By THOMAS KEDEAO HAREA
RECENT debate over the issuing of a mobile telephone licence to Digicel (PNG) Ltd indicates that the introduction of competition into markets traditionally monopolised by public entities is not as smooth as we expected it to be.
There has been widespread confusion over competition policy and how it ties in with other government policies.
Additionally, the adoption of the structural adjustment programme between 1998 and 2002 required a number of changes pertaining to, among other things, privatisation, investment and national competition policy.
It is clear that the pace of the privatisation policy and regulatory reforms in Papua New Guinea has not matched the changes in competition and fair trade policies and, investment.
The problem seems to have stemmed from failures of the government system to implement these policies in the areas necessary.
For instance, the buyers of firms that were sold through the privatisation process had incentives to form monopolies which were initially not subject to fair trade and competition regulations.
They could have formed strategic alliances with the end objective of transferring assets to each other and ultimately forming monopolies.
It is equally noteworthy that competition law and policy is a new issue in the PNG environment, which partly explains the apparent sequencing difficulties.
The setting up of the Independent Consumer and Competition Commission (ICCC) revealed existing gaps in human resource capacity to enforce and manage such a policy – and these gaps still persist.
Furthermore, government support has been mild due to the apparent inability to relate competition policy to the overall development goals.
Governments have failed miserably to formulate comprehensive national competition policy that would encompass all policy dealings with the extent and nature of competition in the economy.
There is also evidence that the ICCC Act 2002 was hastily prepared and rushed through the cabinet and Parliament by the Department of Treasury without the benefit of contributions from relevant private, professional and public sector organisations in the country.
Since the law would have major impact on local business operations in the private and public sectors, much care should have been taken in the deliberation and drafting process.
There should have been meetings and discussions before submitting the draft to the National Executive Council and Parliament for endorsement.
For example, it took the US more than 50 years to enact the Sherman Act and the US anti-trust laws.
In the case of PNG, it took only 15 months to have the competition laws prepared and passed.
As a result the law contains some practical legislative and agency errors that could pose major difficulties in actual implementation.
The ICCC should also have commenced its operations at the same time as the PNG Privatisation Commission in 1999.
The competition policy problems were actually foreseen after the enactment of the Privatisation Act which clearly specified that privatisation should not result in monopolies.
Some members of Central Agencies Working Group on Regulatory Reform acknowledged that if the sale of State-owned enterprises were not carefully planned, the whole privatisation exercise might end up transforming the State monopolies into private monopolies.
Despite this, it was clear that the enabling legislation to prevent this was not put in place.
So far, there is no major incoherence with respect to PNG competition policy and law but there are a few grey areas that require attention, especially with respect to the PNG’s competition laws.
If mishandled, some provisions of the Act would unduly restrict a firm’s ability to freely complete.
The provisions of the Part III of the ICCC Act are too vague and complicated for a businessman, lawyer or a judge to figure out what to do or to figure out which among the many detailed provisions are likely to be enforced.
They refer to declarations of regulated entities by the minister and the ICCC, and regulated contracts issued by both again.
The objectives of these provisions are not clearly explained in the statute.
Are they meant to prohibit the actions of public monopolies taking advantage of their substantial market power as in Section 58?
Are they for the purpose of monitoring and surveillance of monopoly prices of regulated entities?
Or are they meant to provide access to essential facilities?
These need to be explained clearly in the statute.
The ICCC Act does not have “access right” provisions, while the Telecommunication Act has special access right provision on an industry specific basis.
The Telecommunication Act provides for any carrier to connect its facilities to the Telikom network or network of any other carrier and to have it calls carried and completed over that network.
The minister responsible for the telecommunication industry determines the pricing principles that must be applied in determining access charges.
Inter-connection issues are determined by an agreement between carriers but where agreement cannot be reached, an industry-specific regulator – Pangtel – may intervene and arbitrate.
It seems that the ICCC is relying on general conduct rules provisions of the ICCC Act to resolve access right disputes arising from the introduction of competition to the telecommunication market.
These general competitive conduct rules, however, cannot deal effectively with essential facility issues in the context of introducing competition to the market traditionally supplied by public monopolies.
They are unlikely to be fully effective in removing obstacles to competition where an essential facility access is involved.
Sometimes the competition authority’s or new entrant’s need to negotiate inter-connection agreement with the owners of the facilities can prove to be a significant barrier to entry by a new firm or competitor as we have seen with the case of Digicel (PNG).
Introducing affective competition in the market of network industries requires that competitors be assured of access to certain facilities referred as “essential facilities” that cannot be duplicated economically.
For example, effective competition in electricity generation and telecommunication services requires access to transmission grids and local telephone exchange network respectively.
Whilst misuse of market power provisions in Part VI of ICCC Act can sometimes apply in these situation, or are potentially applicable in essential facility situation, something more is required to meet the need of an effective national competition policy.
This means a new legal regime must be established within the current Act, under which firms could in certain circumstances be given a right of access to specific essential facilities on fair and reasonable terms.
The regime would be general in nature and would operate by ministerial declaration applying to designated facilities under a general law, and have the flexibility to deal with access across industry sector and facilities.
The minister should make the ultimate determination of an appropriate pricing principle for any given facility.
He or she should require seeking the independent and expert advice and recommendation from independent advisory body.
Where such regime provides access on fair and reasonable terms, there should be no need for a declaration under the general access regime as effective competition in upstream or downstream market is already be possible.
Importantly, one cannot be convinced that access regime of the kind in Section 85 of Telecommunication Act 1996, needs to be legislated and administrated on an industry specific bases.
While acknowledging that each industry has its own peculiar characteristics, there are also important similarities between access and related issues across the key infrastructure industries.
The development of a common legal framework offers the benefits of promoting consistent approaches to access issues across the country.
It would also permit expertise and insights gained in access issue in one sector to be more readily applied to analogues issue in other sectors.
For this and other reasons, it is important that an economy-wide regulator like the ICCC be set up rather than a handful of industry-specific regulators to administer an access regime.

Note: The writer represented PNG in the Apec Competition Policy Working Group from 1996 to 2000 and was directly responsible for the introduction of the Competition Law and Policy-ICCC Act and the establishment of the Independent Consumer and Competition Commission (ICCC) in the country.