Government prepares to tighten competition rules, overhaul ComCom

Thursday, 5 December 2024

Successive governments are responsible for rules that have entrenched market power in firms such as Wilson Parking and ANZ, says Commerce Minister.

Company mergers look set to become more difficult, conditions could be attached, and the Commerce Commission itself is facing a major shake-up as a result of a far-reaching review of competition law.

One goal could be to give the commission the power to block creeping acquisitions of the kind that saw Wilson Parking buy up numerous parking facilities around the country, Commerce Minister Andrew Bayly said.

ANZ might also have been blocked from buying National Bank in 2003 and Z Energy might have been unable to acquire Chevron in 2016 under the new rules that will be put out for consultation, he told The Post.

A Cabinet paper put forward by Bayly makes clear the Government’s goal is a big one — shifting the economic dial by raising productivity.

He noted the Organisation for Economic Cooperation and Development published what he described as “a scathing report” in May warning weak competition rules had become a drag on the country’s economic performance.

The review of the Commerce Act was intended to address those concerns, he made clear.

Potentially the biggest single change could see the competition test the commission applies before allowing mergers toughened up.

The review will consider whether it should be made explicit that substantially lessening competition included “creating, strengthening, or entrenching a substantial degree of market power in a market”.

While the additional wording “might not sound like much”, it would mean a lot to competition lawyers, Bayly said.

Both the National Bank and Chevron acquisitions and purchases by Wilson Parking could have fallen foul of the entrenchment clause, he said.

A Cabinet paper put forward by Bayly makes clear the Government’s goal is a big one - shifting the economic dial by raising productivity.

Any new rules would not retrospectively apply to past decisions or clearance applications that had already been lodged with the commission, the latter including Contact Energy’s proposed $1.9 billion takeover of Manawa Energy, he said.

Competition advocate and 2degrees founder Tex Edwards said while no-one would be sitting around the barbecue discussing reform of the Commerce Act over the holiday season, the proposals were both sensible and profound.

But the horse had to some extent bolted and structural remedies were needed to address what had gone before, he said.

Bayly acknowledged the review would have been better done earlier.

“Successive governments” were responsible for the existing laws, he said.

“We had a setting that we thought was fit for purpose 30 years ago. I think we should have reviewed it on a more timely basis.”

The review — which will be led by former Commerce Commission chairperson Dame Paula Rebstock — will also consider whether the commission would be able to accept and enforce “behavioural undertakings” when considering mergers.

An example, would be the guarantee of improved wholesale electricity pricing that the Major Electricity Users Group has suggested the commission impose on Contact Energy as a condition of taking over Manawa, but which the commission would currently have no power to enforce.

In another major potential change, the commission could get new delegated powers to impose codes, giving “a clear steer to industries about how they should operate” from competition perspective, Bayly said.

More significant and strategic industry codes, such as the one the previous government imposed on supermarkets to police their treatment of suppliers, would still need to go through Cabinet, he said.

“What we're looking at is a lower level code-making ability,” he said.

On the flipside, businesses could secure new rights to collaborate on some issues without risking being accused of collusion.

Bayly said one unwelcome outcome of current rules was that banks were unable to discuss setting up a shared banking facility in small towns such as Waiuku before they had all closed their branches there.

“Only at that point, once they’ve all pulled out, can they actually get in a room together, but no-one is going to do that, right?”

The Commerce Commission itself looks unlikely to escape major changes.

The review would consider whether the commission had “the right skill sets” to be able to fulfil its larger mandate, Bayly said.

Bayly says changes that could see commissioners’ powers split out are not a witch-hunt.

One possibility would be that the governance and top executive roles at the commission — which are rolled up into one and fulfilled by its commissioners — could be separated out, Bayly said.

That would see the commission move to the much more common structure of having a board separate to its management team, a change previously advocated for by the New Zealand Initiative.

Bayly said those changes were not being considered because he didn’t have confidence in current Commerce Commission chairperson John Small and his team.

Rather, the reason they were being considered was simply that he was keen to make sure the commission had the right commercial expertise.

“I don't want this to be seen as a negative; it's not a witch hunt or anything like that.

“But I do want to make sure that if we're changing the settings, we've got the right framework going forward.”

Submissions on the proposals are expected to close in February with the review team reporting back in May.

Bayly said he expected to have legislation ready by the middle of next year.