kompetisia Law Enforcement CompetitionAdvocacy International Newsletter on Indonesian competition law and policy vol. 05/2010

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1 kompetisia vol. 05/2010 Newsletter on Indonesian competition law and policy Law Enforcement Bid Rigging in the Procurement of Medicine and Health Supplies in Tangerang District Health Office CompetitionAdvocacy The signing of the Memorandum of Understanding between the KPPU and PPATK (Center for Financial Transaction Reporting and Analysis) International Report on the 2nd AEGC Workshop on Developing Handbook on Competition Policy and Law

2 Table of Contents Law Enforcement Bid Rigging in the Procurement of Medicine and Health Supplies in Tangerang District Health Office Bid Rigging in the Duplication and Shipping of Modules for Open Junior High School at the Ministry of National Education Bid Rigging in the Procurement of Pipes and Accesories in Bengkulu Province 3 4 Competition Advocacy The signing of the Memorandum of Understanding between the KPPU and PPATK (Center for Financial Transaction Reporting and Analysis) Urgency for the Establishment of Law in Regulating the Retail Industry The Hearing between the KPPU and the Central Bureau of Statistics The meeting between the KPPU and the Police of the Republic of Indonesia The meeting between the KPPU and the Ministry of Finance of the Republic of Indonesia International Report on the 2nd AEGC Workshop on Developing Handbook on Competition Policy and Law Report on The 9th International Competition Netwotk Annual Conference Report on OECD - Korea Policy Centre Regional Antitrust Workshop kompetisia vol 05/2010

3 Law Enforcement Bid Rigging in the Procurement of Medicine and Health Supplies in Tangerang District Health Office The Commission for the Supervision of Business Competition (the KPPU) decided that three business actors and the Tender Committee shall be the Reported Parties in Case Number: 28/KPPU-L/2009 regarding an alleged violation of Article 22 on Bid Rigging of Law No.5 of 1999 which occurred in the implementation of Tender for the Procurement of Medicines and Health Supplies in Tangerang District Health Office. The 3 business actors are PT Kimia Farma Trading & Distribution - Serang Branch, PT Indofarma Global Medika - Jakarta Branch, and PT Lucas Djaja. Pursuant to the investigation results conducted by the KPPU s Investigation Team, a number of facts were obtained in which the Tender Committee applied the requirements for medicine produced by State-owned Enterprises (BUMN) in Work Plan and Terms (Rencana Kerja dan Syarat/RKS) of the Tender which indirectly have given rise to barriers against the non-soe manufacturers to participate in the medicine procurement at the Tangerang District Health Office. However, the Commission Council is of opinion that these requirements are proposed in order to obtain the medicine with standards, quality, distribution and more stable storage. The Commission Council also found differences in offering prices for several items of medicine from the same manufacturers. But the Commission Assembly considers that this distinction is not an attempt to regulate prices, but purely it is because of the price difference fixed by the manufacturers given to each tender bidder, where this is indeed the case of these manufacturers. Nevertheless, the Commission Assembly is also of opinion that the Tender Committee has violated the applicable tender provisions by undertaking a merit-point evaluation to the experience of companies as bidders. Based on such evidence and facts, the KPPU s Commission Assembly declared that all the Reported Parties were not proven to have violated Article 22 of Law No.5 Year 1999 concerning Prohibition of Monopolistic Practices and Unfair Business Competition. However, the C o m m i s s i o n A s s e m b l y s u b m i t t e d recommendations to the Head of Tangerang District Health Agency to admonish the Tender Committee for not carrying out the tender process in accordance with Presidential Decree No.80 of 2003 and for undertaking efficiency in the procurement of generic medicine. The verdict was read in the Commission Assembly Meeting open to the public on 14thApril kompetisia vol 05/2010 3

4 Law Enforcement Bid Rigging in the Duplication and Shipping of Modules for Open Junior High School at the Ministry of National Education On 13 April 2010, the Commission for the Supervision of Business Competition (the KPPU) read the verdict of Case No.27/KPPI- L/2009 regarding an alleged violation of Article 22 on Bid Rigging of Law No. 5 Year 1999 which occurred in the implementation of the Tender for Duplication and Shipping of Modules for Open Junior High School in Directorate of Secondary School Ministry of Education (Tender Penggandaan dan Pengiriman Modul SMP Terbuka di Direktorat Pembinaan Sekolah Menengah Pertama - Departemen Pendidikan Nasional). In this case, the KPPU confirmed that all the Reported Parties comprising 14 business actors and the Tender Committee were proven legally and convincingly to have violated the Article 22. This case began from a report received by the KPPU related to an alleged Bid Rigging in the Duplication and Shipping of Modules for Open Junior High School in Directorate of Secondary School Ministry of Education (Tender Penggandaan dan Pengiriman Modul SMP Terbuka di Direktorat Pembinaan Sekolah Menengah Pertama - Departemen Pendidikan Nasional). This Tender itself was divided into several packages. Based on the examination conducted by the KPPU s Investigation Team, the Commission Assembly concluded that there were some tender conspiracies, namely: Four (4) companies committed a horizontal bid rigging to arrange and or select PT Pratasejati Mandiri as the tender winner of Package I (Tender for Mathematics Subject for Grade VII Semesters 1 and 2); Two (2) companies conspired to arrange the PT Nusantaralestari Ceriapratama to be the tender winner of Package II (Tender for Natural Sciences Subject for Grade VII Semesters 1 and 2); Four (4) companies conspired to arrange CV Standar Grafika to be the tender winner of Package III (Tender for Social Sciences Subject for Grade VII, Semesters 1 and 2); and Four (4) companies conspired to arrange PT Surya Usaha Ningtias as the tender winner of Package IV (Tender for Natural Sciences Subject for Grade VIII, Semesters 1 and 2). Furthermore, the Commission Assembly also evaluated that the Tender Committee had created a high entry barrier for companies with potentials to participate in the tender, because the Assembly published an undisclosed tender announcement, costly registration fees and burdensome registration requirements. The Tender Committee also committed a negligence by not noticing the similarity of tender documents for the Reported Parties which provided opportunities for the Reported Parties to conspire and make arrangements for the respective winner of each package. Because of this bid rigging, the Commission Assembly came to a decision that all of the Reported Parties (15 Reported Parties) were evidently violated Article 22 of Law No.5 Year 1999, and applied a fine amounting to Rp.25 million to each tender winner in each package. Meanwhile, each of other business actors involved in the bid rigging was charged a fine amounting to Rp.10 million, and the Tender Committee was imposed a fine of Rp.500,000. The Commission Assembly also gave recommendation to the Tender Committee superiors to exert administrative sanctions in accordance with applicable regulations, and provided the Minister of National Education with an advice to issue instructions to the whole Ministry of National Education to conduct any tender in accordance with Presidential Decree No.80 Year 2003 and pursuant to the principles of fair business competition. 4 kompetisia vol 05/2010

5 Law Enforcement Bid Rigging in the Procurement of Pipes and Accesories in Bengkulu Province 8 Reported Parties consisting of 7 business actors and the Tender Committee were proven legally and convincingly to have violated Article 22 of Act No.5 of 1999 regarding Bid Rigging. The Decision of Case No.26/KPPU-L/2009 was read by the Commission Assembly held on 7 April This case stemed from a report from community about an alleged bid rigging for the Procurement of Pipes and Accessoris in the Public Works Regional Office of Bengkulu. In its decision, the KPPU set the amounts of fines and sanctions which are different to each Reported Party in compliance with the roles and involvements of each party in such bid rigging. This tender was divided into 4 packages: a package in Bengkulu Municipality, a package in North Bengkulu District, a package in Kepahiang District and a package in South Bengkulu District, with a total ceiling value of more than Rp.7 Billion. Through a series of examination processes conducted by the Investigation Team of the KPPU of the Republic of Indonesia, a fact was found that there are 3 companies, facilitated by the Tender Committee, that have been working together to arrange and/or select PT Nindya Citra Hutama to be the tender winner on South Bengkulu package. This is evidenced by the similarities in the request documents as well as the family relationship among the company s owners. Then, there are 4 other companies that have also entered into cooperations to arrange in order that 3 companies out of such 4 companies should be the winners in 3 other tender packages (CV Hutama Bhakti as the winner of the package in Bengkulu Municipality, CV Karya Riski Utama as the winner of the package in North Bengkulu District, and CV Grinvis as the winner of the package in the District Kepahiang District). This bid rigging was also facilitated by the Tender Committee for allowing some similarities to be in the data of the companies, and let the Director of CV Karya Riski Mandiri sign the documents of integrity pact on behalf of 2 (two) companies at the same time. For such a mistake, the KPPU s Commission Assembly confirmed that PT Nindya Citra Hutama should pay a fine amounting to Rp.75 million, CV Hutama Bakti should pay a fine amounting to Rp.55 million, CV Grinvis should pay a fine amounting to Rp.100 million and CV Karya Riski Mandiri should pay a fine amounting to Rp.75 million. 3 Other Reported Parties are forbidden to follow the tender within the Public Works Office of Bengkulu Province for 1 (one) year since this decision has permanent legal force. The Commission Assembly also recommended the immediate superior of the tender committee to exert administrative sanctions to the Tender Committee for having kompetisia vol 05/2010 5

6 Competition Advocacy 6 The signing of the Memorandum of Understanding between the KPPU and PPATK (Center for Financial Transaction Reporting and Analysis) The Memorandum of Understanding (MoU) between the KPPU and PPATK (Center for Financial Transaction Reporting and Analysis/CFTRA) was signed at the same time as the 8th anniversary celebration of the establishment of PPATK/CFTRA on 14th April 2010 which was held in the PPATK building. The signing was made by the PPATK s Chairman Yunus Hussein, and the KPPU s Chairman Tresna P. Soemardi. The event was also attended by the Coordinating Minister for Political, Legal and Security Affairs (MenKoPolHukKam), the State Minister for State Apparatus Control (MenPAN), the Attorney General, the Indonesian Police Department (PolRI), the Governor of Bank Indonesia (BI) and attendants from some of other government agencies. The event began with remarks from the KPPU s Chairman explaining the KPPU s roles as a watchdog for business activities conducted by business actors in order that these business actors will not be engaged in monopolistic practices and or unfair business competition. Such supervision is very much required for economic development aimed at the realization of public welfare based on Pancasila (Indonesian Five Basic Principles) and the 1945 Constitution. Within the framework of such kompetisia vol 05/2010 KPPU s duties, the KPPU needs strategic partnerships with other institutions, in which such partnerships were held through Memorandums of Understanding (MoU). The MoU between the KPPU and PPATK aims at improving the effectiveness of efforts in the prevention and eradication of Criminal Case in Money Laundering, and at increasing the effectiveness of prevention and handling of cases on monopolistic practices and or unfair business competition. The benefits of cooperation were also aimed at the determination of efforts or concrete measures in preventing and combating Criminal Case in Money Laundering and law enforcement on the prohibition of monopolistic practices and unfair business competition. The forms of cooperation between the KPPU and PPATK (Center for Financial Transaction Reporting and Analysis/ CFTRA) were undertaken through information exchange, formulation of legal rules and regulations, socialization, research, and education and training. It is expected that the cooperations between the two institutions may provide positive values and increased performance and success for the tasks and authorities carried out and had by the KPPU and PPATK (Center for Financial Transaction Reporting and Analysis/CFTRA).

7 Urgency for the Establishment of Law in Regulating the Retail Industry Competition Advocacy On 31 March 2010, the KPPU issued recommendations and considerations for the government pursuant to Letter No.43/K/III/2010 related to business competition policy on the retail industry. In these recommendations and considerations, the KPPU appealed to the Government to immediately establish laws governing the retail industry as an umbrella for regulations of implementation and supervision of limitation for trading terms so that legal bases in the regulation of this industry may become very strong and thus give rise to the maximum public welfare. As it is widely known that the KPPU already decided two cases related to the imbalance of bargaining positions between modern retail business actors and their suppliers, namely the case of PT Carrefour's Trading Terms (Case Number 02/KPPU-L/2005) and the case of Alfa Acquisition by PT Carrefour (Case Noumber 09/KPPU-L/2009). The emergence of these cases is evidence of the ineffectiveness of Presidential Regulation (PerPres) No.112 Year 2007 and the Decree of the Minister of Trade No. 53 Year 2008 which regulate the Arrangement and Development of Traditional Markets, Shopping Centers and Modern Stores/Shops, because these two cases may give rise to the implementation of Trading Terms that are exploitative and burdensome against suppliers. Based on this fact, the KPPU argues that it is necessary to apply Law-level regulations which have stronger effect and tougher sanctions. The KPPU also considers that the regulation in terms of an Act needs to regulate other aspects of a retail problem, namely imbalanced competition between modern retail business actors and traditional retail business actors, where the government is expected to make policies and direct intervention in terms of zoning regulation, restrictions on open time, or even limitation of number of outlets to be opened. With strong legal basis and authority through the application of the Act, the retail arrangement would be more effective and provide a guarantee for certainty of the same opportunities for large-scale business actors, medium-scale business actors and small-scale business actors as set forth inarticle 3 (b) of Law No.5/999 regarding Purpose. The Hearing between the KPPU and the Central Bureau of Statistics On 27 April 2010, the KPPU had a hearing with the Central Bureau of Statistics (BPS) Indonesia. The KPPU s delegates were led by Didik Akhmadi as the Commissioner and received directly by Roesman Heriawan as the Head of the Central Bureau of Statistics (BPS). In this hearing, both institutions expressed their appreciation in relation with cooperation and coordination that had been already made in accordance with their duties and authorities. The hearing between the KPPU and the Central Bureau of Statistics (BPS) was expected to further optimize and strengthen an institutional partnership between those two institutions, especially in the exchange of information for the benefit of economic studies in flight industry or the collection of statistics data in order to support the law enforcement process currently conducted by the KPPU. Both the KPPU and the Central Bureau of Statistics (BPS) understand fully that work coordination between the two parties needs to be improved in the future considering the strategic role of each institution in the development of national economy. kompetisia vol 05/2010 7

8 Competition Advocacy The meeting between the KPPU and the Police of the Republic of Indonesia On 6 April 2010 the KPPU held a hearing with the Police of the Republic of Indonesia at the headquarters of Police of the Republic of Indonesia, South Jakarta. In the hearing, the KPPU s delegates were led by the KPPU s Chairman and received directly by the Deputy Chief of Police of the Republic of Indonesia, accompanied by the leadership ranks of the Police of the Republic of Indonesia. The hearing was held in order to build institutional relationships between the KPPU and the Police as institutions equally engaged in law enforcement, in which the KPPU is the competition law enforcing authority in Indonesia, while the Police of the Republic of Indonesia is the public law-enforcing institution in Indonesia. The meeting was also held in the framework of early assessment in an effort to establish a cooperation between the KPPU and the Police of the Republic of Indonesia in relation to provision of assistance to the KPPU to take the Reported Parties, witnesses and expert witnesses to court in the handling of business competition case conducted by the KPPU, as well as cooperation in the effort to socialize the values of business competition and human resource development. The important values of cooperation between the KPPU and the Police of the Republic of Indonesia are to establish integrated competition justice system which can guarantee law-enforcing certainty and the strengthening of the KPPU s decision as an effort to encourage the creation of fair business competition climate in Indonesia, and to develop same visions and agreements in order to promote the effectiveness of law competition enforcement. It is expected that the cooperation between the KPPU and the Police of the Republic of Indonesia may build an effective law-enforcing network, particularly competition law enforcement in Indonesia. The institutional cooperation with the relevant agencies, particularly the Police of the Republic of Indonesia, will be capable of giving rise to coordination and effectiveness of competition law enforcing performance that is orientated on real community welfare. The meeting between the KPPU and the Ministry of Finance of the Republic of Indonesia On 01 April 2010 the KPPU met with the Ministry of Finance (DepKeu) of the Republic of Indonesia, particularly the Directorate General of Budget (DitJen Anggaran). In this meeting, the KPPU s delegates were led by the KPPU s Vice-Chairman and received directly by the Director-General of Budget in the Ministry of Finance of Indonesia. The meeting was conducted in order to enhance communications and cooperation between both institutions, and the Ministry of Finance itself has been a strategic partner in supporting the roles and functions of the KPPU s institutional functions. 8 kompetisia vol 05/2010

9 International Report on the 2nd AEGC Workshop on Developing Handbook on Competition Policy and Law As an effort to help raise the public understanding among the ASEAN countries regarding the importance of Business Competition Law, and as a means to exchange experiences (best practices) and learning from the experience of business competition agencies in other countries, the ASEAN Experts Group on Competition (AEGC), in cooperation with InWent (Capacity Building International, Germany), hosted the 2nd ASEAN Experts Group on Competition (AEGC) Workshop on Developing Handbook of Competition Policy and Law. This workshop was held in Siem Reap, Cambodia on 26-27April The objective of this workshop was to follow up the 1st ASEAN Experts Group on Competition (AEGC) held in Yogyakarta, Indonesia, some time ago. This workshop was part of the the Handbook preparation activities by AEGC attended by representatives from ASEAN member countries, namely Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. The goal of the preparation of this Handbook is to describe the substances and procedures for enforcement of Business Competition Law applied in the ASEAN countries in easily understood languages in order to support regional and transnational business practices in the ASEAN region. The Handbook was made not as a comprehensive guidance regarding the application of Business Competition Law, but rather as the means of documentation of Business Competition Law applicable in the ASEAN countries. The main focus of the handbook is to inform the community of business actors and investors regarding the application of Business Competition Law in the ASEAN countries. With regard to a general overview of the framework, objectives, and scopes of Competition Law and Policy in the ASEAN countries, the First Section of the handbook contains the important points of Competition Law and Policy in the ASEAN countries that are relevant to the community business actors. The introduction of the basic structure of the Competition Law and Policy enforcement is an important foundation in business. The Handbook will describe important principles that can support the enforcement of the Competition Law and Policy in which there are some responsibilities of business actors. The substance and procedure of law enforcement within the ASEAN countries are discussed in Section II of the Handbook with discussions in each country. The sections that discuss law enforcement in each country will use the same structure as the general description in Part I, based on question and answer (Q & A) from the business actors perspectives. Such a structure will help the reader to understand and compare the important aspects of Competition Law and Policy in the ASEAN countries. The questions are summarized in Section II of the kompetisia vol 05/2010 9

10 International Handbook including: (1) Legal and Institutional Framework: What's the Competition Law? and Who is Authoritative in Supervising the Competition Law? (2) Target: Who is the Subject of the Competition Law? (3) Substance: What are the practices prohibited by the Competition Law? (4) Procedure: How are Prohibition Provisions applied? (5) Are there any provisions for Exclusion or Exemption for the Application of the Competition Law? Furthermore, the conference also discussed the socialization activities for the Handbook that will be held round-up on 6 (six) of ASEAN countries during the period of 01 November 2010 to 12 November 2010 with agenda as follows: (i) on 1 November 2010, socialization will be held in Singapore, (ii) on 03 November 2010, in Jakarta, Indonesia, (iii) on 05 November 2010, in Hanoi, Vietnam, (iv) on 8 November 2010, in Bangkok, Thailand, (v) on 10 November 2010, in Kuala Lumpur, Malaysia, and (vi) on 12 November 2010, in Manila, the Philippines. Report on The 9th International Competition Netwotk Annual Conference KPPU sent 2 (two) delegations to attend the 9th International Competition Network (ICN) Annual Conference, that held on April 2010 in Istanbul, Turki. The Conference was attended by over 500 delegates participants, representing more than 80 antitrust agencies from around the world, and included competition experts from international organizations and the legal, business, consumer, and academic communities. It showcased the recent work of ICN working groups on mergers, unilateral conduct, cartels, competition advocacy, and competition agency effectiveness and aimed to provide a forum for the exchange of views regarding issues of common interest among the participants representing competition agencies and nongovernmental advisors (NGAs) from around the world, and to strengthen the personal links that lead to better international cooperation among ICN member agencies as well as with the consumer, academic, business, economic, and legal communities. The ICN is an informal network of established and newer agencies competition agencies with the common aim of addressing practical antitrust enforcement and policy issues. By enhancing convergence and cooperation, the ICN promotes more efficient and effective antitrust enforcement worldwide for the benefit of consumers and businesses. The ICN s main goal is to improve and advocate for sound competition policy and its enforcement across the global antitrust community. The ICN now 10 kompetisia vol 05/2010

11 includes 112 member agencies from 99 jurisdictions. The Annual Conference highlighted the work of the Unilateral Conduct Working Group, which was established to promote analytical convergence and sound enforcement of laws governing unilateral conduct by firms with substantial market power. The Working Group s session explored the competition analysis of refusal to deal and margin squeeze conduct, highlighting the results of a report based on a survey of more than 40 jurisdictions. Other important developments of the conference were based on the work of the Merger Working Group. During the conference, ICN members adopted two detailed Recommended Practices for Merger Analysis. The new Recommended Practices for merger analysis address: (1) Market Definition in Merger Review. Agencies should address the competitive effects of a merger within economically meaningful markets. The hypothetical monopolist test is an appropriate test to determine the relevant market(s) in which to analyze the competitive effects of a merger. (2) Failing Firm/Exiting Assets Analysis. Agencies should carefully review claims by the International merging parties that a merger will not harm competition because the acquired firm and its assets would have exited the market absent the merger in any event. In addition, the ICN conference showcased the work of the Cartel Working Group, which aims to enhance the ability of antitrust agencies to crack cartels through the discussion of effective investigative techniques and the examination of important legal and policy topics. The Advocacy Working Group presented guidance for agencies on conducting effective market studies and a report summarizing a series of teleseminars on agencies competition advocacy programs. The Agency Effectiveness Working Group presented a report on strategic planning and prioritization principles. The network also launched a project to create a virtual university on competition law and practice, which will include training modules aimed at new agency staff. Report on OECD - Korea Policy Centre Regional Antitrust Workshop KPPU sent 2 (two) delegations to attend the Regional Antitrust Workshop on Analysis of Merger held on Seoul, South Korea on April This event was organized by the OECD-Korea Policy Centre, Competition Programme. Topic of the workshop was analysis of mergers where there are vertical/ conglomerate effects, and determining and enforcing the appropriate set of remedies in merger cases. It attended by experts and participants from Australia, China, India, Indonesia, Japan, Korea, Mongolia, OECD, Pakistan, Singapore, Chinese Taipei, Thailand, United States, Vietnam. The programme covered all relevant issues related to merger control enforcement, including essential steps such as defining the relevant market, analysing the market structure, assessing any harm to competition and imposing remedies. It was deals specifically with the added difficulties of managing vertical, conglomerate and generally complex merger cases. As many of these mergers may lead to some form of remedies, participants also discussed the imposition or negotiation of remedies in these types of cases. The topics were addressed and discussed in lectures by competition experts from OECD countries and in case studies presented by the participants. kompetisia vol 05/

12 Competition is about price, supply, selection and service. It benefits consumers by keeping prices low, avaibility, quality and choice of goods and services high. KPPU-RI Commission for the Supervision of Business Competition Republic of Indonesia KPPU Building, Jl. Ir. H. Juanda No. 36, Central Jakarta Phone , , Fax Regional Representative Offices Surabaya Bumi Mandiri Building, Jl. Basuki Rahmat No Surabaya East Java Phone , Fax kpd_surabaya@kppu.go.id Makassar Menara Makassar 1st Floor, Jl. Nusantara No. 1 Makassar - South Sulawesi Phone , Fax kpd_makassar@kppu.go.id Medan Jl. Ir. H. Juanda No. 9A Medan - North Sumatera Phone , Fax kpd_medan@kppu.go.id Batam Graha Pena Building 3rd A Floor Jl. Raya Batam Center, Teluk Tering, Nongsa Batam Kepulauan Riau Phone , Fax kpd_batam@kppu.go.id Balikpapan BRI Building 8th Floor, Jl. Sudirman No. 37 Balikpapan East Kalimantan Phone , Fax kpd_balikpapan@kppu.go.id