ICCC explains processes

The National Business

THE National’s Assistant News Editor GYNNIE KERO spoke this week to the Independent Consumer and Competition Commission (ICCC) Commissioner and Chief Executive Officer PAULUS AIN regarding the acquisition of companies, codeshare arrangements and the processing time. He also explained areas the commission does not regulate. 

KERO: How does the ICCC deal with the acquisitions of companies or projects and codeshare applications? And how long does it take for the deals to be sealed?
AIN: The ICCC Act provides for the regulation of business mergers and/or acquisitions because they can alter the structure of the industry concerned and the level of competition in a market. Some acquisitions enable firms to meet customer demands more effectively while some have the opposite effect. This may occur in instances where, as a result of the acquisition, the acquirer has gained sufficient market power enabling it to act anti-competitively because of its ability to act independently of competitive market pressure from other market participants and competitors. Under the Independent Consumer and Competition Commission Act 2002 (ICCC Act), the regulation of mergers or acquisitions of companies only apply to those that would have negative effects on competition in the market place. Section 69 of the ICCC Act prohibits any company (including individuals) from acquiring the assets of a business or shares in a business, if that acquisition would have, or would be likely have, the effect of substantially lessening competition in a market in PNG. The ICCC takes into consideration certain factors to make the assessment whether or not a merger or acquisition would substantially lessening competition in a market in PNG. These factors are referred to as merger factors and are also stipulated under Section 69, sub-section 5 of the ICCC Act. The merger factors include considerations such as:
n Whether or not the merger or acquisition would result in increasing the barrier(s) to entry for new potential players and/or expansion of existing player(s) in the relevant area(s) of business activity concerned;

  • Whether or not the merger or acquisition would result in decreasing the number of existing competitors in the market;
  • Market concentration level – that is the number of buyers and sellers in the market and whether the acquisition would result in increasing the total market share of the companies’ pre and post-merger;
  • Whether the merger or acquisition would result in any new technology or innovation being introduced into the market; and
  • Whether the merger or acquisition would put the acquiring company in a position where it would raise prices or profit margins and lower output and service quality.

KERO: How does the ICCC deal with business acquisitions?
AIN: While anti-competitive business mergers or acquisitions are prohibited under the ICCC Act, companies may seek “clearance” or “authorisation” to proceed with the transaction. The ICCC Act enables the ICCC to approve certain anticompetitive acquisitions. Clearance may be given if the proposed merger or acquisition would not have, or would not be likely to have, the effect of substantially lessening competition in a market. Under the authorisation process, the ICCC may still allow a proposed merger or acquisition which may result in substantial lessening of competition to proceed if the ICCC is satisfied that the proposed transaction would result in more benefits to the society than the detriments, including lessening of competition. These processes (Clearance and Authorisation) are provided under Sections 81 and 82 of the ICCC Act. Upon a valid application for clearance or authorisation, the ICCC assesses these through a wider public consultation process involving key stakeholders and decides whether or not to allow the proposed transaction to proceed.
KERO: What benefits to society does the ICCC consider?
AIN: Examples of benefits to the society that the ICCC may take into consideration in assessing an authorisation application include increase in employment, reduced costs/prices of goods and or services,  reduce  carbon  emission/environmental  damage, increased outputs/supply to meet demand, introduction of a new innovation into the PNG market, etc. The clearance and authorisation application process are transparent consultative public processes. The onus is on the applicant acquirer to satisfy the ICCC’s competition test that the acquisition would result in more benefits to the society if it proceeds.
KERO: Do these companies need to seek prior approval from the ICCC?
AIN: The processes of clearance and authorisation are currently voluntary and not mandatory. Hence companies are not required to seek prior approval from the ICCC. As a result, a number of potentially anticompetitive mergers and acquisitions were concluded without the parties informing and or making a formal application to the ICCC. In such instances, the ICCC may investigate the consummated acquisitions and take appropriate legal actions against the companies concerned, if its findings show that the acquisition has adverse anticompetitive effects in a market. The ICCC is currently reviewing its legislation on clearance and authorization processes to consider whether it is necessary to make them compulsory. As part of this process it has since developed an objective criteria which will guide businesses and individuals on whether they are required to seek the prior approval of the ICCC before concluding their merger or acquisition transactions.
KERO: How does the ICCC deal with codeshare applications?
AIN: In simple terms, codeshare is an arrangement where two or more airlines agree and give effect to the agreement that one carrier operates the aircraft (referred to as the operating carrier) while other carrier(s) called the “marketing carrier” buy seats on the operating aircraft and then sell those seats to their customers under their respective codes. For example, currently we have a codeshare arrangement between Air Niugini Limited and Qantas Airways on aircrafts operated by the former on certain routes between PNG and Australia. In this case, Air Niugini is the operating carrier and Qantas is the marketing carrier. But if you buy a Qantas ticket on the code-share application, it gives detailed information on how the applications are dealt with. On all code-shared service operated by Air Niugini, you will be issued the ticket under the Qantas code and still fly on the flight operated by Air Niugini. In terms of seeking approval from the ICCC, parties to a codeshare agreement can apply for “authorisation” under Section 70 of the ICCC Act. An approval is necessary because the carriers who could otherwise be operating independently and competing with each other would be collaborating to provide the service under the codeshare arrangement which is potentially anticompetitive. Similar approach as provided under the mergers and acquisitions authorisation application process also applies here. The lCCC will allow the codeshare arrangement to proceed if it is satisfied that the codeshare agreement would result or likely to result in greater benefits to the public. Again, the onus is on the applicant and parties to the codeshare agreement to satisfy the ICCC.
KERO: What is the review process timeframe?
AIN: For clearance and authorisation applications under Sections 81 and 82, the ICCC is required to give a decision within 20 days and 72 days respectively, after the date of the registration of the relevant application to either grant or refuse to grant an approval. For authorisation applications under Section 70, there is no timeframe stipulate under the ICCC Act. However, the ICCC tries as much as possible to expedite its review and make a determination. As part of the authorisation process, the ICCC conducts wide public consultations to help it assess the claims of the applicant(s) relating to the competitive effects and likely public benefits of the proposed acquisition or codeshare agreements. The ICCC may also seek to confirm or clarify information provided by the applicant and identify any additional issues that may be relevant for its consideration of such applications before it. Consultation with relevant stakeholders ensures that the ICCC can make a thorough and consultative assessment of the competitive effects and resultant public benefit; and accordingly determine independently and objectively whether authorisation ought to be granted.
KERO: What are the penalties?
AIN: While it is not mandatory for parties to seek prior approval for an acquisition or codeshare arrangement, the ICCC has the discretion to investigate and, if necessary, take legal action against the concerned parties.  If the court rules in favour of the ICCC, the maximum penalties are K500,000 for an individual and K10 million for a company. On application by the ICCC, the Court may also ban the management of the parties concern from holding office for a maximum period of five years.