On 27 November 2014, the Romanian Competition Council (‘RCC’) presented its Annual Report on Competition Developments in the Key Sectors of the Romanian Economy. The report addresses general matters such as a brief description of the evolution of the national economy and competition policy, as well as information concerning future reforms of the legal framework. The main body of the report contains an analysis of the competition that exists within various industries of the national economy by using the Aggregate Index of Competitive Pressure (AICP), a working tool used by the RCC since 2013. This year’s report includes the following  sectors: life insurance, banking, telecom, renewable energy and the State aid granted to undertakings operating in the field of thermal energy.

The speech of the RCC’s president, Mr. Bogdan Chiritoiu, held with the occasion of the launch of the report, addressed key issues regarding the activity of the institution during the current calendar year, as well as its prospective plans for the future. The speech also highlighted RCC investigations into the food retail market, concentrations cleared in the retail sector and sugar industry and the RCC’s cooperation with the National Anticorruption Directorate in a number of bid-rigging cases. As future goals, the President mentioned an initiative to amend the Competition Law no. 21/1996 in order to reduce the length of investigations and provide for an online platform, which will enable individuals to provide information regarding competition law violations.  Mr. Chiritoiu further referenced a joint initiative involving consumers’ associations and the National Authority for Consumer Protection (‘ANPC’), designed to create a platform for the monitoring of consumer goods prices.

Reform of the legal framework in several key economic sectors

The RCC’s Report outlines both the role and the need for pro-competitive legislative reforms in order to revise and eliminate redundant constraints imposed by normative acts which generate ‘economic rents’ (revenues that would not have been obtained in a free competitive environment). In order to address such issues, Romania benefits from OECD’s assistance until 2015. The OECD project involves the RCC, the Chancellery of the Prime Minister and the Ministry of Public Finances, and primarily focuses on analysis of the legal framework and the subsequent revision of such legislation in three key sectors: food processing, freight road and naval transportation and construction.

The Aggregate Index of Competitive Pressure

Used for the first time in the RCC’s 2013 Report on the evolution of competition in key sectors of the economy, the AICP measures the degree of competition in various industries of the national economy, using as a benchmark an ideal situation, which fully facilitates the free manifestation of competition.

The RCC’s analysis of the life insurance sector focuses on the period between January 2011 and June 2014. From a competition perspective, the RCC outlines the existence of market-entry barriers, such as a decrease in the number of competitors, which led to increased market concentration.  As a result, the RCC  concluded that the market is heading towards an oligopoly. The RCC also points out that the sector has suffered a recent decline, and that the level of development appears to have declined. When compared to the situation in foreign markets, Romania’s life insurance sector lags behind other countries in the region.

In the banking sector, between 2010 and 2014, the RCC observed a decrease of credit institutions from 42 to 40, while the number of foreign banks subsidiaries remained constant at 9. The number of competitors in the sector is constrained by relatively high market-entry barriers, relatively high market-exit barriers and the uncertain macroeconomic environment. Following a sector inquiry by the RCC addressing the card payments market, a legislative initiative aiming to cap inter-banking fees is currently under debate in the Parliament. The RCC concluded that there is a relatively low level of competition between banks given the uniform level of commissions. In the opinion of the RCC, this may be caused by high switching costs for consumers, and in the future the RCC will support initiatives for eliminating the barriers raised when switching suppliers.

With regards to the mobile telecom sector, four operators: Orange, Vodafone, Telekom and RCS&RDS are active in Romania. Despite having some of the characteristics of an oligopoly, counterbalancing factors such as the impact of a maverick competitor, exposure to innovation or intense marketing and communication activities have been identified in the market, and can represent sources of strong competitive pressure. The RCC also emphasizes on the best practice example given by its cooperation with the telecom market regulator, ANCOM.

In the renewable energy sector, the legislative point of interest is represented by Law no. 220/2008 which promotes the production of energy from renewable sources and the establishment of a system of compulsory energy quotas combined with the trading of green certificates. This specific legal scheme has attained success as the current installed capacity benefiting from this system reached 4349 MW. From a competition standpoint, the year 2013 was characterized by a moderate level of market power concentration as far as green certificates were concerned.

The Romanian Competition Council also focused its attention on the sector of thermal energy production, transportation, distribution and supply, where service of general economic interest is provided in a centralized manner, and the RCC analysed information gathered from 75 undertakings active in this field. In order to mitigate excessive loss, mainly caused by obsolete heat transport and distribution equipment, suffered by undertakings operating on this market, State aid of RON 6.24 billion (between 2007 and 2013) has been granted through several normative acts. An investigation by the RCC identified problems such as failure to collect debts from population within invoice deadline, a high level of gas prices as a consequence of market liberalization, a lack of funding for modernization of the distribution network or an inadequate legal framework regarding action against debtors, and the RCC provided specific measures that would eventually lead to rendering the centralized heating system competitive with individual heating systems.

The full report of the RCC can be viewed here.