The Finnish Competition and Consumer Authority (FCCA) cooperated with Regional State Administrative Agencies to investigate the fulfilment of the incorporation requirement in joint authorities. According to the results, joint authorities had deficiencies in adhering to incorporation requirements, taking account of the requirements of market-based pricing, and determining when the activities are seen as minor in nature.
In order to safeguard equal operating conditions, the Competition Act and the Local Government Act were amended in 2013 to include provisions on local authorities’ and joint authorities’ corporatisation obligation and on the FCCA’s authority to intervene in public sector business activities if their structure or proceedings distort competition. Regulations on competitive neutrality oblige local authorities and joint authorities to incorporate all functions they perform in a competitive market environment.
The FCCA’s investigation into joint municipal authorities set out to examine their operations in the market and recognise key shortcomings where the FCCA might have to intervene.
Joint authorities adhere to competitive neutrality regulations insufficiently
In March 2016, Regional State Administrative Agencies collected information from all joint authorities concerning their operations in the market. A request for information was sent to 138 joint authorities. Local authorities had set up joint authorities e.g. for social welfare and health care services and education and their support services, the leasing of properties, managing regions’ interests and development, and waste management and energy supply.
For example, in the fields of education and health care support services, joint authorities reported having incorporated their operations or having withdrawn from the market. According to a preliminary FCCA assessment, the operations of joint education authorities, and the limited companies they have founded, may have negative effects on equal competition. Meanwhile, joint authorities for health care and other joint authorities producing social welfare and health care services seem to sell some health care support services and occupational health care services on the markets.
The answers suggest that some joint authorities are mistaken in their interpretation of the exception to the incorporation requirement concerning activities seen as minor in nature. Even if operations are considered small-scale and are therefore not to be incorporated, the joint authority must adhere to market-based pricing. From the viewpoint of competitive neutrality, another worrisome fact is that joint authorities do not pay sufficient attention to the requirements of market-based pricing. In early 2017, the FCCA will publish guidelines on market-based pricing to help public actors better assess their operations.
Investigation will lead to FCCA monitoring
The FCCA will perform further investigations based on these results and begin other monitoring activities later, if necessary. The FCCA’s next investigation will focus on cases where the procedures or structures of the operations of a joint authority may have significant impacts on the prerequisites of healthy and well-functioning competition.
Due to the shortcomings in the joint authorities’ responses, the FCCA emphasises that joint authorities must conduct their operations in line with the boundaries set by competition neutrality regulations. Joint authorities should also monitor the development and profitability of their operations in the market to ensure that their impact on the market does not become negative and that their pricing is market-based.
This investigation into joint authorities continues a previous assessment from 2015 that revealed shortcomings in local authorities’ compliance with the incorporation requirement. Similar results were uncovered in the case of both local authorities and joint authorities. Local authorities had deficiencies in their adherence to the incorporation requirement, their attention to the requirements of market-based pricing and, for example, their interpretation of small-scale operations.
Further information:
Sari Valliluoto, Senior Research Officer, tel. +358 29 505 3319, firstname.lastname@kkv.fi
The FCCA and Regional State Administrative Agencies investigated joint authorities’ operations in the market. Memorandum (in Finnish), 4 January 2017.