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Recent Development of Indonesian Competition Law and Agency

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Recent Development of Indonesian Competition Law and Agency The Contribution of Competition Policy to Improving Regulatory Performance Ahmad Junaidi Bureau of Policy 1 Indonesia Competition Law • Competition is regulated by The Law No.5 Year 1999 Concerning Prohibition on Monopolistic Practices and Unfair Business Practices • The Law has been implemented for almost 11 year to enhance fair competition, since Indonesia economic policy and structure changes after crisis 1998. 2 PRINCIPLES AND PURPOSES The Principle (Article 2) Business activities of business actors in Indonesia must be based on economic democracy, with due observance of the equilibrium between the interests of business actors and the interests of the public The Purposes (Article 3) The purpose of enacting this Law shall be as follows: a. to safeguard the interests of the public and to improve national economic efficiency as one of the efforts to improve the people’s welfare; b. to create a conducive business climate through the stipulation of fair business competition in order to ensure the certainty of equal business opportunities for large-, middle- as well as small-scale business actors in Indonesia c. to prevent monopolistic practices and or unfair business competition that may be committed by business actors; and d. the creation of effectiveness and efficiency in business activities. 3 Structure of The Law Prohibited Agreements: Prohibited Dominant (rule of reason’s approach) Activities Position: (rule of reason’s (rule of reason’s Agreement with Foreigner approach) approach) Exclusive Dealing Monopoly Dominant Oligopsony Monopsony Position Trusts Share Ownership Vertical Intregation Market Control Cartel Conspiracy Interlocking Boycott Merger and Oligopoly Acquition Price Fixing 4 The Commission: KPPU • The Commission for the Supervision of Business Competition (KPPU) was established in 2000 with the authority mandated by the Law No. 5/1999 concerning the Prohibition of Monopolistic Practices and Unfair Business Competition (“the Law”); • The KPPU is consisted of 11 (eleven) Commissioners that work in collegial manner that is assisted by a Secretariat. A chairperson is elected annually amongst Commissioners. • It has two major tasks, namely to supervise and enforce the competition law, and to create sound competition policy through policy recommendation in order to guide public interest and national efficiency for people prosperity; • Until January 2011, It decided 184 decisions and submitted 91 policy recommendations 5 Working with other Government Institutions • In term of competition policy, the Commission has issued 91 (Ninety one) policy recommendations to the Government on several aspects in strategic sectors in Indonesia. Fifty out of said advices is accommodated by central Government or regional administration. • Furthermore, The Commission has been involved with the formulation of several draft laws including the Law on micro-small- medium enterprises, minerals and coal, and free trade zone. • A latest development is as part of policy maker’s acceptance to competition policy, law, and institution, the Commission has now even been mandated with new authority under Law no. 20/2008 concerning Partnership to supervise partnership agreements between micro, small, and medium enterprises (MSME) and large enterprises. This indeed will take several adjustments within the Commission to fully optimize this obligation. 6 Cooperation with other law enforcer • Cooperation with other law enforcers is beneficial to support competition law enforcement in Indonesia. • Acknowledging this, the Commission made a formal cooperation arrangement in 2010 with the Indonesia Financial Transaction Reports and Analysis Center (INTRACT) to assist the Commission in providing evidences of financial transaction suspected for collusion/cartel handled by the Commission • Cooperation with the National Police also pursues to fully implement the competition law, especially to overcome the lack of authority given upon the Commission. • In October 2010, the Chief of Police and the Chairman of KPPU are signed Memorandum of Understanding (MoU) concerning cooperation and coordination in competition law enforcement. This surely marks complete and systematic competition enforcement in Indonesia which involving three main elements, the competition agency, the judiciary, and the Police. 7 Policy Recommendation 8 Policy Recommendation KPPU Duties • …. • provide advice and opinion concerning Government policies related to monopolistic practices and or unfair business competition; (Article 35 e) • The “advice and opinion” or Policy Recommendation is one of advocacy tools to harmonize government regulation into fair competition principle as regulated by The Law No. 5/1999 9 • Object of Assessment : – Regulation issued by all level of Government institutions – Bill of The Law (Draft) – Any form of regulation issued by Ministerial and local administration • Source of Information: Public Report or KPPU Research 10 When To Start Competition Assessment on Gov’t Policy? In assessing competition impact of any policy, KPPU will look certain type of Government Policy which emerge as: – Type of Policy which giving more privelege to dominant business player by creating an entry barrier for the new entrant. By having this situation, the dominant player can abuse the market more easy. – Type of Policy which facilitate business player to do anticompetitive behaviour which infringe fair competition principles as regulated by The Law No. 5. By having this situation, business player can manage price fixing the among them which can be considered as cartel practices by the law no. 5. – Type Policy which allow Government to replace market mechanism process in selecting competent business player in the market. 11 Policy Recommendation Statistics Number Policy Recommendations Issued by KPPU 18 17 16 14 14 13 12 12 11 10 10 8 6 5 4 4 3 2 2 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Number of Policy Recommendation Issued by KPPU is Increasing after second 5 year terms 12 Policy Recommendations by Sectors Policy Recommendation by Sector 9% 3% 5% 13% 9% 9% 11% 16% 25% Public Service Trade Policy Energy And Mining Telco Transportation Finance and Investment Construction and Tender Agriculture Labour Policy Finance, Transportation and Telecommunication are dominant, it could be a picture of the regulator of those sector actively cooperate with KPPU 13 Policy Changes by Sectors 12 10 10 9 Policy Change No Policy Change 8 7 6 6 6 5 5 5 4 4 4 3 3 2 2 2 2 2 1 0 0 Telco Agriculture Trade Policy Public Service Transportation Labour Policy Energy And Mining Finance andConstruction Investment and Tender Number of Policy Changes in Harmonizing with fair competition principle 14 Policy Changes Rate 80% 73% 70% 70% Percentage of Policy 60% Change 50% KPPU Target on Year 50% 2012 50% 40% 40% 35% 36% 31% 30% 33% 20% 10% 0% 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Policy change is fluctuated shows dynamic response of Government Position toward policy recommendation 15 IMPACT OF POLICY CHANGE TOWARD COMPETITION PRINCIPLE 16 Impact of the Competition Law Enforcement • Extensive endeavors in competition enforcement have resulted in a positive impact in two different ways. • The first one is the financial aspect for the state through potential state income from fines and compensations impose by the Commission. Fines and compensations have accounted for up to total US$ 207 million (IDR 1.87 trillion) additional revenue. • The second approach is consumer gain through direct and indirect impact resulting from KPPU’s decision. One of our successful examples was from telecommunication sector. Cartel behavior in text messaging service cancelled by the Commission had resulted in preventing potential consumer loss or creating income savings approximately for US$ 222 million (IDR 2 trillion) as result of reduce SMS tariff (40%-60%) after the decision. 17 • Some Policy Change done by Government in response to harmonize the policy with principle of fair competition policy have been benefited public in many ways. • For Example – Sector Airline Industry – Local Government Regulation on Poultry House 18 Airline Industry • Before 2001, INACA as an Association Airline facilitate all player to do fix price conduct. The Conduct is backed up by Ministerial Decree which give the Association an authority to set up the price. In July 2001, KPPU issued policy recommendation to Ministry of Communication and Transportation. • The Policy Recommendation advised Government to abolished authority of Association in setting up the (floor) tariff as stated in Ministerial Decree No. 25 Year 1997. • In Response to the Policy Recommendation, Goverment Revised the Regulation and also deregulate the sector to enhance more fair competition in arline industry. 19 Airline Industry Impact of Policy Changes Source : air tansportation Directorate General / red= growth, blue=operator Increase Number of Player in The Market offer More Variety of Service For Passenger 20 Airline Industry Average of Growth Year Number of Passenger Growth 1996 13,493,810 (1997-2001 / Befor Policy 1997 12,813,548 -5.04% Change) 1998 7,585,853 -40.80% -4% 1999 6,365,481 -16.09% 2000 7,622,570 19.75% 2001 9,168,059 20.28% Increase Rate of 2002 12,333,035 34.52% Growth in 2003 19,181,294 55.53% (2002-2006) 2004 23,763,950 23.89% 34% 2005 28,813,515 21.25% 2006 34,015,981 18.06% Source : Dirjen Perhubungan Udara DEPHUB Increase Total Number of Passenger Means More Citizen Enjoy Air Transport Service --> More Access 21 Airline Industry Jumlah Tahun Penumpang Load Factor 1996 13.49 61.46% Average 1997 12.81 61.04% Growth of Load 1998 7.59 58.85% Factor 1999 6.37 61.31% (1997-2001) 2000 7.62 64.18% 63% 2001 9.17 68.77% 2002 12.33 76.08% 2003 19.18 75.78% (2002-2006) 2004 23.76 77.77% 77% 2005 28.81 77.17% 2006 34.02 78.36% Sumber : Dirjen Perhubungan Udara DEPHUB Average of Load Factor Increase 5% after Policy changes, Means More Capacity Utilization 22 Airline Rate of Tarrif decrease untill Jakarta-Surabaya 50% for every route service. 2000 = Rp 600,000 This fact shows that before 2003 = Rp 250,000 – 300,000 policy change, business player enjoy above normal profit and Jakarta-Medan price by exploiting consumers.
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