Managing Change in the Water Industry: A Consultation Paper

< Previous | Contents | Next >

D. 1998 COMPETITION ACT

D1. The Competition Act 1998 introduces a clearer framework for competition in the United Kingdom than had been provided by earlier competition legislation. It brings into domestic law provisions which parallel those under European law and introduces new sanctions for anti-competitive behaviour. It applies to the provision of all types of goods and services and is enforced by the Director General of Fair Trading (the DGFT). In the case of the privatised utilities, the DGFT and the relevant sector regulator have concurrent jurisdiction. However, in the case of the Scottish water sector the Act is applied and enforced by the DGFT alone as the Water Industry Commissioner does not have the same concurrent powers as the Office of Water Services (OFWAT) has in respect of the privatised water industry in England and Wales.

D2. The Act includes two prohibitions:

• Prohibition of agreements between undertakings, decisions by associations of undertakings or concerted practices which have the object or effect of preventing, restricting or distorting competition in the United Kingdom (or a part thereof) and which may affect trade within the United Kingdom (the "Chapter I prohibition"); and
• A prohibition of conduct by one or more undertakings which amounts to the abuse of a dominant position, in a market in the United Kingdom (or part thereof), which may affect trade within the United Kingdom (the "Chapter II prohibition").

D3. Breaches of these prohibitions carry penalties of up to 10% of annual turnover. This could impact on the Scottish industry in a number of ways, most obviously in precluding predatory pricing aimed at preventing effective competition. More specifically the basic principle of competition legislation relating to "essential facilities" carries significant implications. Where certain assets (i.e. "essential facilities") are uneconomic to duplicate, but essential in order to compete effectively in a market, the owner of the assets may be required to provide competitors with access to them on an equitable basis. It can be argued that some water authority assets, notably the water and sewerage pipe network, constitute essential facilities. In such cases, and where safety and other practical considerations make it feasible, the authorities may be required to make access to these facilities available to competitors. Failure to do so could leave the authorities open to the charge of abusing a dominant position were it to be demonstrated that such a position existed in a particular case.

D4. The Executive is keen to ensure that Scottish water and sewerage legislation and UK competition legislation, taken together provide, an effective framework for the development of competition in the Scottish water sector. It recognises that in certain circumstances proposed legislation might lie beyond the competence of the Scottish Parliament. In such cases the Executive will discuss with the United Kingdom Government how best to take forward any legislation that is judged desirable.

< Previous | Contents | Next >