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GreeceEUEuropeEuropean contractors at gunpoint…
ΣΧΕΤΙΚΑ ΑΡΘΡΑ
By Kassandra
Legendary EU insider, uncovering the deepest and darkest realities of EU governance and administration.
During the peak of the EU’s economic crisis, one of the most critical industries of the country – the construction sector – is at the gun point of the Greek Competition Authority for violations which allegedly have occurred for more than two decades ago.
In a report to the board of the organization, the competent services claim that major international and Greek contractors who won public tenders had cornered the market by forming a cartel. The report was supposed to remain an internal document (confidential) until the board would decide how to proceed.
However, on May 17, 2016, the confidential report to the board became a …press release!
The report lists all the Greek companies capable of assuming public works, as well as some well-known internationally operating foreign construction companies. The release of the report constitutes a blow to the soft underbelly of the Greek economy but also has a political European dimension to it.
Indeed, discrediting European construction companies of such a major size over such a prolonged period of time is a threat to the European structure of awards of public projects which include EU funding. And while the potential existence of a cartel in any sector is a serious threat to an economy, the potential abuse of an independent authority by a new government with political ends is a greater danger.
Sources close to the Greek government deny political handling of the independent authority and suggest that the Greek Competition Authority board (which was appointed by the previous government, five years ago), is using this case to garner favour of the European Commission in an effort to get its mandate renewed.
The Greek Competition Authority was also in the news a few years ago when the then Director General, a Commission official (DG COMP) who had been detached to head the Greek Authority was arrested in the branch of a bank while receiving an … envelope from a leading businessman in the dairy sector. It is worth mentioning that still today, the price of fresh milk in Greece is double than in most European countries, and the gentleman that was arrested were acquitted on appeal.
Returning to the case at hand, the press release (not the decision of the board which is still pending) of the services of the Greek Competition Authority was welcomed by the Commission. Indeed, the Director General of Regional Development Walter Deffaa asked twelve other Directors General of the Commission (in writing) to suspend all payments to Greece, on June 17, 2016.
Although the Commission and Greek government denied that the money would stop, no payments that would have been scheduled to be made to Greece in the meantime have taken place since then.
Adam Smith, European ideology, and independent authorities
There is nothing more irrational than a state organ that regulates the free competition, Adam Smith would say, even under the vale of an independent authority (which is also a British approach). Even so, it is well known that for years the Greek Competition Commission has not fulfilled its mission or come close to meeting expectations. This is highlighted by the fact that its institutional restructuring has become an obligation undertaken by the Greek government under the Memorandum of Understanding with its lenders.
It is in this environment that the Greek Competition Commission is rushing to impeach Europe’s construction market for forbidden collaborations – given that it considers that some Greek companies spent more than 25 years organising and arranging the distribution of community funds by annulling free competition.
The truth is that during these 25 years, funds had not stopped being distributed to Greece, and most importantly, the competition authority (magically) does not seem to connect the alleged breaches with those EU funds.
In Greece, through what came to be known in Greece as the ‘second Delors package’ alone, resources of a total of 9.6 trillion drachmas (28 billion euro) were distributed during the period 1994-1999 for the funding of works and programmes throughout the Greek territory.
However, the Greek Competition Commission leaked its suggestion, from which it results that during the period 1980-2012 the total of the community funds were spent for anti-competitive practices and collaborations. The works that were actually executed in the critical and under examination period (1989-2012) include the entirety of the 2004 Olympic Games venture, the biggest concession agreements for public works that were taken out in Europe and other works of huge value, many of which are included in the trans-European networks.
Today, in the middle of a huge international financial crisis, which has manifested since 2008 globally and has also embraced Greece as well as Europe, is called upon, in order to answer the question, to what point community resources have been spent under breach of the provisions of competition, as the Greek Competition Commission is putting it.
New Europe has been monitoring the case and has contacted a number of European law firms. The information gathered through this contact was that most of the alleged projects were very well known to the European institutions for a long time in relation to the supposed collaboration. A “collaboration”, according to the leaks, took place through frequent meetings between contractors and executives.
In 1980, the United Nations Conference on Trade and Development introduced The Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices (Resolution 35/63 of December 05, 1980). These rules determined that all enterprises must abstain from practices that bridle competition and defined bid rigging as such a practice.
While doing this, the UN body could not fathom the extent of the problem when competition in relation to “public procurement” was being secured by the transparent awards procedures. This is because the status quo of tender procedures and free competition are usually incompatible, and this is something that is commonly accepted.
Common practice
(This opinion of well-known theorist such as Albert Sanchez Graells (e-Competitions | No 40647, www.concurrences.com) is supported by extensive bibliographical references such as PD Klemperer, “Bidding Markets” (2007) 3 Journal of Competition Law and Economics; ibid, “Competition Policy in Auctions and Bidding Markets” in: P. Buccirossi (ed.), Handbook of Antitrust Economics (Cambridge, MIT Press, 2008), 583, 583 and 608-609; K (Cambridge, MIT Press, 2008) 583, 583 and 608–9; K T’Syen, ‘Market Power in Bidding Markets: An Economic Overview’ (2008) 31 World Competition 37 (2008); P Szilágyi, ‘Bidding Markets and Competition Law in the European Union and the United Kingdom’ (pts. 1 and2) (2008) 29 European Competition Law Review 16 and 89; Didier Ferrier, Notion d’entreprise: La CJCE considère que l’opérateur qui achètedes produits pour les utiliser dans le cadre d’une activité “sociale” n’est pas soumis au droit de la concurrence (FENIN), 11 July 2006, Concurrences Journal N° 4-2006, Art. N° 27388), as well as the jurisprudence C-205/03 P FENIN v Commission [2006] ECR I-6295 26.)
Finally, the OECD supports the same opinion, while it does not appear to be adopted by the Greek Competition Commission, since it encounters the area of public works that are being awarded following tendering procedures as if they were products sold at supermarkets… Thus, and following the OECD’s multiannual occupation with the phenomenon, Europe, having Greece as a cause, is confronted with the bid rigging phenomenon only a few weeks after the entry into direct force of the Directives for public procurement 2004/24 and 2004/23, which chose to deal with the matter with the manner that was selected and adopted by the European Institutions. Is it not the OECD itself (OECD, Public Procurement: Role of Competition Authorities, 2007, 7 και OECD July 2012 Recommendation on Fighting Bid Rigging in Public Procurement) that admits that the transparency rules of public procurement favour the restriction of competition and the bid rigging phenomenon?
The Greek case will either allow for the re-evaluation of the recent European choices, or will prove that the evaluations that have led to the conclusion that the Greek Competition Commission is malfunctioning for years are true.
Bid rigging is a phenomenon that is notably favoured in relation to supplies and much less in the area of construction as it has become well known, because of the KONE case, which was handled by the European Commission. If one takes out the famous case of the Dutch cartel example, which is considered the most important cartel of the construction industry for the period 1992-2006, a time during which the companies controlled the tender procedures with meetings before each one was taken out, the enforcement of fines by the British Competition Commission in 2009 (€129.5m) crashed before the competent courts, as did the enforcement of fines by the Hungarian Competition Commission. Even the Dutch example was led to a settlement because of the ascertainment of the non-compliance of the awarding procedure with the competition status as it is known.
All this leads to a reasonable question concerning the extent to which the Greek Competition Commission, by interpreting the social interactions and the meeting of certain business executives as anticompetitive collaborations, is putting the total of the resources granted to Greece to consume through tender procedures and by applying European law, in great danger.
Fines of one million Euros were enforced by the French Competition Commission for disguised offers, although many companies did not receive high fines because of the crisis.
In addition to this, in 2013 the Romanian Competition Commission recommended the improvement of the awarding procedures for road projects to the Romanian state because of suspicion of agreements between the tender applicants for the award.
In all the above cases, there is an opinion underlying that an economic operator, who takes part in tender procedures is not acting as an “operation” according to competition law and it is for that reason that all the public procurement directives are giving them the specific definition.
The Greek case can only cause intense interest, since any kind of enforcement for a possible return of the disbursed funds would lead to the full bankruptcy of an indebted country. This would also lead to the re-writing of its history of the last 20 years, a time period, which changed its face and its dynamic. This transformation would be reimagined as “community fraud”, involving the whole European construction world under the so-called control of a few (insignificant for the European measures) Greek companies, which acted as a criminal organisation of an international range. All of this, without getting caught.
The Greek Competition Commission in swirl
The Competition Commission is the Greek authority for the protection of competition. It is an independent administrative authority, which has as its goal to guard theprinciples ofcompetition. However, the work of this Commission has few cases of high prestige to show until today. From the cases that were actually seen through, the majority crashed before the competent courts, while for the rest of them the fines have not being applied. An attempt for the rationalisation of the operation of the Commission with legislative measures was undertaken recently. However, all those changes that were legislated and concern the Competition Commission are under examination by the European Commission, as it was made clear after a question raised by an MEP of Greece’s main opposition party New Democracy to the competent commissioner for Competition Margrethe Vestager.
This pending situation with the European Commission is the obvious reason for which the government has not proceeded with the application of all changes that were promoted for the Competition Commission. This has a result that the old marks of inefficiency and institutional inaction, which gave it the characteristic of an unusually indolent Competition Commission remains. The competent Commissioner Margrethe Vestager emphasised the fact that:
“The Commission is engaged in ongoing dialogue with the Greek authorities to ensure that the amendment adopted on 29 January 2016 to the Greek Competition Law 3959/2011 does not impinge on the effective enforcement of the EU competition rules by the Hellenic Competition Commission. National competition authorities, such as the Hellenic Competition Commission, are essential partners of the Commission for enforcing the EU competition rules.”
The Commissioner’s answer points out that:
“Moreover, the memorandum of understanding between the European Commission, the Hellenic Republic, and the Bank of Greece of 19 August 2015 (‘MoU’) gives a clear commitment that a review of the Greek competition law has to be conducted with the support of the Commission and international expertise so as to ensure that it is in line with EU best practice”.
As a result, the Greek Competition Commission is malfunctioning with serious impact on very serious cases such of the ones concerning corn and milk. This malfunctioning has been taking place for years, despite the legislative interventions undertaken. Even in the explanatory report of the last law, the specific independent authority remains in a questionable status, because of the above pending situation. Court decisions have awarded a series of compensations sought, because of its above-mentioned malfunction. Cases such as the well-known Floras case are slurring it because of its problematic practices of many years.
Furthermore, the Greek Competition Commission has recently begun to take actions, in order to get a better position based on the ranking of the international publication with specialised on competition matters Global Competition Review (GCR). As it states itself the grade 3.5/5 is not enough and it wishes to improve its performance by using the case of the construction industry.
Even though, the Greek Competition Commission managed to put at risk the financing of the construction projects in Greece from the 2014-2020 programmes through a press release which was not supposed to see the light of day until a final decision was taken, and which alleges wrongdoing before it has been confirmed, as New Europe brought to you exclusively.
This practice can only be classified as a leak, and such “Leaks” are not very usual practice in such institutions internationally. Furthermore, they constitute a clear indication of a lack of impartiality, political influences or – as it is being whispered – “orders from above”, which are being arranged for further reasons.
Part of the Greek press has a classified report in its hands and the ongoing speculation is seriously rocking the Greek market, which is a beleaguered one anyway. Those leaks have caused problems for the Greek government, since it is obliged to provide explanations to the European Commission.
It should be pointed out that many of the explanations were given at the same time, when the Greek government was pushing through the Greek Parliament measures, which were related to the examination by the Competition Commission, in order to stay ahead of developments.
The Greek newspaper Efimerida ton Sintakton (Editors’ Newspaper) has mentioned in a publication:
“It seems that the European Commission is creating “difficulties” for the Greek government, given the fact that according to newest disclosures, the General Directorate for Regional Policy seems to have suggested a “freezing” of the NSRF funds. The reason for this is the disclosures concerning the existence of a contractors’ cartel for the last 27 years and the ongoing investigation”.
The Greek government rushed to state that those leaks are not fully verified and are being investigated. In fact, there is one report and the finding of the Competition Commission is pending, however, it is not expected to be issued in immediate time.
According to the above report, which is based on complaints submitted by competitive enterprises, the cartel collaboration was implemented mainly through regular meetings of representatives of the competitors involved and/or the conclusion of insurance/compensational agreements. It is also worth pointing out that the above Complainants have submitted the exact same Complaints before the European Commission, without any result in the year 2007. A well-known market source comments:
“It will be probably the first time at an international level, that social meetings and personal notes will prove “collaboration”, when invoices and bank deposits are often not proof enough”.
At the same time, the source notes that the forming of a joint venture necessitates meetings, while European law does not only allow the joint offers, but also considers the establishment of a common company by the members of the joint venture following the award of the contract as absolutely legal and in most cases good practice.
In parallel, it became necessary for the European Commission to respond to a question of the MEP G. Kyrtsos (New Democracy) on August 3. The following answer was given by Regional Policy Commissioner Corina Cretu on behalf of the Commission:
“1. In accordance with the shared management principle that governs cohesion policy, selection of projects falls under the remit of the managing authorities, provided that their choices are in line with the EU and national eligibility rules, the principles laid down in the programming documents and the current legislation. Only major projects are notified to the Commission, under the provisions in force for each programming period. However, regulations do not require Member States to inform the Commission about the constructor of an infrastructure. The Honourable Member is therefore kindly invited to address his question to the Managing Authority of the relevant programme.
2. Public and private partnerships fall within the ambit of each Member State, where the share of private sector contributions is decided on a case by case basis. The EU co-financing rate is laid down in each programme, according to the legal framework of each programming period.
3. The Commission closely monitors the implementation of EU co-funded programmes, as well as the correct functioning of their management and control systems, in order to satisfy itself that the expenditure of operations co-financed by the Union budget is legal and regular. Where appropriate, the Commission carries out financial corrections to address risks, as it has done in a number of occasions in the past with respect to Greece and other Member States.”
It has to be noted that the leak has begun in 2013. This was the first time it started to get heard also in Europe in connection with a question of MEP of Syriza N. Chountis to Commissioner J. Almunia in relation to the snap checks of 12th February 2013 to construction companies. To the specific question Commissioner Almunia answered briefly that:
“Information provided by NCAs under Article 11 of Regulation 1/2003 is covered by the rules on professional secrecy in Article 28 of Regulation 1/2003, which provide that the Commission and NCAs may not disclose information acquired or exchanged by them pursuant to the regulation and of the kind covered by the obligation of professional secrecy. Accordingly, the Commission does not disclose such information, any relevant public information being available from the NCA.”
In the quest of free competition, Greece is being tested today in the middle of a huge financial crisis also by the dynamic initiative of the Competition Commission, the status of which is under development and examination by the European Commission. This initiative outruns, as far as its ambitions are concerned, even the Dutch Competition Commission. However, the identification of breaches by the latter was based on unquestionable evidence such as invoices and bank deposits.
This is the kind of evidence that the Competition authorities need to bring forth. In Greece, populism fueled through rumours and protests currently seem to be enough.