On 20 November 2019, the Finnish Competition and Consumer Authority (FCCA) terminated its investigation into the city of Kuopio after the city initiated measures to correct problems related to competitive neutrality.
The FCCA investigated the activities of the city of Kuopio in the fields of municipal engineering, food services, residential care, equipment maintenance, and property and logistics services. Mestar is a municipal undertaking belonging to the organisation of the city of Kuopio. Servica in turn was a business-based joint municipal authority under Kuopio´s authority. According to findings by the FCCA, the business activities of both Mestar and Servica jeopardised competitive neutrality between public and private business. The activities of Mestar and Servica on the market were extensive, and due to their structure, they were able to enjoy undue competitive advantages, such as tax benefits, in the provision of services to customers outside Kuopio City Group.
As a result of the investigation and the talks held with the FCCA , the city of Kuopio has decided to incorporate both business units in question. After the FCCA drew attention to neutrality issues, Servica’s activities were on 1 January 2019 transferred to a limited liability company by the name of Servica Ltd and Mestar as well will be incorporated by 1 January 2021.
Mestar has also launched projects for improving cost allocation and accounting systems in order to keep separate account on economic activities on the market and to ensure market-based pricing.
According to the FCCA, the corrective measures taken by the city of Kuopio are adequate for securing conditions for healthy and well-functioning competition. “Although achieving perfect competitive neutrality is impossible in practice, all measures that promote equal competitive conditions will improve the functioning of the markets,” says Head of Research Mia Salonen.
The aim of competitive neutrality supervision is to promote economic efficiency and appropriate allocation of society’s resources by ensuring a level playing field between private and public businesses. The State, a municipality, a joint municipal authority, or an entity under their control may enjoy benefits that stem from public ownership and thus are not attainable to its private competitors. These undue benefits can distort competition and lead to the private businesses competing on their merits being excluded from the market.
Inquiries:
Head of Research Mia Salonen tel. +358 29 505 3007
Specialist Juhana Järviö, tel. +358 29 505 3019,
firstname.lastname@kkv.fi
Pursuant to section 30 a of the Competition Act (948/2011), the Finnish Competition and Consumer Authority shall, primarily through negotiations, seek to eliminate a business practice or organisational structure applied in the economic operations of a municipality, a joint municipal authority, the State or an entity under their control, which in the supply of goods or services:
1) distorts or may distort the conditions of sound and effective competition;
2) prevents or may prevent the creation or development of sound and effective economic competition; or
3) contradicts the requirement of market-based pricing as stipulated by Section 128 of the Local Government Act (410/2015).
Read more about competitive neutrality.