari¤s are no longer determined by DTe. In the new the Liberalisation of the Market) situation, consumers may choose their own supplier and tari¤s are determined on this liberalised market. DTe undertook two activities to o¤er consumers the best possible protection in this liberalised market against unfair pricing due to possible imperfect competition: * DTe periodically checked the tari¤s charged to small consumers. This meant that a large number of suppliers were invited to meetings with DTe to explain their tari¤s. A number of suppliers subsequently amended their tari¤s.

80 Annual Report 2004 NMa and DTe Part 2: Areas of Attention | Chapter 5: Energy sector 81 * DTe took action following a complaint about unreasonably high cancellation fees. Consumers may be charged cancellation fees if they cancel their contracts prematurely. DTe started a consultation round on this topic taking as its point of the departure a maximum cancellation fee for consumers of 4 50 per contract. At the beginning of 2005, this resulted in a binding directive in relation to cancellation fees. As a result, DTe was able to ensure that consumers are not charged a cancellation fee which is too high.

5.1.1.3 Research into price comparisons Transparency in relation to prices is an important condition which enables consumers to make a well-considered choice of energy supplier. At the end of 2004, DTe compared the quality of 13 websites which compare energy prices. These websites play an important role in the selection process: almost 70% of consumers visit these sites and slightly less than 40% base their decision to switch to a di¤erent energy supplier on the information obtained from the sites. These sites must therefore be reliable and provide up-to-date information. Je bent een dief van je eigen beurs als je niet overstapt

01-07-2004 | De Telegraaf It appears from research that only ive sites make use of independent data. Not (You Are Stealing from Yourself one of the sites investigated provides comprehensive information. DTe intends If You Do Not Switch) to hold discussions with the creators of the comparative sites to improve their quality and, by doing so, to improve the comparisons and make it easier for buyers to compare the tari¤s and conditions of suppliers. DTe wishes to do so to improve consumers’ freedom of choice and to promote competition on the supply market. In 2005 further research will be conducted to see whether the websites can be improved.

5.1.1.4 Clear bills Energy companies must compete with each other on the energy market for the patronage of consumers. In this regard, greater transparency results in more competition. This applies all the more to that one moment in the year when consumers receive their energy bills. Consumers wish to know how their energy bills are compiled and exactly what they pay for each product listed on their energy bill. For this reason, energy companies must make and keep their annual settlements fair and comprehensible for customers. In consultation with the energy sector, DTe drew up guidelines in 2004 which include several criteria for the structuring of energy bills and the items included.

80 Annual Report 2004 NMa and DTe Part 2: Areas of Attention | Chapter 5: Energy sector 81 In total, the approved guidelines contain 16 criteria. For instance, the energy companies must clearly state the period in which the electricity or gas was consumed. In addition, concepts such as supply and transmission, and the tax components must be presented clearly. In future energy companies will have to specify how the amount of the instalments is calculated. By means of these measures, DTe wishes to guarantee that the consumers’ interest in receiving in a clear and speciied bill is promoted. Nota voor energie duidelijker, stroomsector luistert naar klagende consument

28-06-2004 | Het Financieele Dagblad At the beginning of 2005 DTe will verify whether the energy bills of energy (Energy Bill Clearer: Electricity Sector Listens companies meet the approved criteria. DTe will publish the results of this to Complaints of Consumers) investigation on its website.

5.1.2 Wholesale market

5.1.2.1 Approval of the NorNed cable DTe has approved the construction of a 580 km long electricity cable between the Netherlands and Norway by TenneT, the manager of the national high-voltage grid, subject to certain conditions. For instance, the cable must be economically proitable and must be available to market parties for a suªcient number of hours per year. A so-called bonus-malus scheme applies to the cost, the delivery date and the capacity of the cable. If TenneT exceeds the deadline for delivery of the cable and the construction cost, TenneT will be required to pay compensation up to a reasonable maximum amount. On the other hand, TenneT will be rewarded if it delivers up the cable earlier.

For DTe it is of primary importance that Dutch buyers should beneit from the cable. The link is only justiied if the beneits outweigh the costs and if the risks are manageable. An important improvement is the guarantee that the capacity of the cable will amount to 700 Megawatts (MW) without incurring additional costs, rather than the 600 MW stated by TenneT in the application. TenneT may o¤set the costs against the proceeds of the auction of electricity transmission on connections to foreign grids.

82 Annual Report 2004 NMa and DTe Part 2: Areas of Attention | Chapter 5: Energy sector 83 Case 3386 In 2003 DTe assessed the acquisition of Reliant by Nuon. A licence was granted at the end of 2003 on Nuon – Reliant condition that Nuon auctions 900 MW of capacity for ive consecutive years. This was implemented in 2004. In a provisional measure sought by Nuon, the President of the Court ruled that the delivery period for the irst sale of capacity will be one year and not ive. In addition, the Director General of NMa consented to Nuon’s request to reduce the quantity of capacity to be auctioned from 900 MW to 200 MW in the irst year on condition that Nuon relinquishes control of the InterGen power station. This capacity auction for the supply of electricity in 2005 took place in September 2004. A total of 29 bidders participated in the auction, of which seven were successful. Following a request by Nuon, the Director General of NMa amended the licence at the beginning of 2005. As a result, Nuon’s obligation to auction capacity for the supply of electricity after 2005 will lapse provided Nuon transfers the InterGen contract in its entirety and on a long-lasting basis to Eneco.

5.1.3 Grid managers

5.1.3.1 Quality regulation Power failures incur considerable social cost. For this reason, DTe introduced a system of quality regulation in 2004 through which regional grid managers are held to account inancially for the reliability of supply of electricity which they o¤er. Through this form of regulation, DTe strives to guarantee the interests of buyers with regard to the reliable supply of energy. The new system ensures that consumers can continue to enjoy an optimal price/quality ratio.

DTe introduced quality regulation with retrospective e¤ect from 1 January 2004. The system of regulation is a ‘symmetrical system’: grid managers who have more outages than the stipulated norm must charge their buyers lower tari¤s. If a grid manager outperforms the norm, the grid manager may increase its tari¤s. The extent to which tari¤s are adjusted is based on the losses which consumers experience due to the outage. This enables grid managers to inance additional investment, provided it results in better quality. The quality regulation of the electricity grids followed extensive consultation between grid managers and organisations representing buyers. DTe is the irst energy regulator in Europe to introduce this form of economic regulation. Prijs energietransport daalt volgens DTe

23-12-2004 | Het Financieele Dagblad 5.1.3.2 Advice on splitting (Fall in Price of Energy Transmission On 16 December 2004, DTe advised the Minister of Economic A¤airs on the According to DTe) grid managers’ package of tasks after the grids are hived o¤ from the existing energy companies. The point of departure for this advice was the notion of an ‘ideal’ grid manager, leaving aside the question of the split. First an analysis was made of the original draft bill and the development of energy companies in past years. Following this, DTe translated the knowledge and experience acquired

82 Annual Report 2004 NMa and DTe Part 2: Areas of Attention | Chapter 5: Energy sector 83 during various audits of grid managers into pragmatic solutions for the split. The inal result was a package of tasks and an overview of the responsibilities of grid managers. This inal result is the combination of the legislature’s intentions, according to DTe, combined with pragmatic solutions to various aspects and may now be regarded as a blueprint for grid managers. Late energienota op de korrel, toezichthouder schiet consumenten te hulp

11-11-2004 | Algemeen Dagblad 5.1.3.3 Certiication of the process of setting tari¤s (Late Energy Bills under Attack: DTe has promised the Minister of Economic A¤airs that it will certify the process Regulator Comes to the Consumers’ of determining maximum tari¤s. The reason for this is that research by Defence) Berenschot showed that the quality of certain primary processes is still not managed properly. DTe has therefore taken appropriate organisational measures.

DTe has described the process of determining tari¤s and the quality of these descriptions were certiied by an independent organisation in May 2004. Following this, the process of determining tari¤s was implemented and DTe determined the tari¤s for 17 electricity grid managers, for 25 managers of gas networks and for the manager of the national high-voltage grid for the year 2005. Following this, DTe received a certiicate stating that the management measures in relation to the process of determining tari¤s met the stipulated quality criteria. The general conclusion in this regard is that the quality of the process of determining tari¤s has improved considerably.

Case 1917 NMa started an investigation following a complaint from a wind energy producer who was of the opinion Essent that Essent charged a settlement rate for transformer losses which was too high. As a result, the wind energy producer su¤ered a loss of turnover. In its investigation, NMa concluded that the settlement rate was high and could possibly be deemed to be an abuse of a dominant position in terms of section 24 of the Competition Act. In response to NMa’s investigation, Essent reduced the settlement rates for transformer losses from 2% to 1.3% as of 1 January 2005 and devised a compensation scheme for all similar connected customers with retrospective e¤ect for the three years preceding this. Essent reserved an amount of 1 2.5 million for this. In the light of these developments, NMa ceased its investigation in relation to Essent.

84 Annual Report 2004 NMa and DTe Part 2: Areas of Attention | Chapter 5: Energy sector 85 84 Annual Report 2004 NMa and DTe Part 2: Areas of Attention | Chapter 5: Energy sector 85 A merger gives rise to eªciency gains. We wish to use these to innovate.

Matthijs Almekinders

Three homecare organisations in the north and east of the NMa was then able to give the green light to the merger Netherlands, Icare, Sensire and Thuiszorg Groningen of Sensire and Thuiszorg Groningen. Hans Schönau, wished to merge. After an initial scan by NMa, it appeared Director of the Merger Control Department of NMa and that the merger of two of the three organisations, Icare and Matthijs Almekinders, Chairman of the Management Thuiszorg Groningen, would require a more in-depth inves- Board of Sensire, both give their view of the case. tigation, due to the possible emergence or strengthening of a dominant position. Following this, Icare withdrew.

86 Annual Report 2004 NMa and DTe Double interview | Healthcare sector 87 Eªciency gains can sometimes be achieved by means other than mergers.

Hans Schönau

What is the market situation in the homecare sector? Health, Welfare and Sport, the number of people employed in the healthcare sector will double from 565,000 to Almekinders “We sometimes wonder whether competition 1,165,000. The question is whether we can meet this is the right word to apply to the situation in geriatric care. challenge and whether we can a¤ord it. This means a This is a vulnerable group of customers. Their interests threatening, unsolvable situation of scarcity, and compe- may not be jeopardised. In addition, we expect considerable tition can only mean one thing in such a situation: an growth. Up until 2020, according to the Ministry of Public increase in prices. A return to the situation of the past, »

86 Annual Report 2004 NMa and DTe Double interview | Healthcare sector 87 with monopolistic providers, is also not possible. We will therefore have to move towards regulated competition and assessing mergers is part of this.” Schönau “Previously there were indeed monopolies in many regions due to the system of areas of operation and earlier mergers which had resulted in the emergence of larger players. Due to the regulated nature of the sector, however, an assessment on the grounds of competition was not possible. Now it is possible. Competition does exist and organisations are operating as companies. The Competition Act therefore protects customers of homecare organisations. After all, the aim of the Act is to ensure both In rural areas the optimum prices and good quality.”

homecare market has The geographical dimension of the homecare market was an a regional dimension. important aspect of the case. What is your opinion of this?

Entry into these regions Schönau “In any event, we do not regard it as a national is not easy. market. In this case, we assumed the existence of regional markets. Entry to these regional markets is not easy, particularly in rural areas.” Almekinders “We have a di¤erent opinion. We see an overlap between the regional areas and we also observe that there are many new entrants. In its analysis, NMa limited itself too much to the present, established players.”

Why did the parties wish to merge?

Almekinders “It is wonderful that customers have freedom of choice. This is one point of view. However, we are convinced that you have to make choices in favour of the group. The demand for healthcare in the coming years will grow explosively. To manage costs, you need economies of scale. We wish to use the eªciency gains we achieve from this to develop innovative products. With these innovations, we can then meet the increase in demand for healthcare with a feasible number of employees and at an acceptable cost.” Schönau “The beneits of economies of scale are a frequently cited reason for mergers. We have also acquired a better eye for these but in each case we have to investigate whether this is the right path to take. There are also other conceivable paths, such as setting up joint ventures in particular areas. For instance, organisations can agree to divide certain specialisms amongst themselves and, by doing so, to reduce their costs. There are numerous forms of cooperation which the Competition Act allows, subject to certain conditions. Sometimes a merger is the only way. What we then investigate is what the expected e¤ects of the merger will be, whether the stated aim will be achieved in this way and whether the beneits of this are passed on to the users.”

88 Annual Report 2004 NMa and DTe Double interview | Healthcare sector 89 What was the procedure followed in this case?

Almekinders “It was an incredible amount of work! It was a new approach to the problem for both parties. A lot of sector-speciic data had to be found, but it provided us with a tremendous insight into and knowledge of the market. What was striking was that NMa took a constructive approach and was considerate. It was a shared problem.” Schönau “I am glad to hear that you experienced it this way. Our aim is to limit the burden which inevitably accompanies the exercising of merger control as far as possible. After we had communicated our objections to the parties, they NMa pays too much took a positive approach and cooperated in every way to ind a solution. At the beginning of last year, we published best attention to the practices for merger control, to which interested parties present context and their lawyers could refer. Within that framework, we and the present were very proud of this case. The process went smoothly.” players, and assesses What is the situation now?

future developments Almekinders “We are now at the stage that two of the three di¤erently to us. parties will soon merge. We have the green light for this. Due to NMa’s phased approach with its initial scan and an in-depth investigation, it is now possible for us to line up all the possibilities and make a choice at a later stage.” Schönau “If all three of the parties still wish to merge, we will have to conduct a further investigation to establish whether the objections which we saw initially are, in fact, insurmountable.”

How do the parties view this in retrospect? What impact did NMa have on their view of mergers in the homecare sector? What is their opinion of this?

Almekinders “It is clear that in the sector other possibilities are being considered. For instance, our colleagues are considering mergers where their areas of operation are not adjacent to each other.” Schönau “This form of what we refer to as ‘self-assessment’ is, on the one hand, a desirable consequence of the decision in this case but, on the other hand, we hope that this does not live a life of its own. After all, the judgment in this case is not inal. In a di¤erent case, di¤erent circumstances may play a role. For instance, I would like to draw attention to the importance attached to the nature of (rural) areas in this case. Market conditions are di¤erent in areas which are clearly urban.” Almekinders “The decision was inluenced by the present context. The analysis of future expectations is arbitrary, so that there is a di¤erence between our view and that of NMa. In our opinion, the most important consideration is that there should be equality on the market.” Schönau “And that is precisely our task.” π

88 Annual Report 2004 NMa and DTe Double interview | Healthcare sector 89 6 Healthcare sector

6.1 Introduction

The government’s policy to promote the operation of market forces in the healthcare sector was continued in 2004. The system of central management by the government will be replaced as far as possible by a decentralised system of regulated competition characterised by risk and income solidarity, market incen- tives, options and greater responsibility for citizens As a result, the healthcare sector was one of NMa’s priority areas, as it was in 2003. With the publication of the white paper ‘Competition in the Hospital Sector’ [‘Concurrentie in de ziekenhuissector’] and ‘Markets for Healthcare Subject to the Exceptional Medical Expenses Act’ [‘AWBZ-zorgmarkten’] NMa’s competition regulation has extended to almost the entire healthcare sector. NMa also took several decisions in relation to various parts of the healthcare sector. Decisions in relation to pharmacies, hospital care, care by psychologists and dental technicians, and healthcare subject to the Exceptional Medical Expenses Act will be discussed below.

The healthcare sector is a market in transition. It is therefore important to apply not only formal instruments, but also informal instruments, such as giving advice and informal opinions. By doing so, NMa aims to contribute to a change of culture in the sector, as far as possible, to prevent behaviour that restricts competition.

With regard to the general information provided to the healthcare sector, NMa’s employees held various workshops and gave presentations both to companies in the SME sector and to a number of branch organisations representing organisations in the healthcare sector subject to the Exceptional Medical Expenses Act and the hospital sector. A large number of informal meetings with both healthcare providers and health insurers were also held in all subsegments of the healthcare sector. The large and growing number of requests for informal discussions and presentations shows that this method of providing information is much appreciated by parties in the healthcare sector. Numerous discussions were held with healthcare providers in 2004 in preparation for the notiication of proposed mergers. NMa intends to continue this method of operation in 2005. As far as possible, NMa will cooperate in this with the Oªce of Health Note 22 Regulation [Zorgautoriteit] which is currently being established.22 See section 1.3 for the division of roles between the two organisations. For providers of primary healthcare, 2004 was a turbulent year. NMa received tens of complaints from physiotherapists and general practitioners about the possible abuse of dominant positions by health insurers. Rather than processing these complaints separately, NMa waited for the results of broad research into procurement power. The results were published in a white paper entitled Note 23 ‘Procurement Power’ [‘Inkoopmacht’].23 In assessing the above-mentioned www.nmanet.nl/nl/ complaints, NMa will adhere to the policy guidelines set out in the white paper. Images/11_26331.pdf

NMa also received reports that general practitioners allegedly requested their patients to switch to a particular health insurer. In October 2004 NMa commissioned TNS NIPO to conduct research into switching behaviour in

90 Annual Report 2004 NMa and DTe Part 2: Areas of Attention | Chapter 6: Healthcare sector 91 the healthcare sector, in particular into switching between general practitioners or healthcare insurers. The aim of the research was to establish to what extent consumers experience diªculties in switching between general practitioners or to what extent they are compelled by their general practitioner to switch health insurers. No evidence emerged from the research that general practitioners divide the market amongst themselves on a signiicant scale, for instance on the basis of postal code areas. No evidence of this was found. Given the importance to policyholders of low thresholds to switching, NMa will continue to give priority to detecting behaviour which possibly restricts competition and which is intended to restrict consumers’ freedom of choice. DA-drogisten doen aanval op marktpositie van apotheken

20-01-2004 | Het Financieele Dagblad (DA Chemists Launch Attack on 6.2 Subsectors Market Position of Pharmacies) 6.2.1 Pharmacies Independent pharmacies have good reason to cooperate with each other. An important form of cooperation is the exchange of patient data between pharmacies and general practitioners, so that every pharmacy which is connected to a network can dispense medicines in a responsible manner. In order to exchange data, pharmacies set up electronic networks. These networks, however, also appear to be used to restrict competition, both between the cooperating pharmacies and in relation to other – in particular new – pharmacies. For instance, access to such networks is sometimes subject to restrictive or unclear conditions. In cases where this occurs, the cooperating pharmacies undermine the measures which the government has introduced to liberalise the market for medicines.

In 2003 NMa drew up a report on two cases where access to networks was restricted (pharmacies in the regions of Assen and Breda). Since the purpose of doing so was mainly to remove restrictions for the future, NMa did not consider it opportune in these cases to impose ines, but rather took measures aimed at the immediate restoration of normal competition, such as consultation with the parties involved or an injunction. Following consultation, the pharmacies in the Breda region liberalised access to the network. With regard to the pharmacies in the Assen region, it proved necessary to impose an order subject to a penalty. In terms of the order, it had to be possible for all pharmacies to consult up-to-date information 24 hours a day. For every day that the pharmacies did not comply with the order, they would forfeit a penalty of 4 1,000. The pharmacies complied with the order.

90 Annual Report 2004 NMa and DTe Part 2: Areas of Attention | Chapter 6: Healthcare sector 91 Medicijnen drastisch goedkoper

05-02-2004 | de Volkskrant The instrument of an injunction was also used in 2004 in a di¤erent case (Sharp Fall in the involving pharmacies. A large number of pharmacies in the Tilburg region Price of Medicines) operated a joint polyclinic pharmacy (a public pharmacy in a hospital). By jointly operating this pharmacy, they eliminated competition which they might otherwise have experienced if a third party had operated the pharmacy. The pharmacies iled an administrative appeal against the order in which they were instructed to cease their joint operation of the pharmacy.

6.2.2 Hospitals Note 24 In its white paper entitled ‘Competition in the Hospital Sector’,24 NMa con- www.nmanet.nl/nl/ cludes that the Competition Act also applies to the provision of hospital care. Images/11_15883.pdf At the beginning of 2004, a notiied merger of two hospitals in The Hague was assessed, namely the merger of Juliana Kinderziekenhuis/Rode Kruisziekenhuis and Ziekenhuis Leyenburg. On the basis of its analysis, NMa concluded that no competition concerns would arise due to the merger and that a licence for the merger was not required.

In April 2004 NMa was notiied of the intended merger of Ziekenhuis Hilversum and Ziekenhuis Gooi-Noord, both of which were situated in the Gooi region. Both hospitals are general hospitals. As in the case of the merger between the two hospitals in The Hague, NMa distinguished between two possible product markets, namely the market for general hospital care and the markets for various specialisms. Furthermore a distinction was made between clinical care (admissions) and non-clinical care (polyclinic consultations and one-day admissions). The assessment of the geographic dimension of the market appeared to be of considerable importance in this case. A test based on the travel patterns of patients showed that some product markets covered a larger area than the Gooi region.

Ziekenhuis Hilversum and Ziekenhuis Gooi-Noord are the only hospitals in the Gooi region. The situation in this case is di¤erent to that in The Hague to the extent that after the merger two other hospitals remained in The Hague. As a result of the merger in the Gooi region, the merged organisation will acquire a very large market share within that region and possibly as a result it may also acquire a dominant position. The e¤ect of this may be that the hospitals will have less reason to di¤erentiate on the basis, for instance, of innovation, service and quality due to the disappearance of the incentive to compete. NMa notiied both parties that a licence was required for this merger.

In mid-December 2004 the two hospitals submitted an application for a licence. NMa’s further investigation will focus on the consequences of the proposed merger for the patients and insurers involved. Apart from this concrete case, NMa is also conducting further research into the product characteristics of the market.

92 Annual Report 2004 NMa and DTe Part 2: Areas of Attention | Chapter 6: Healthcare sector 93 6.2.3 Psychologists and dental technicians Independent healthcare providers (private practices) are undertakings, in accordance with competition law, and are therefore subject to competition rules. The same applies to associations of independent healthcare providers. They are associations of undertakings and may not restrict competition between their members. An association is therefore prohibited from advising its members on prices in the form, for instance, of recommended prices, minimum prices and recommendations to increase prices by a certain percentage. Price is an essential factor in competition between companies. Recommendations made by an association may result in members’ more or less predicting each other’s tari¤s and adjusting their own tari¤s in line with this. Brancheorganisaties in de zorg beboet door NMa

28-04-2004 | Het Financieele Dagblad In 2004 NMa ined several associations of undertakings in the healthcare sector (NMa Fines Branch Associations because they had advised their members on prices. This involved four associa- in the Healthcare Sector) tions of psychologists and/or psychotherapists and an association of dental technicians. The ines ranged from 4 55,000 to 4 400,000. In determining these ines, which are small relative to the total turnover of the members, NMa took into account the inancial resources of the associations. Through these decisions NMa made it known to healthcare providers and their associations that associations may not give advice on prices and that their members may also not accept such recommendations from their associations (the executive board or management).

This does not mean that associations of undertakings cannot advise their members on inancial matters. For instance, associations may inform their members in a neutral way about cost trends and provide them with methods for calculating prices, as long as these do not include ixed amounts or percentages. With regard to compliance with competition rules, the associations contribute to ensuring that their members do not infringe the rules, for instance by providing information on what competition rules mean within their branch and by developing forms of cooperation which comply with these rules.

6.2.4 Markets for healthcare subject to the Exceptional Medical Expenses Act In January 2004 NMa published its white paper ‘Markets for Healthcare Subject Note 25 to the Exceptional Medical Expenses Act’ [‘AWBZ-zorgmarkten’].25 The most www.nmanet.nl/nl/ important conclusions of this white paper were that, in principle, healthcare Images/11_15884.pdf providers in the healthcare sector subject to the Exceptional Medical Expenses Act fall within the scope of the Competition Act but that parties which procure healthcare subject to the Exceptional Medical Expenses Act (the healthcare agencies) are not undertakings in terms of the Competition Act.

92 Annual Report 2004 NMa and DTe Part 2: Areas of Attention | Chapter 6: Healthcare sector 93 In the course of 2004, NMa received various notiications of mergers of healthcare providers subject to the Exceptional Medical Expenses Act. The decisions taken in 2004 show how diverse this sector is. In addition to homecare, NMa assessed concentrations in the nursing home and convalescent home sectors, in the healthcare sector for the mentally handicapped (in the case of Amstelhuizen – IJlanden) and in the psychiatric hospital sector (the case of Rijngeest – Robert Fleury). Many providers of healthcare subject to the Exceptional Medical Expenses Act are also involved in other activities, such as maternity care, social work and paediatric care. With regard to the last activity, NMa concluded that competition is not yet possible due to the way municipalities issue tenders. NMa verhindert fusie thuiszorg

04-01-2005 | Nederlands Dagblad The geographical dimension is also of considerable importance in relation to (NMa Prohibits Homecare Merger) healthcare subject to the Exceptional Medical Expenses Act. In the cases assessed up until now, it has emerged that patients have a strong preference for a nursing home or convalescent home in the vicinity of their home.

In homecare cases the geographical dimension of the market also played an important role. Due to the characteristics of homecare as a product, the budgeting system and the role which the healthcare agency plays in this, the size of the geographical market is small in the homecare sector. In decisions on mergers in the homecare sector, in NMa’s opinion the maximum size of the geographical market was the healthcare agency’s region. The case of the merger of Evean and De Weeren involved homecare providers active in the regions of Zaanstreek – Waterland and Amsterdam. In this case, NMa concluded that no competition concerns would arise due to the merger. A licence was not required for the merger.

Case 4295 In the case of the merger of Stichting Icare, Stichting Sensire and Stichting Thuiszorg Groningen, the area Stichting Icare – Sensire – served by Icare and Thuiszorg Groningen consisted of the regions of Drenthe and Groningen respectively. Thuiszorg Groningen Due to the merger of these two parties a signiicant competition factor would have disappeared and the merger of Icare and Thuiszorg could have resulted in the emergence or strengthening of a dominant position. In the case of the merger of Sensire and Thuiszorg Groningen, this would not have occurred. The parties amended their notiication in such a way that it only involved a merger of Sensire and Thuiszorg Groningen. NMa was able to give the green light to this intended merger without a further investigation.

94 Annual Report 2004 NMa and DTe Part 2: Areas of Attention | Chapter 6: Healthcare sector 95 94 Annual Report 2004 NMa and DTe Part 2: Areas of Attention | Chapter 6: Healthcare sector 95 A good market is more than just a competitive market.

Patricia Hoogstraaten

In 2004 NMa consulted the market on the topic of procure- price war in the retail market (supermarkets) was discussed. ment power. Procurement power refers to situations where Patricia Hoogstraaten, Director of Vakcentrum (the branch procurers have a strong position relative to suppliers. For association for independent entrepreneurs in the food the purposes of consultation, NMa drew up a document. and retail trade), contributed to the hearing. Now she and Interested parties were invited to respond to this. Part of the René Smits enter into debate. consultation was a hearing chaired by Professor René Smits, Legal Counsel to NMa. Amongst other topics, the current

96 Annual Report 2004 NMa and DTe Double interview | Procurement power 97 NMa is convinced that this price war is largely good news for consumers.

René Smits

What were the reasons for NMa to resort to a consultation confronted by the procurement power of their buyers. and hearing? Is this not an incident? Supermarkets allegedly also use their power to transfer the burden of the price war to their suppliers. The lengthy Smits “The immediate reason for the consultation were price war unleashed by the supermarkets was added to newspaper reports in which producers in the SME sector, this, as was the idea held by some parties that procurement agricultural and horticultural companies, and healthcare power possibly also played a role in this. NMa was expected providers reported that they, as suppliers, are possibly to express an opinion on this matter. »

96 Annual Report 2004 NMa and DTe Double interview | Procurement power 97 At the time, the consultation began with an analysis of how the European Commission and NMa deal with the question of procurement power. A hearing was organised as the keystone to this consultation. The central issue was whether there were examples of sectors in which procurement power occurred and the opportunities for taking action against this on the basis of the Competition Act.” Hoogstraaten “Initially we did not respond to the We can respond better questionnaire because, from our perspective as the repre- sentative of 2,500 independent entrepreneurs, organising to future developments procurement power naturally puts us in a comparable due to an increase position to large companies. Only when the price war continued and we began to feel the negative e¤ects of this, in our knowledge of did we decide to participate. We nevertheless came to the the market. meeting to emphasise the role which independent retailers play. In our opinion, competition is ine, but now and then we expect the government to intervene in the organisation of our market, on which not all parties occupy an equal position. We were keen to be involved in this.”

What was the outcome of the consultation, in your opinion? How should the price war be viewed in terms of competition? How broadly is it viewed?

Smits “One of the outcomes of the consultation is the realisation that this problem cannot be solved in the irst place on the basis of the Competition Act. The reason for this is that the advantages of the price war are passed on to consumers. Of course, we are in favour of competition of this sort. We conclude that the supermarket war has resulted in a sharp fall in prices and, by doing so, has increased the purchasing power of consumers. Only when the advantages on the upstream market are not passed on on the downstream market, would NMa have cause to take action against procurement power. We remain interested in such a concrete case.” Hoogstraaten “That is right. Particularly in the initial phase the Competition Act is not very e¤ective as an instrument. We therefore emphasise the need for legislation which is e¤ective, such as prohibiting systematic selling at a loss. Eight other Member States of the EU have such a law. We are approaching the point where this is becoming necessary. All the normal ‘initial’ e¤ects of the price war have passed. Where economies were possible, they have been made. The next step will be the disappearance of companies and that is damaging to competition. This will therefore certainly become an issue for NMa.”

98 Annual Report 2004 NMa and DTe Double interview | Procurement power 99 Smits “Strong competition may mean that companies disappear, particularly if circumstances change rapidly. For instance, it is possible that consumers have less of a need for a product, a service or the sales method of a company. This is part of business risk. A present or future company is therefore expected to keep abreast of developments, take up new challenges, innovate, seek to cooperate or specialise et cetera. This is now precisely the type of competition NMa For us, NMa is the favours.” government, and the What are the results of the consultation in your opinion? government must do

Hoogstraaten “Vakcentrum has raised a number of something now. matters and has drawn attention to certain aspects. NMa has now joined us in thinking about these matters.” Smits “The most important result for us is that we have obtained a good insight into how the markets involved work, the extent to which procurement power plays a role in this and what we, as NMa, can and cannot do.” Hoogstraaten “Nevertheless we expect you to take some action. The price war has now lasted very long. NMa listens, but does nothing.” Smits “What do you expect us to do?” Hoogstraaten “Your reasoning about the market is at a high level of abstraction, while for SME companies it is important that their interests are protected. As I mentioned, it is precisely these smaller companies which are threatened by this situation, while they make a considerable contribution at the level of competition based more on quality. NMa says that it focuses on the interests of consumers, but it will also have to do so in the longer term. If smaller companies disappear, this will a¤ect the weaker consumers: the aged and the disabled, who will have to do their shopping at a greater distance. A good market is more than just a competitive market.” Smits “We certainly understand that. The accessibility of amenities is an important element in the quality of life within society. However, since the supermarkets are competing for the patronage of consumers through their pricing policies, we are convinced that this price war is largely good news for consumers. After all, NMa exists to protect the interests of consumers. Where demand is clearly discernible, companies emerge which take advantage of this. We see, for instance, that banks which have reduced their branch networks have now again started o¤ering small-scale facilities. Free competition ensures that where gaps appear in the facilities o¤ered, companies emerge to take advantage of these.” π

98 Annual Report 2004 NMa and DTe Double interview | Procurement power 99 7 Quality reports of electricity grid and gas network managers

7.1 Quality reports of electricity grid managers

The electricity grid managers report each year before 1 March to DTe on the quality of their services and the transmission service in the preceding year. The reports contain, for instance, information on interruptions to the transmission service, compensation paid for serious interruptions and the quality of customer service, such as the correct processing of correspondence and timely announce- ment of maintenance.

The table below gives an insight into the annual duration of outages as experienced by consumers and small business customers. The annual duration of outages is the average number of minutes that electricity supply is interrupted per buyer.

Table 14: Annual duration of outages as experienced by consumers and small business customers

Electricity grid manager Outages (Section 3.3.1 Grid Code)

Annual duration of outages per customer at the low-voltage level (in minutes)

Average Average 2004 2003 2002 2002 – 2004 2001 – 2003

Continuon Netbeheer 25.4 31.9 23.1 26.8 26.3 Continuon: EWR Netbeheer 1 1 11.6 23.0 22.7 Continuon: Noord West Net 1 1 40.9 32.7 38.0 Delta Netwerkbedrijf 14.3 24.9 30.9 23.4 26.7 Elektriciteitsnetbeheer Utrecht 26.4 26.7 23.1 25.4 29.9 Eneco Delland 41.2 27.8 15.7 28.2 22.5 Eneco Midden Holland 14.4 20.7 36.6 23.9 28.5 Eneco Netbeheer 19.5 20.0 40.1 26.5 38.1 Eneco Weert 1.9 10.7 5.1 5.9 6.1 Eneco Zuid Kennemerland 4.8 7.8 5.6 6.1 24.2 Essent Netwerk Brabant 15.3 24.9 13.9 18.0 19.6 Essent Netwerk Friesland 8.2 3.5 21.5 11.1 12.2 Essent Netwerk Limburg 11.0 18.0 10.5 13.2 13.9 Essent Netwerk Noord 36.9 48.2 33.9 39.7 38.9 Infra Mosane 1.5 1.8 6.4 3.2 3.9 Intergas Netbeheer 6.5 0.0 nvt – – Netbeheer Centraal Overijssel 2.1 11.52 3.8 5.8 5.1 NRE Netwerk (Eindhoven) 4.9 10.4 7.7 7.7 29.5 ONS Netbeheer 3.0 18.4 142.5 54.6 56.3 Rendo Netbeheer 25.9 15.4 10.9 17.4 17.9 Westland Energie Infrastructuur 9.9 107.5 18.3 45.2 54.3 Total for the Nederlands3 24 30 28

1 One value for all the grid managers of Continuon. 2 Corrected value. 3 Weighted average.

100 Annual Report 2004 NMa and DTe 101 On the basis of the reports and the available data, DTe reached the conclusion that the annual duration of outages for the Netherlands as a whole in 2004 amounted to approximately 24 minutes per buyer at the low-voltage level. Due to a single large power failure, the value for the annual duration of outages of an individual grid manager may be high. The average for a number of years therefore gives a better impression of the quality of each grid manager. DTe concludes that the average duration of outages for the period 2002 to 2004 was lower in the case of most grid managers than the average for the period 2001 to 2003. The conclusion that the quality of the grids has improved in this respect therefore seems justiied.

The table below provides the igures for several service quality criteria per grid manager.

Tabel 15: Quality igures per electricity grid manager

Electricity grid manager Processing of correspondence Compensation payments (Section 6.3.1 Grid Code)

Not within 10 working days 1 1 1 1 (in %) (x 1,000) (x 1,000) (x 1,000)

2004 2003 2002 2004 2003 2002

Continuon Netbeheer 11.0 0.6 0.2 22,914 852.7 27,815 960.0 9,333 330.1 Continuon: EWR Netbeheer 2 2 2 2 2 2 2 12 0.4 Continuon: Noord West Net 2 2 2 2 2 2 2 18,540 688.3 Delta Netwerkbedrijf 5.4 2.7 3.4 349 12.2 1,739 74.0 302 12.3 Elektriciteitsnetbeheer Utrecht 24.0 9.0 9.6 389 29 2,291 86.3 686 44.1 Eneco Delland 3 3 3 622 22 1,542 54.0 58 2.0 Eneco Midden Holland 3 3 3 209 7 284 9.9 244 8.5 Eneco Netbeheer 17.0 9.0 9.6 11,027 392 10,877 380.7 14,974 531.1 Eneco Weert 3 3 3 0 0.0 0 0.0 0 0.0 Eneco Zuid Kennemerland 3 3 3 21 1 0 0.0 0 0.0 Essent Netwerk Brabant 3.0 1.4 2.5 348 12 279 9.8 14,987 528.9 Essent Netwerk Friesland 0.0 0.0 2.0 285 10 49 1.7 71 2.5 Essent Netwerk Limburg 5.1 4.0 10.7 348 12 18,741 656.8 91 3.2 Essent Netwerk Noord 17.0 7.8 20.8 10,305 380 4,616 184.3 120 12.3 InfraMosane 0.0 0.0 0.0 6 0.1 57 2.0 0 0.0 Intergas Netbeheer 0.0 0.0 – 1 0.0 0 0.0 Netbeheer Centraal Overijssel 5.0 10.0 0.0 56 2.0 13 0.4 0 0.0 NRE Netwerk (Eindhoven) 17.6 0.3 0.1 0 0.0 126 4.4 0 0.0 ONS Netbeheer 0.0 2.1 0.2 53 3 45 3.7 0 0.0 Rendo Netbeheer 4.9 13.0 0.0 16 0.6 37 1.3 0 0.0 Westland Energie Infrastructuur 4.4 1.0 0.0 24 0.8 104 9.7 99 12.2 Total (x 1,000) 48 1,768 69 2,439 60 2,276

1 Section 6.2.4.2 of the Grid Code states: ‘The grid manager shall process correspondence from connected customers within 10 working days. If a solution is not possible within this period, the connected customer shall receive notice of this within ive working days, stating the period within which an adequate response can be expected.” 2 One value for all Continuon grid managers. 3 One value for all Eneco grid managers.

100 Annual Report 2004 NMa and DTe Part 3: Reference | Chapter 7: Quality reports of electricity grid and gas network managers 101 DTe notes that in 2004 the period for processing correspondence was exceeded more often than in 2003. The grid managers will therefore have to improve the quality of their service. The compensation paid for serious outages was lower in 2004 than in previous years. This corresponds to the greater reliability in 2004.

7.2 Quality reports of gas network managers

On the basis of the ‘Gas Quality Code’, drawn up within the framework of the implementation of section 83 of the Gas Act, the gas network managers reported to DTe for the year 2004 on compliance with the quality criteria applicable to services to captive customers and customers whose annual consumption is less than 170,000 cubic metres of gas. In accordance with section 82 of the Gas Act, these quality criteria must relate to the conditions which the gas network managers applied to this group of customers and, in any event, should include the technical speciications applied, the solving of interruptions to the transmission of gas, customer service and compensation for serious outages.

It appears from reports which DTe has received in relation to the year 2004 that the number of interruptions to gas transmission is in the order of 3.2 interruptions per 1,000 captive customers. In 2002 and 2003 this igure was approximately 2 per 1,000. Table 17 gives the number of outages in relation to the number of captive customers for the years 2003 and 2004 per gas network manager. The average duration of an outage per captive customer was approximately 140 minutes in 2004. The number of reports of gas leaks is in the order of 2 notiications per 1,000 customers. With regard to the functioning of the customer service, the norm has been set in such a way that the engineers of the gas network manager must be on location within two hours after receiving a notiication. The number of times that this norm was exceeded, expressed per 1,000 captive customers and as an average for all gas network managers, is 0.4 for 2003 and 0.5 for 2004. The table below gives the number of times that each gas network manager exceeded the norm in the years 2003 and 2004.

Table 16: Total compensation payments

Compensation paid by gas network managers (in 1) 2004 2003 2002 2001

49,070 25,690 46,970 1,857,350

With regard to the provision of compensation for serious outages, gas network managers apply a scheme in which a customer who consumes less than 170,000 cubic metres of gas a year receives compensation amounting to 4 35 if the outage lasts for longer than four hours. In this case, captive customers whose annual consumption exceeds 170,000 cubic metres of gas receive an amount of 4 910. The table above provides an overview of the amounts paid by gas network managers in compensation. In the table below, the compensation paid in the years 2003 and 2004 is speciied per gas network manager.

102 Annual Report 2004 NMa and DTe 103 Table 17: Compensation payments per gas network manager

Gas network manager Gas network manager Compensation payments to captive Frequency of not on location within customers interruptions to the the two-hour norm transmission service

(per 1,000 captive Number Paid Number Paid (per 1,000 captive customers) (in 1) (in 1) customers)

2004 2003 2004 2003 2004 2003

Conet 0.0 0.0 2 70 0 0 4.1 1.0 DELTA Netwerkbedrijf 0.0 0.0 0 0 2 70 2.7 2.0 ENECO Netbeheer Amstelland 0.0 1.0 0 0 0 0 5.0 – ENECO Edelnet Delland 0.8 0.4 49 1,715 0 0 4.0 0.8 ENECO Netbeheer 0.5 0.5 887 31,045 590 20,650 4.0 2.2 ENECO Netbeheer Midden Holland 0.3 0.3 0 0 0 0 3.0 – ENECO Netbeheer Midden-Kennemerland 0.0 1.0 0 0 0 0 4.0 – ENBU 0.0 0.0 0 0 6 210 2.0 1.0 ENECO Netbeheer Noord Oost Friesland 0.6 1.3 0 0 0 0 8.0 – ENECO Netbeheer Weert 0.6 0.2 0 0 0 0 4.6 0.5 ENECO Netbeheer Zeist en Omstreken 0.9 0.4 0 0 0 0 4.2 2.5 ENECO Netbeheer Zuid-Kennemerland 4.1 1.0 0 0 0 0 3.0 – Netbeheer Haarlemmermeer 0.2 0.2 3 105 1 35 4.7 2.5 Intergas Netbeheer 0.2 0.0 0 0 0 0 1.1 2.1 InfraMosane 0.0 0.0 30 1,050 7 245 0.9 0.1 NRE Netwerk 0.1 0.4 0 0 0 0 1.5 0.3 Continuon Netbeheer 0.1 1.1 397 14,770 111 3,885 4.4 3.5 Obragas Net 0.5 0.4 0 0 0 0 4.5 2.0 ONS Netbeheer 0.0 0.0 0 0 0 0 0.0 0.0 RENDO Netbeheer 0.0 0.0 0 0 0 0 0.2 0.0 Essent Netwerk Brabant 1.6 0.2 0 0 0 0 0.9 0.6 Essent Netwerk Friesland 0.3 0.3 0 0 13 455 7.9 0.6 Essent Netwerk Limburg 0.9 0.4 0 0 0 0 0.6 0.4 Essent Netwerk Noord 1.1 0.0 0 0 0 0 0.7 0.3 Westland Energie Infrastructuur 0.1 0.5 9 315 4 140 0.3 0.1 Total – – 1,376 49,070 734 25,690 – –

102 Annual Report 2004 NMa and DTe Part 3: Reference | Chapter 7: Quality reports of electricity grid and gas network managers 103 8 Monitoring of the electricity and gas markets

8.1 Introduction

Since July 2004 DTe has had the statutory task of monitoring the electricity and gas markets and reporting on this in the Annual Report of NMa and DTe. DTe monitors developments on the electricity and gas markets closely with the aim of taking concrete measures based on the results, with the aim of improving the operation of market forces, where possible. To do so, DTe assesses the supply market and the wholesale market. A wholesale market which operates properly is characterised by a large number of market players and eªcient matching of supply and demand. This ensures that supply companies can procure energy at competitive prices. The advantages of low procurement costs will be passed on to consumers in the price they pay, if the supply market functions properly. For this reason, DTe also monitors the operation of the supply market because freedom of choice and competitive prices are not self-evident in the present supply market.

8.2 Supply market

Since 1 July 2004, consumers have been free to choose their own supplier of gas and grey electricity (electricity generated using fossil fuels). Suppliers that supply consumers have to have a supply licence. On 1 July 2004 DTe issued 35 licences for electricity and 24 for gas in accordance with the licensing criteria.

The three largest suppliers have a market share exceeding 80% for both electricity and gas. In addition, there are approximately 20 independent suppliers. In principle, consumers have a wide range of options, although concentration around the three largest suppliers is high.

The market for green electricity (electricity generated using sustainable resources) has been liberalised since 1 July 2001. With the opening of the market for green electricity, a number of new suppliers entered the market in competition with the traditional suppliers. These new suppliers, who have also been allowed to supply grey electricity since 1 July 2004, have a market share of approximately 7%. Almost 37% of consumers have opted for green electricity.

In the period from 1 July up to and including 31 December 2004 approximately 385,000 buyers switched electricity suppliers and approximately 185,000 switched gas suppliers. This amounts to 5% of connections for electricity and 3% for gas.

104 Annual Report 2004 NMa and DTe Part 3: Reference | Chapter 8: Monitoring of the electricity and gas markets 105 The possible savings from switching suppliers is limited in the case of many consumers. Consumer expectation that this is indeed the case may be a reason not to switch suppliers. However, surveys carried out at the beginning of 2005 show that a household with an average energy consumption and with a contract with the most expensive supplier can soon save 4 100 or even more per annum by switching to the cheapest supplier.

A large number of consumers appear not to be well informed of the opportunities which the liberalised gas and electricity markets o¤er, such as the number of suppliers and the actual opportunities to save on energy costs. The expectation that opportunities for savings are relatively limited may be the reason that consumers do not actively search for information. Persistent complaints about billing and the processing of switches are an obstacle to the proper operation of market forces.

8.3 Electricity wholesale market

In 2004 DTe carried out research into the liquidity of the wholesale market for electricity in the year 2003 and advised the Minister of Economic A¤airs to take a number of measures to improve liquidity. In a liquid market there are suªcient opportunities to trade electricity and individual transactions have a small e¤ect on price. A liquid market ensures that electricity is produced at minimum cost and that buyers adjust their consumption in line with the price, which has a positive e¤ect on competition.

It appears from the research that liquidity decreased in 2003 compared to 2002. In 2002 liquidity was also moderate. DTe concludes that the liquidity of the market is not expected to improve signiicantly if no additional measures are taken. A lack of competition on the wholesale market means that consumers will not beneit from all the advantages of the liberalisation of the supply market.

On the grounds of this concern and partly on the basis of consultation with market parties, DTe advised the Minister of Economic A¤airs, to take a number of measures to improve liquidity in the short term. The Minister of Economic Note 26 A¤airs adopted this advice and the development of the measures has begun.26 See the letter from the Minister of Economic A¤airs to the Lower House of the Dutch Parliament At the end of 2004 DTe started carrying out research into the development of of 23 April 2004 (reference ME/ liquidity and competition on the wholesale market in 2004. For the irst time, EM/4028011). this research gives an estimate of the level of competition on the wholesale market. Initial reports indicated that there was probably an improvement in liquidity in 2004 compared to 2003.

104 Annual Report 2004 NMa and DTe Part 3: Reference | Chapter 8: Monitoring of the electricity and gas markets 105 8.4 Gas wholesale market

During the evaluation of the ‘Guidelines for Gas Transmission for the Year 2002’, various market parties indicated to DTe that there were bottlenecks on the wholesale market for low-calorie gas in the Netherlands. This is the type of gas which is supplied to 98% of buyers. This bottleneck, according to the market parties, is a serious barrier to entry by new suppliers of low-calorie gas, including suppliers who wish to supply gas to consumers.

On the basis of this evaluation, in cooperation with NMa, DTe commissioned research into the possible obstacles to competition on the Dutch gas market and the consequences of this for consumers. An important conclusion of this research was that new entrants to the gas market are confronted by considerable barriers to entry because: * there is too little lexibility available to accommodate luctuations in supply and demand; * there is too little capacity for quality conversion; and * there is too little import capacity.

DTe consulted the market about possible solutions, which resulted in the publication of the ‘Guidelines for Gas Transmission for the Year 2005’. These guidelines will be included in the Gas Codes in 2005 (pursuant to section 12 of the Gas Act). The main items covered by the guidelines are: * improved provision of information by Gastransport Services to market parties; * agreements with Gastransport Services to develop a more economically oriented balancing regime; * a cost-oriented system of penalties for imbalance; * partial socialisation of the cost of quality conversion for converting high-calorie gas to low-calorie gas; and * improved rules for importing gas.

DTe expects the opportunities for competition on the gas market to improve due to these measures and expects consumers to beneit more from the advantages of the liberalised gas market.

8.5 Conclusions

The supply market was recently liberalised fully and still has to develop. Although there are many suppliers, the rate of switching is low. This can perhaps be explained by the often limited opportunities for savings. Consumers’ conidence in the proper operation of the market must be improved. DTe will take measures to improve transparency for consumers. DTe will also take measures to improve administrative processes.

106 Annual Report 2004 NMa and DTe Part 3: Reference | Chapter 8: Monitoring of the electricity and gas markets 107 The liquidity of the wholesale market for electricity gave cause for concern but appears to have improved in 2004. Proper integration of the German, Belgian and French markets remains one of DTe’s important objectives. The enlarge- ment of the market and more competition are expected to result in further improvement of the operation of market forces.

The operation of the wholesale market for gas is still inadequate. There are still many obstacles and barriers to entry. By means of various measures, DTe tries to improve opportunities for competition. The creation of an independent Transmission System Operator will facilitate the implementation of these measures. However, DTe notes that there is still a long way to go to achieve a market which works well.

106 Annual Report 2004 NMa and DTe Part 3: Reference | Chapter 8: Monitoring of the electricity and gas markets 107 Colofon

Edited by NMa The Hague

Translation PLS Professional Language Services Amsterdam

Design and production Total Identity The Hague

Photography Kato Tan Amsterdam

Printing Hollandia Printing Heerhugowaard

108 Annual Report 2004 NMa and DTe Annual Report 2004 NMa and DTe

Key Figures NMa and DTe for 2004

Ofice of Transport Regulation * Processed cases regarding municipal transport companies 8 6 8 * Cases inalised by means of a legal ruling 14 5 3

Netherlands Competition Authority Annual Report 2004 NMa and DTe

Key Figures NMa and DTe for 2004

Ofice of Transport Regulation * Processed cases regarding municipal transport companies 8 6 8 * Cases inalised by means of a legal ruling 14 5 3

Netherlands Competition Authority