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michaelfalzon
Michael Falzon

Stifling competition

Enemed takes advantage of its dominant position, especially with the fact that it is practically impossible for most other would-be competitors to have fuel storage facilities

michaelfalzon
Michael Falzon
18 October 2016, 8:00am
Enemed Ltd enjoys a dominant position in the importation of fuel to Malta
Enemed Ltd enjoys a dominant position in the importation of fuel to Malta
Last week the Competition Office found that a fuel supplier had broken competition rules when he pressured a petrol station owner to reverse a decision to reduce diesel prices. The retailer who had to oblige was also found to be in breach of the law.

What is interesting in this story is that the fuel supplier preferred to have his diesel sold at the price of diesel supplied by the dominant fuel supplier – the state-owned Enemed Ltd – rather than competing on the price to the end consumer. He must have reckoned that allowing a higher profit to the retailer is preferable to giving a lower price to the consumer and enforced this decision on the retailer. This is squarely in breach of competition law as it is a clear case of price fixing.

Malta has always had a small – practically captive – internal market and traditionally traders used to shun anyone who tried to undercut them. They even have an idiomatic expression for it: ‘iwaqqa’ s-suq’ (ruining the market) and anyone doing so would be frowned upon as some unethical trader. 

Maltese agents had even persuaded Alfred Sant to investigate the ‘problems’ created by parallel trading – a promise inserted in Labour’s 1996 election manifesto, even though this crusade against parallel trading was nothing but a crusade to preserve profits at the expense of the consumer. In government, Alfred Sant had set up a commission to consider the issue but no concrete steps were ever taken. On this issue, Sant had taken Maltese importers for a ride.

The old Malta where one person (or his company) was declared ‘sole agent’ by a foreign manufacturer and hence contolled the market of the products of his ‘principal’ in Maltese territory is now dead and truly over – thanks to our EU membership.

I remember a case of a certain product being imported from a Sicilian distributor who could sell the product at a much lower price than the official agent could buy it from the manufacturer that he called ‘his principals’. The prices varied according to the size of the market and Malta has always suffered as a result of the small size of its market. To the chagrin of the local agent, there was nothing illegal in this parallel trading, although it might well have been a case where the Sicilian agent was in breach of the agreement with the manufacturers. 

Since the Sicilian distributor was a very good client, the manufacturer could not be bothered enough to suspend his relationship with the Sicilian distributor for the sake of his own agent in Malta – the difference in volume of sales was considerable and everybody knows which side a slice of bread is buttered.

This is why some Maltese agents sought to make parallel trading illegal.

This is against the basic principles of the European single market and since our EU membership, parallel trade has flourished in many products to the benefit of the consumer.

Enemed Ltd – the state company that replaced the Petroleum Division of the old Enemalta Corporation – enjoys a dominant position in the importation of fuel to Malta. And Enemed takes advantage of its position, especially with the fact that it is practically impossible for most other would-be competitors to have fuel storage facilities. This was the crux in the case in which the local agents of ‘Shell’ sued the government for exercising (through Enemalta) a ‘de facto’ monopoly of jet fuel oil in Malta. The case was settled on the eve of the 2013 elections with Shell and their agents being given a hefty sum in compensation.

Few people know that a similar situation exists in the sale of electric power. The EU agreed to give Malta a derogation by accepting that there is only one electricity distribution network in the country. But this derogation does not apply to the production and sale of electricity. Theoretically a private entrepreneur can produce electricity in Malta and sell it to consumers through Enemalta’s grid at a price that would be cheaper than that of Enemalta. In practice, the problems and difficulties for this to happen are probably insurmountable.

In other EU countries, consumers can buy electricity from different suppliers during different times of the day since the retail price of electricity might be cheaper at certain times than at others.

Again, Malta’s small size is probably the big problem in such scenarios.

Incidentally, despite the decision taken by the Competition Office, no penalty was imposed because the Constitutional Court some time ago had declared that entities like the Director for Competition could not decide cases over alleged breaches and impose sanctions, because only a court could guarantee a fair hearing.

A delay in reforming the Competition Office in line with recommendations by the Constitutional Court has led to a situation where companies and traders that break competition rules are not being fined. 

The Consumers’ Association has warned that the situation resulting from the fuel prices ruling had rendered the watchdog toothless. The association is right, of course, on this one.

It seems that an amendment in the Constitution is needed to remedy the situation.

Meanwhile stifling competition can go unpunished.

***

For my enemies, the law

Oscar Benasides, President of Peru (1914-1915 and 1933-1939) is credited with having first explained his way of doing things by the maxim: “For my friends, anything – for my enemies, the law”.

The phrase is also attributed to President Getulio Vargas – who ran Brazil with the backing of the military from 1930 to 1945, then as a democratically elected leader from 1951 until his suicide in 1954. 

For South Americans the expression highlights the way in which many dictators prize personal loyalties over other social and legal responsibilities. 

The phrase has also been recently applied regarding the way Vladimir Putin rules Russia and the way Jacob Zuma runs South Africa. It seems that in these countries the government’s way of doing things leads one to suspect that official policy considers obeying the law as an optional extra.

Alas, Joseph Muscat seems to be the next head of government to be perceived as practising this infamous principle: “For my friends, anything – for my enemies, the law”.

[email protected] 

michaelfalzon
Michael Falzon is a former government minister who served under several Nationalist admini...
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