Home Political science Corporate Governance Corporate Governance in Estonia 2011.
Ensuring a level playing field
The fourth core corporate governance feature concerns ensuring a level playing field
in markets where state-owned enterprises and private sector companies compete in
order to avoid market distortions.
The role of the regulatory framework
European norms form much of the Estonian legislative and regulatory backbone, allowing for competitive market conditions in most cases. As described in the Accession Review of Estonia undertaken by the OECD Competition Committee “liberalisation has been very successful in telecommunication, but is moving more slowly in other areas such as railways. In the electricity sector, Estonia has retained the right to maintain a closed market” until 2013 after securing a derogation from the EU directive and “competition remains limited” in certain areas, such as retail for very large energy consumers (OECD, forthcoming).
As the Estonian privatisation process was so extensive, many of the remaining SOEs are found only in sectors where there is not a purely commercial market and where the state is involved to achieve a public policy objective. Generally, there are no competitors in these areas because the market is not sufficiently profitable, in some cases due to the limited size of the market. Postal service is one such area. Even though it has been agreed to open up this sector to competition, no bidders have emerged to compete with the Estonia Post SOE to perform these services.
The Competition Authority, also responsible for regulating the railway sector and telecommunications, has undertaken a number of probes into competition issues in sectors where SOEs compete with private companies. The Competition Accession Review illustrates an interesting case, also described at length by the Competition Authority to the review team, about Tallinna Saadam, regarding ports’ access fee structures. “In 2006 after an investigation about transit of petroleum products from Russia to western destinations and allegedly excessive port fees, the Competition Authority decided that the port did not hold a dominant position. The transport of petroleum products was organised in complex logistic chains, which included rail transport, terminals, ports and ships. Suppliers could use different supply chains, using different Baltic Sea ports, and they could take price differences between different routes into account. Thus the Competition Authority decided that the operator of the Port of Tallinn did not have substantial market power, because credible alternative transportation routes existed and were used.”
According to the Competition Authority, SOEs generally have few competition issues. This is most clearly the case in the telecoms sector, which following liberalisation in 2001, has become very competitive, according to the competition review, with the former-SOE Eesti Telekom a major player in this market. While there have been a few competition probes carried out in relation to SOEs in different areas, the general conclusion has been that those SOEs (where they are not monopolies) are competing on a level playing field.
There are, however, a number of SOEs which operate in markets without competition, or open to very limited competition. According to the Maritime Safety Act, Eesti Loots carries out compulsory pilotage service of ships on the inner maritime waters and vicinity of ports, in the water areas of ports and between ports to ensure the safe navigation of ships. Certain exceptions to this near monopoly do exist, for example in navigable areas of ports. With passage of the necessary exam by ship captains, their ships are able to navigate through the port without making use of the pilotage service. For instance, the regular Tallinn-Helsinki passenger ships almost never use pilotage services, according to the Authority’s written responses. Therefore this SOE does not have a full monopoly and limited competition does exist. The aim of the regulation is to guarantee safety on the sea, which is a state’s function. The company was established in 2001, when the new law was adopted. Before that, the Estonian Maritime Administration provided pilotage.
Other companies with sole rights include:
Conclusions regarding a level playing field
The review did not find evidence of SOEs receiving preferential treatment from the Government. Estonia continues to take steps to open up certain sectors dominated by SOEs to greater competition. The energy sector, which in some areas remains closed to competition, is due to liberalise its retail function by 2013 under a derogation from the European Union. Although there are still a few SOEs with sole right to operate in certain narrowly defined markets, these are exceptional cases in which the state has cited the need for a state role in public protection or safety as a justification (port pilotage, technical inspection of elevators and other machinery, lotteries).
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