74289 Romania Functional Review ROMANIA COMPETITION COUNCIL Final Report [Type a quote from the document or the summary of an interesting point. You [ [ [ [ [ [ can position the text box anywhere in the document. Use the Text Box Tools tab T T T T T T October 15, 2010 to change the formatting of the pull quote text box.] y y y y y y p p p p p p e e e e e e a a a a a a q q q q q q u u u u u u o o o o o o t t t t t t e e e e e e f f f f f f r r r r r r o o o o o o mmm m m m t t t t t t h h h h h h e e e e e e d d d d d d o o o o o o c c c c c c u u u u u u The World Bank mmm m m m Europe and Central Asia Region e e e e e e n n n n n n t t t t t t o o o o o o r r r r r r Acronyms AOD Abuse of Dominance EC European Commission EU European Union FR Functional Review GOR Government of Romania GSG General Secretariat of Government ICN International Competition Network OECD Organization for Economic Cooperation and Development PMR Product Market Regulation RCC Romanian Competition Council SOE State-Owned Enterprise Acknowledgments The functional review is commissioned by the Romanian Competition Council (RCC) as part of a Functional Review Project financed by the EU and the Government of Romania. This report was prepared by a core team comprised of Donato De Rosa (Task Team Leader), Arabela Sena Aprahamian (Senior Private Sector Specialist), Paulo Correa (Lead Economist), Martha Martinez Licetti (Competition Policy Expert), Ronald Myers (Public Sector Expert), and John Pollner (Lead Financial Specialist). Mr. George Moldoveanu (Project Assistant) provided valuable support to the team. Georgiana Neculau, Simona Anton and Bogdan Corad (sociologists) provided support to the team for analyzing the RCC staff survey. The team would like to express its gratitude to officials of the Romanian Competition Council, including Board members, managers, and staff for their invaluable observations and constructive collaboration. The team, in particular, would like to thank Messrs. Bogdan Chiritoiu (President of RCC) and Vasile Secleman (General Secretary of the RCC) for their time, patience, and insights. Ms. Luminita Popa and Mr. Marius Lungu (Public Managers in the RCC) provided an extraordinary level of support in both substantive and logistic matters. Finally the team is indebted to the numerous staff of the Ministry of Public Finance, Ministry of Economy, Ministry of Agriculture, Ministry of Transport, Ministry of Communication and Information Society, National Regulatory Agency for Energy, National Regulatory Agency for Communication and National Agency for Public Procurement who took the time to meet with the team. A partial list of persons met during the mission is attached in the annex. The team worked in close consultation with Mr. Bernard Myers (Task Team Leader of the Functional Review Project), Mr. François Rantrua (Country Manager, Romania) and Peter Harrold (Country Director, ECCU5). The report was peer reviewed by Ewoud Sakkers and Isabel Yglesias i Julià (European Commission, DG Competition), Monique Van Oers (Director Legal Department, Netherlands Competition Authority) and Giuliana Cane' (CICRA, World Bank). TABLE OF CONTENTS EXECUTIVE SUMMARY..............................................................................................................................I PRIORITY REFORM AREAS AND RECOMMENDATIONS ........................................................................ V I. CONTEXT AND PURPOSE OF REVIEW ............................................................................................. 10 II. MANDATE OF THE RCC...................................................................................................................... 10 III. PERFORMANCE OF THE RCC .......................................................................................................... 13 ANTICOMPETITIVE BUSINESS PRACTICES AND MERGER REVIEWS .................................................................... 14 MARKET STUDIES, SECTOR INQUIRIES AND REVISIONS OF LAWS AND REGULATIONS ...................................... 24 STATE AID ........................................................................................................................................................ 27 COMPETITION ADVOCACY, SUPPORTING INSTITUTIONS AND EXTERNAL RELATIONS ....................................... 31 IV. ACHIEVING THE MANDATE THROUGH IMPROVED PERFORMANCE ................................... 32 EXISTING INITIATIVES TO REFORM ................................................................................................................... 33 CORE INSTITUTIONAL ELEMENTS ..................................................................................................................... 34 STRATEGY......................................................................................................................................................... 34 PRIORITIZATION AND SERVICE DELIVERY......................................................................................................... 36 ORGANIZATION AND STRUCTURE ..................................................................................................................... 37 HUMAN RESOURCES ......................................................................................................................................... 45 FINANCES.......................................................................................................................................................... 48 V. SPECIFIC RECOMMENDATIONS ...................................................................................................... 51 ANNEXES .................................................................................................................................................... 60 ANNEX 1. DIFFERENCES ACROSS DATA SUBMITTED BY THE RCC ..................................................................... 61 ANNEX 3: SCOPE OF FUNCTIONS AND MAIN CHARACTERISTICS OF COMPETITION AGENCIES.......................... 65 ANNEX 4: THE ORGANIZATIONAL CHART OF THE COMPETITION COUNCIL INCLUDING VACANCIES AND OCCUPIED POSITIONS ......................................................................................................................................... 67 ANNEX 5: STAFF SURVEY RESULTS ................................................................................................................... 68 ANNEX 6: MISSION INTERVIEWS ....................................................................................................................... 74 ANNEX 7: DURATION OF CASES BY TYPE OF PRACTICE AND YEARS (IN NUMBER OF DAYS) ............................... 76 ANNEX 8: DISTRIBUTION OF WORKLOAD BY STAFF ......................................................................................... 78 LIST OF TABLES TABLE 1: ANTICOMPETITIVE ENFORCEMENT – FORMAL CASES ........................................................................................... 14 TABLE 2: ANTICOMPETITIVE BUSINESS PRACTICE ENFORCEMENT- PRELIMINARY INVESTIGATIONS ............................................. 17 TABLE 3: PARTICIPATION OF TERRITORIAL OFFICES ON CURRENT INVESTIGATIONS- JULY 2010 .................................................. 19 TABLE 4: NUMBER OF TEAM MEMBERS IN TERRITORIAL OFFICES PER TYPE OF INVESTIGATION- JULY 2010 ................................... 20 TABLE 5: PRESENCE OF STATE OWNED ENTERPRISES ........................................................................................................ 24 TABLE 6: GOVERNMENT PARTICIPATION IN SELECTED SECTORS .......................................................................................... 25 TABLE 7: REVISIONS AND OPINIONS ISSUED .................................................................................................................... 27 LIST OF FIGURES FIGURE 1: THE ROLE OF COMPETITION POLICY RULES ......................................................................................................... II FIGURE 2: TYPOLOGY OF COMPETITION AND STATE AID RULES IN THE EC LAW...................................................................... 12 (1) FIGURE 3 : EFFECTIVENESS OF ANTI-MONOPOLY POLICY 2009 ........................................................................................ 13 FIGURE 4: ANTICOMPETITIVE BUSINESS PRACTICES ENFORCEMENT: CASE STATISTICS IN THE EUROPE REGION, 2008 ................... 15 FIGURE 5: NUMBER OF FORMAL CASES BY PRACTICE AREA ................................................................................................. 15 FIGURE 6: AVERAGE LENGTH (DURATION) OF ANTICOMPETITIVE PRACTICES INVESTIGATIONS .................................................. 16 FIGURE 7: STAFF OF COMPETITION AGENCIES, 2008........................................................................................................ 18 FIGURE 8: PERCENTAGE OF STAFF WORKING FULL TIME ON COMPETITION ENFORCEMENT, 2008............................................... 18 FIGURE 9: ALLOCATION OF STAFF BY RCC DIVISION ......................................................................................................... 19 FIGURE 10: INSTITUTIONAL CHANGES IN ANTI-CARTEL ENFORCEMENT ................................................................................ 21 FIGURE 11: AGENCY’S PHD ECONOMISTS....................................................................................................................... 22 FIGURE 12: FOCUS THEMATIC AREA – STAFF SURVEY ........................................................................................................ 23 FIGURE 13: STATE AID BY INSTRUMENT AND BY HORIZONTAL OBJECTIVE ............................................................................... 28 FIGURE 14: METHODOLOGY FOR ASSESSMENT STATE AID – BALANCING TEST ...................................................................... 29 FIGURE 15: STATE AID BY MAIN ECONOMIC SECTOR.......................................................................................................... 30 FIGURE 16: NUMBER OF FULL TIME MEMBERS – COMPETITION AGENCY BOARDS ................................................................. 39 FIGURE 17: PERSONNEL STRUCTURE BY SPECIALTY ........................................................................................................... 41 FIGURE 18: DISTRIBUTION OF WORKLOAD BY STAFF: COMPETITION DIRECTORATES ............................................................... 43 FIGURE 19: EFFECTIVENESS OF NON-MONETARY REWARDS .............................................................................................. 48 FIGURE 20: ANNUAL BUDGETS OF COMPETITION AGENCIES 2008...................................................................................... 49 LIST OF BOXES BOX 1: RCC’S ROLE IN MAKING MARKETS WORK FOR THE ROMANIAN ECONOMY .................................................................... IV BOX 2: COMPETITION POLICIES AND THEIR APPLICATION IN THE EU LEGISLATION ................................................................... 12 BOX 3: COMPETITION CONSTRAINTS IN THE ENERGY SECTOR .............................................................................................. 26 BOX 4: RCC’S MISSION, VISION, VALUES, AND STRATEGIC OBJECTIVES .............................................................................. 35 BOX 5: INTERNAL TARGETS AND PERFORMANCE MEASURES .............................................................................................. 37 BOX 6: BOARDS ........................................................................................................................................................ 38 BOX 7: RCC STAFF SURVEY ......................................................................................................................................... 44 BOX 8: CHARACTERISTICS OF A GOOD COMPETITION AGENCY............................................................................................. 51 EXECUTIVE SUMMARY The European Union is founded on a competitive market economy unified by commonly agreed rules and practices. While Romania has joined the Union, its ability to prosper fully within the common market requires a strengthened commitment to, and ability to protect, EU competition principles. Romania’s legal and organizational framework for enhancing competition is tenuous and the current economic and fiscal crisis puts recent gains at risk. In particular, Romania’s performance in competition policy still lags behind EU practice and is characterized by: (i) State-owned enterprises and government participation still play a dominant role in many important markets and sectors in Romania, controlling at least one firm in 14 key sectors of the economy and exhibiting a market share above 50% in at least one segment of network industries. (ii) Relatively low enforcement of competition policy against hard-core cartels and abusive practices while merger review cases that do not significantly impose threats to competition account for the bulk of the workload in the competition area. Compared to other European Union members, few cases have been finalized and none of the abuse of dominance cases has been concluded even though six of these cases were initiated before 2007. (iii) Low staffing for competition enforcement and economic analysis placing the RCC at the bottom of European Union rankings with no internal target deadlines to track performance. (iv) Active advocacy activities mainly focus on raising awareness of the importance of competition law but efforts need to be made to refocus activity on tackling anti- competitive regulation, expand advocacy to key groups within the government and implement alternative advocacy tools. A comprehensive reform program therefore is required at the national level, as well as within the Romanian Competition Council (RCC) as the key agency in guaranteeing healthy competition. Priority actions, further detailed in this report, include the following: (i) improve the competitive environment by reducing the dominant role of the state in several economic sectors, strengthening the ability of regulatory agencies to ensure competition in key sectors such as transport, communication, and utilities, and requiring any agency proposing legislation found by the RCC to be contrary to competitive principles to publicly justify its position; (ii) provide space for a redoubled RCC focus on competition enforcement by strengthening the current legal framework on competition, reducing the RCC’s extensive network of expensive and underutilized territorial offices, streamlining simpler merger procedures, in order to free capacity for more demanding task, and – although this may not be immediately feasible - transferring out of the RCC the responsibility for review of national programs for state aid to firms; (iii) establish a new unit within RCC to target hard core anti-competitive behavior, such as cartels, as the first step in a program to gradually restructure the RCC along business practice lines designed to support greater specialization of competencies in line with EU standards; and (iv) take immediate steps, within the principles of the government’s unified pay system, to ensure a level of compensation to core RCC competition staff commensurate with their responsibilities in front of the judiciary and private sector. 1. The economic growth and social development of Romania ultimately depend on the efficiency and dynamism of its private sector operating within the broader European and global market. To prosper Romanian firms, large and small, must be innovative and free to act within a framework of fair (and applied) competition rules. These rules protect producers and consumers alike from anticompetitive behaviors such as price fixing and other cartel like activities, bid rigging, abuse of dominance and monopoly behavior, establishment of barriers to entry and all the other actions which can distort the market and keep consumers and firms from benefitting from the lowest possible prices and highest quality for goods and services. 2. All EU countries have competition agencies to apply competition policy rules. Though small in size and cost relative to other public bodies, competition authorities have an outsized impact on the functioning of markets. Competition agencies directly focus on rectifying inappropriate firm behavior and, perhaps more importantly, encourage adherence to the law through a deterrence effect and, more positively, through effective advocacy with government bodies. Studies of first order benefits of competition enforcement show that an effective application of competition policy leading to productivity improvements and price reductions in key infrastructure areas could boost GDP by several percentage points in the short to medium term. Figure 1: The Role of Competition Policy Rules CP sets “the rules of the game� CP verifies that market agents play by the rules •Level playing field (non-discrimination, •Govts. do not impose anti-competitive neutrality, equal access). regulation or unnecessary barriers to entry •Elimination of entry barriers. and expansion. •Firms compete in their merits. •Firms do not cartelize and not abuse. If effective •Markets are efficient and firm’s productivity increases. Firms can focus on “how to play the best� (competitiveness ) Large impact on economic growth and productivity 3. Competition policy is an essential input for achieving domestic market efficiency, economic growth and European market integration. By improving the efficiency of national markets, competition policy increases competitiveness internationally. Firms that are faced with vigorous competition have strong incentives to reduce their costs, to innovate and to become more efficient and productive than their rivals. Moreover, firms usually acquire many of their inputs (raw ii materials, energy, telecommunications services, and construction services) in local markets. If these markets lack competition, goods and services necessary for production are not provided at competitive prices. As a result, the economy as a whole may be less competitive and less likely to compete globally. 4. The Romanian Competition Council (RCC) is the agency charged with actively guaranteeing market competition, enforcing compliance to the laws, ensuring that state aid provided to firms meets rigorous EU restrictions, and advocating and promoting broader understanding of competition rules and benefits. Only established in its present form in 20041 through the combination of two legacy agencies, the RCC is a young organization that is making progress toward its goal of meeting EU standards and comparing favorably with counterpart European competition agencies. The RCC has taken many significant steps-- it has availed itself of extensive EU and OECD peer review, twinning and investment support, initiated a far reaching internal reform program aimed to increase its effectiveness, started a process to define a detailed strategy to enhance performance, taken a series of steps to mitigate the constraints of an overly rigid public administration system in Romania, and in general committed itself to become a center of excellence within the public administration. As such it appears that the RCC already is the key agency within Romania for advocating and promoting competition rules. 5. It is widely recognized that the effective application of competition policy is one of the pillars for building a common EU market. In the case of Romania, the implementation of competition policy by the RCC has had an impact on the Romanian market with several high profile cases as described in Box 1 below. The RCC also needs to preserve its independency and autonomy from political pressures and vested interests sometimes coming from other branches of the government. 1 The Competition Council was established in 1996, and started effective work in February 1997, when the Competition Law 21/1996 came into force and the secondary legislation was drafted. In 2004, RCC took over half of the staff and responsibilities previously covered by the Competition Office, a governmental institution, under the Ministry of Finance. iii Box 1: RCC’s role in making markets work for the Romanian economy The RCC has conducted several investigations that have resulted in direct savings to consumers and improved competition in Romanian markets. Below is a short summary of RCC‘s leading cases. Busting cartels in national and local markets One of the most important cartel cases, based on its economic impact, analyzed by the RCC was the cement investigation. The RCC observed that cement prices increased simultaneously in several local markets in Romania. The RCC investigation proved that from 2000 to the first quarter of 2004, the 3 groups controlling the cement market maintained a price fixing agreement to significantly raise their prices and illegally increase their profits. The RCC sanctioned the three companies with fines approximately of EUR 30 million. In 2007, the RCC opened investigations for cartel behavior in a few local bread markets finding evidence that producers were harming consumers with anticompetitive agreements to increase their profits. For instance, in Vrancea County, the evidence showed that 31 undertakings raised bread prices almost in the same day (13% to 70% increase compared to the preceding month‘s price). Price increases followed meetings of bread producers, during which they discussed the levels of selling prices applied in their County. The total of the fines applied to undertakings in this Country was around EUR 1.35 million. It was estimated that the harm for consumers during the cartel period was around EUR 2 million. The full impact of RCC intervention is difficult to calculate; however, absent this invention consumers would have continued paying inflated cartel prices. Stopping bid-rigging in public procurement markets The RCC initiated an ex officio investigation into the Romanian insulin market in July 2005. The investigation focused on the conditions in which the national tender was conducted in 2003 for the human insulin necessary for the implementation of the National Diabetes Programme, as well as the electronic tenders conducted by hospitals for the procurement of insulin outside the National Diabetes Programme. The RCC found that the authorized distributors engaged in an anti-competitive market sharing agreement in order to divide the diabetes product portfolio. For each product there was a single bidder and authorized distributor, which made the Assessment Commission of the National Diabetes Programme proceed with the completion of the tender by sole source negotiation. Distributors did not compete with each other within the tender. As a result, the RCC fined four pharmaceutical companies for partitioning the publicly funded section of the insulin market in 2003 with approximately EUR 22.6 million. Upon the determination of the fine, the RCC noted a per se infringement regardless of its effect on the market, which lasted for two years (from 2003 until 2005). Advocacy role to promote competition, protect consumers and fulfill EU requirements The EU Consumer Credit Directive of 2008 establishes common rules on consumer credit aimed at harmonizing certain aspects of the laws, regulations and administrative provisions on consumer credit in the EU market. As part of its advocacy role to promote competitive markets, the RCC recommended the extension of the principles of the Directive over the mortgage loans or real-estate guaranteed loans, while eliminating or, as case might be, setting a low threshold for the early repayment fee. This is a step towards full transposition of the EU Directive in Romania. As a result of RCC recommendations, the Romanian Government adopted the Emergency Ordinance No. 50/2010 on 9 June 2010 that applies to all credit contracts, including the mortgage credits or credits with other guarantees, as well as loan contracts having as purpose to obtain or keep the property rights over a land or building which already exists or is comprised in project status, regardless of the total value of the loan. This measure will increase mobility of consumers among banks and the degree of transparency of information, which will result in a higher level of competition in the sector. 6. Despite this record, Romania still lags behind EU economies in the application of competition policy. Compared to counterparts in the region, the RCC exhibits relatively low cartel enforcement; few anticompetitive business practice cases are concluded in a timely manner; workload on competition focuses primarily on merger review procedures, with fewer resources available for conducting advanced economic analysis; and there are few internal targets to track performance of RCC‘s enforcement activity and advocacy work. 7. To improve current performance the RCC needs to properly address significant challenges, both internal and external. Discussions with the RCC and other competition stakeholders have revealed challenges regarding strategic direction, prioritization of efforts, attention to performance benchmarks and public accountability, as well as ability to overcome countervailing pressures to successfully complete high impact cases. These threats stem from an environment which is not conducive to the proper exercise of RCC‘s mandate, an agency mission which may be unduly broad or diffuse, and capacity constraints which despite notable internal reforms may be overwhelmed iv by actions to cut salaries which in effect could decimate its human assets which account for 80% of its budget and 100% of its impact. PRIORITY REFORM AREAS AND RECOMMENDATIONS 8. This functional review proposes that a comprehensive three prong strategy is needed to fortify Romania’s competitive framework to guide a path conducive to growth. The Government as a whole must take practical steps to deepen its effort to advance rules and actions supportive of competition, and strengthen the RCC‘s power to police this commitment. To better fulfill this mission the RCC in turn should: (i) undertake a major internal restructuring to move personnel and resources to the front line of competition enforcement especially in identifying and breaking cartels and abuse of dominance practices (including, and especially by, state owned enterprises) and reduce or eliminate territorial presence, lesser priority work in mergers and, as soon as feasible, state aids; (ii) undertake and publish a coherent strategy backed by results indicators to achieve parity with EU comparators in the core areas; and (iii) strengthen quality control and prioritization of its strategic efforts. Finally, the RCC should continue its ground breaking efforts to strengthen its capacity through advances toward program based budgeting, merit based human resource management, modern ITC infrastructure, and public accountability. All these initiatives to address the RCC‘s enabling environment, mission, and capacity presuppose that the RCC can attract and maintain its highly educated and motivated staff through appropriate monetary and non-monetary compensation. 9. Assuming an appropriate level of commitment from the central government to the RCC’s work through legal changes, budgets, and compensation, the current RCC management and staff appears well able and committed to improve performance and accelerate its upward trajectory. There is an impressive degree of commonality of vision within the RCC on the core need to strengthen competition enforcement, and the fundamental requirement of a shift in focus and resources. The management of this change program will present the normal challenges and requirements in terms of funding, communication, external support, etc. However, such a program is entirely feasible, and more importantly, absolutely necessary to arm the RCC to meet the requirements of protecting a modern competition framework critical to the country‘s growth. Reform Area 1: Improving the Governing Environment 10. The depth of knowledge and commitment to competitive market principles within Romania and its public sector appears shallow and spotty. This is reflected by deficiencies in the operations of regulatory bodies, the plethora of government actions which impact on competition without due regard to competition concerns, and a legacy of a large public presence through state owned enterprises in many economic sectors. This environment in turn reflects a history of state economic management which has not been fully updated to meet the challenges and reflect the principles of the market as in other EU partners. Certainly individual countries can and do make decisions on the extent of public ownership and the role of the state. However, the presence of SOEs in 14 of 20 sectors with significant and larger participation in the network industries (electricity, gas, telecommunications and transport) exceeds the EU average. Complementing this, the relative weakness of sector regulatory agencies such as the energy regulator may reflect the reality that energy policy is the domain of the relevant SOEs whose performance and financial incentives in terms of service, profits and employment are not necessarily identical with competitive behavior. While not the formal target of the RCC review it became clear through interviews with regulators and/or other interested stakeholders that the regulatory system for key industries is seriously flawed with weak underfunded agencies frequently ignored by line sector ministries. v 11. Another manifestation of a still partial commitment to competition principles is the limited role played in practice by the RCC in reviewing and changing inappropriate draft legislation and government decrees and ordinances impacting competition. Too frequently the view of the RCC is not sought (many times because other government agencies are unaware of competition principles and/or more driven by short term sector priorities), or the RCC‘s opinions are overridden without due consideration or explanation. Drafts for review are also presented to the RCC with unpredictable and short deadlines (reflecting in fact the lack of broader government prioritization, strategic planning, and vetting of proposals by senior officials), overwhelming the capacity of the RCC to respond quickly. Key Reform Options: Reform Area Specific Actions Timeline Mainstream competition Create of competition advocacy unit to deter anticompetitive regulation. Short term policy within the government Refocus RCC activities in the domain of State Aid towards analyzing Short term their potential distortions on competition. Medium Strengthen competition advocacy in public and government bodies. Term Strengthen regulatory Review the regulatory framework and governance of key economic Short to agencies sectors (energy, telecommunications and transport) including the role of Medium respective regulatory agencies to identify means to strengthen their Term capacity and ability to oversee their sectors to promote competitive markets. Revise RCC’s legislative An ordinance has been issued and parliamentary action is anticipated in Short mandate to promote the near term. The ordinance should maintain important improvements Term competition and be further strengthened along the following lines:  Include the concept of ―undertaking‖ as defined by EC case law.  Abolish the notification system of individual exemptions.  Amend to include the main concepts of economic concentration and change from dominance test to the SIEC test (significant impediment of effective competition test).  Include the presumption that undertakings with less than 40% in the relevant market do not have dominant position.  Include a provision to guarantee that the RCC will need to establish and verify the lack of competition in the market under scrutiny before the Government decides to impose particular price controls.  Review the effects of criminal sanctions on corporate leniency.  Improve provisions to guarantee accountability of Board Members, such as the establishment of quarantine periods and a more competitive appointment process.  Reduce merger thresholds and streamline and apply simplified merger procedures.  Evaluate legality and inclusion of settlements procedures. Secondary legislation to adjust to the new Competition Law will also need to be promulgated. Reform Area 2: Sharpening the RCC’s Mission 12. The RCC, despite continued improvements, needs to better mobilize its resources to attack core anti-competitive behavior. Reflecting its legacy as a merger in 2004 of a price control agency with offices throughout the country with a more focused competition agency, the RCC vi diffuses its staff and resources across several priorities. The packaging of Romania‘s State Aid proposals (initiatives to help firms or regions restricted and reviewed by the EU) demands staff and management attention. This also inevitably raises issues of conflicts of interest and possible policy confusion as the RCC simultaneously seeks to eliminate anti-competitive behavior on the one hand and in effect protect some firms from competition on the other. Offices are manned in all 42 counties regardless of economic size and threat to competition or impact on consumers. Currently, staff in territorial offices account for 30% of RCC‘s total staff. Mergers are reviewed extensively, but rarely require RCC intervention. Considerable time is spent on ―advocacy‖, promoting awareness of competition principles, but much seems of marginal value. Most importantly the RCC is organized on sectoral grounds—developing impressive expertise on certain industries but without necessarily cultivating and leveraging to the maximum core talents and focus on competition enforcement, cartel busting, and investigation of abuse of dominance issues. The RCC needs to restructure itself, shift resources to enhance specialization, and better prioritize its activities, if its wishes to meet its goal of achieving parity with EU counterparts. Reform Options: Reform Area Specific Actions Timeline Restructure the RCC Gradually restructure the organization to aim at ensuring that at least Short along business lines 70% of resources are focused on competition enforcement. As a first Term step, a separate unit for hard-core cartels should be established in order to gradually move the organization towards business lines. Expand Competition Divisions, Legal and Economics Research unit. Review the business need for the current distribution of territorial offices, and where appropriate close, consolidate, and reduce those offices to reflect real threats to competition. Staff or their positions could be shifted to higher priority business practices. Strengthen strategic Complete RCC strategy document based on a broad participatory process Short planning and results with specific targets based on EU parity, planned actions, deadlines, Term focus towards increasing monitoring indicators and outcome goals understandable to agency enforcement record stakeholders and the general public. Establish internal deadlines and performance metrics for competition cases. Modify current Protocols with regulatory agencies to establish targets in terms of successful promotion of competition (e.g. removal of barriers to entry in the sector or elimination of anti-competitive regulation). Communicate performance targets in Annual Report and webpage. Reform Area 3: Improve Underlying Capacity 13. Complementing the reforms proposed above, the RCC should redouble its initiatives to improve its human resource and financial management, information technology, and internal management. The RCC can be seen as an example of a Romanian public organization which is striving, within the constraints of an unduly rigid and outmoded general public administration, to improve its performance, focus on results, pilot various administrative initiatives, increase the value provided to taxpayers, and in general run its affairs in line with modern management principles. The challenges confronting the RCC fortunately do not include serious deficiencies in administration, vii motivation, or leadership. The competence of the RCC seems to be widely respected by stakeholders in both the Romanian public and private sectors. One former sector regulator has characterized the RCC as the ―hope‖ for ensuring greater compliance with EU competition standards, and a representative of an association of private businesses stated that the RCC was on its way to achieve the level of professionalism and reputation enjoyed by the Romanian Central Bank. The proposed adjustments would enhance the RCC‘s progress toward becoming a recognized center of excellence. Key Reform Options: Reform Area Specific Actions Timeline Ensure the The Government should take practical steps to ensure the market Short, competitiveness of RCC competitiveness of RCC competition inspectors‘ salaries. Without medium, compensation such a positive decision the RCC will be hollowed out of its and long capacity with serious consequences for competition policy term effectiveness. Adjust staff skills in line Categorize competition inspectors, case handlers and support, e.g. Short with business needs paralegal, staff based on job competencies requirements. Term Define job competencies with education and skills required for each Short position as basis for training programs and evaluations. Term Ensure periodic rotation of personnel and flexibility in assigning Short to teams. Medium Term Strengthen the skills and experience of staff in key areas of Short to competition work. Medium Term Better integrate Conduct a thorough assessment of ITC needs, for RCC Short to information technology. administrative and investigative functions. Medium premises, etc. Term Managing Change 14. Implementing the proposals outlined above will require commitment and resources. The RCC deliberately requested a functional review by the Bank—clearly reflecting this commitment to strengthening its performance at the price of publicly manifesting its weaknesses and challenges. A reform agenda has been discussed extensively within the RCC management, Board, and staff, and there appears to be considerable pride in the RCC and desire to sharpen its focus on competition enforcement. Leadership, commitment, and vision, however critical, would be insufficient without support from the broader government for the required legal and policy changes or practical inputs of technical and financial assistance. Senior government officials need to well understand the critical linkage between a sound competitive environment and Romania‘s growth prospects and act to strengthen that legal and regulatory environment. For its part, the RCC is developing a time bound action plan identifying external resource requirements. A preliminary estimate totals Euro 3 million to fund technical assistance and training to strengthen enforcement capacity and economic analysis, establish a modern forensic lab, modernize RCC‘s information technology, increase security of RCC premises, facilitate change management, and fund adjustments in the deployment of territorial offices and staff. viii 15. Finally, an immediate overarching concern is whether the RCC efforts to improve performance can be advanced given the fiscal crisis as the ongoing pay cuts could significantly undermine the RCC‘s capacity, institutional memory, and ability to attract or retain the talent needed to deal effectively with increasingly sophisticated and better funded private businesses. Care must be taken in the short term to preserve and protect the RCC‘s capacity to foster Romania‘s growth in the long term. ix I. CONTEXT AND PURPOSE OF REVIEW 1. The review of the Romanian Competition Council (RCC) is part of the broader strategic and functional assessment of Romania’s central public administration being undertaken by the World Bank on behalf of the Government of Romania (GoR) as laid out in the June 2009 Memorandum of Understanding. The Review’s specific objective is to help identify legal, strategic, and organizational measures to strengthen the RCC’s effectiveness in competition policy articulation and implementation with the goal of enhancing competitive domestic markets. Fostering competitive markets is a core part of the government’s strategy to increase productivity and improve consumer welfare and thus the conditions for sustainable economic growth. 2. This report sets out the key observations and recommendations garnered during three visits to Bucharest by the Review team in May, July and September 2010, as well from assessments of relevant RCC documents, a questionnaire based survey of RCC headquarters and field based staff and middle management, reports from ―horizontal‖ experts used by the World Bank to review cross cutting functions such as human resource and financial management practices within the Romanian public sector, and comparisons with EU and global practices of counterpart competition agencies. Intensive series of discussions were conducted with RCC Board members, management, and staff, as well as with public and private sector representatives who interact with the RCC, and with EU officials in DG Competition. The findings and recommendations have been vetted with RCC and other stakeholders. This report is organized to focus on the RCC‘s mandate and substantive performance, on its organization and management practices to fulfill its role, and on the presentation of proposals for improving the RCC‘s effectiveness. II. MANDATE OF THE RCC 3. International experience provides evidence of the substantial benefits to consumers, firms and overall economic growth of an effective competition policy. Several studies have been conducted in other economies in order to assess the impact of effective competition rules. In Australia, estimates suggest that the economy wide gains from the effects of competition policies on productivity improvements and price changes in key infrastructure areas during the 1990s boosted Australia‘s GDP by 2.5 per cent or $20 billion2. This is a conservative estimate that does not consider the effects of dynamic efficiency gains from more competitive markets. Likewise, conservative estimates for the UK suggest that direct consumer savings resulting from the enforcement of competition law are worth $112 million a year. In the case of Netherlands, the outcome of the competition agency‘s actions to Dutch society is estimated at EUR 328 million, which is a 3-year rolling average3. Finally, recent studies also provide evidence that budgetary commitments to competition agencies institutions yield economic benefits in terms of improved economic growth 2 Productivity Commission, 2005, Review of National Competition Policy Reforms, Canberra. Crawford (2009). Recent Developments in Competition Policy. Presented at the ACT Economic Society. 3 The NMa‘s outcome is determined using a method that was revised in 2008. 10 since they are associated with higher levels of per-capita GDP growth4. In the case of Romania, an effective implementation of competition policy could have significant spillover effects given the current level of government participation and involvement in key markets, where many SOEs still are dominant players and full liberalization has not yet taken place. 4. The RCC was created in the mid 1990’s as an independent administrative body in charge of the enforcement of competition policies and state aid authorizations in Romania5. The RCC carries out its activity based on the attributions of Competition Law no.21/1996, subsequently updated, aiming at protecting, maintaining and stimulating a normal competition environment so as to promote consumers‘ interests. In accordance with EU and international standards, the Romanian Competition Law was designed to prohibit anti-competitive practices, set rules for economic concentrations and provide power to enforce legal rules. The competition authority also adopted a full body of secondary legislation, which was subsequently amended and completed during the process of harmonization with the acquis communautaire.6 5. In practical terms, the RCC is tasked with investigating complaints (or initiating its own ex officio investigations) on a typology of competition law infringements (Box 1). Depending on the results of the investigations (which use typical competition investigative tools such as ―dawn raids‖ on businesses to collect evidence, sophisticated economic analysis, review of business sector practices, and legal assessment of relevant national and EU legislation and case law), the staff inspectors prepare a report that is presented to the RCC‘s Board of Counselors. Following a hearing with relevant parties, the Board issues its final decision on the case. If there is sufficient evidence that the competition law has been infringed, the RCC can issue a cease order and levy a fine on those businesses found guilty of anti-competitive behavior. The decisions issued by RCC may be challenged at the Bucharest Court of Appeals, while the decisions of the Court of Appeals may be also appealed to the High Court of Cassation and Justice. The RCC is frequently called upon to defend in court its findings and fines, should the affected businesses appeal RCC decisions. The fines, accruing to the state, can be significant to the firm (up to 10% of firm turnover) and can exceed the RCC‘s annual budget. 6. The RCC is also the national contact authority for State Aid schemes. This second area of concentration involves reviewing proposals within the Romanian government to provide aid to businesses (whether privately or publicly owned) in order to ensure that ―state aid‖ conforms to restrictive EU guidelines for such practices. After Romania‘s accession to the EU, the State Aid Community legislation became directly applicable in Romania, with the EC overseeing the State Aid authorization process. The RCC represents Romania in front of the EC on state aid issues and serves as the focal point in relations between the EC and the authorities, public institutions, State aid grantors, and beneficiaries in Romania. 4 Clougherty (2009). Competition Policy Trends And Economic Growth: Crossnational Empirical Evidence. WZB Berlin and CEPR Discussion Paper No. 7515. October, 2009 5 Since 2004, the RCC is the only institution entrusted with the application of competition rules after the government eliminated the Competition Office (a specialized institution within the Romanian Government, with 42 local inspectorates). 6 Background section based on excerpts/analysis of the OECD report, Jan. 2009. 11 Box 2: Competition Policies and their application in the EU Legislation7 Competition policies are defined as the set of policies and laws which ensure that competition in the marketplace is not restricted in such a way as to reduce economic welfare. 8 In practical terms, competition policy usually involves the enforcement of antitrust laws (typically rules against anticompetitive business conduct and mergers) and the promotion of measures to enable firm entry and rivalry, typically called competition advocacy. 9 The Treaty of the Functioning of the European Union covers competition rules in Articles 101 to 106. 10 The main objectives of competition policy as enforced by the EC are economic efficiency and European market integration. As Figure 1 shows, Articles 101 and 102 of the Treaty deal with anticompetitive business practices resulting from coordinating behavior between competitors and from unilateral conducts of firms with significant market power. In addition, Merger Regulations provide rules to assess the potential competitive harm of horizontal, vertical and conglomerate mergers and economic concentrations. Merger rules are concerned with economic concentrations that will later significantly restrict effective competition in the market. In this sense, articles 101 and 102 regulate conduct of firms while Merger Regulations focus on the structure and consolidation of markets. While the DG Competition of the EC enforces competition rules at the Community level (in cases where the behavior has an inter- state effect within the EU), these rules are part of the law of each Member State being directly enforced by national courts and National Competition Authorities at the Member States‘ level. Figure 2: Typology of Competition and State Aid Rules in the EC Law • Price fixing and conditions of commercialization Horizontal and Vertical •Market sharing agreements Agreements •Bid rigging schemes Article 101 1/ •Discriminatory treatment and tie-in agreements •Resale price maintenance •Refusals to deal or supply •Unjustified price discrimination and selective discounts •Vertical restraints (exclusive contracts, tie-ins) Abuse of dominant position •Market sharing agreements Article 102 2/ •Predatory pricing and cross subsidies. •Discount and rebate schemes •Excessive pricing •Analysis of the competitive effects of Mergers and Economic situations where the operation allows a firm to Concentrations take de facto control of the operations of Merger Regulation 139/2004 another firm. •Prohibition of any State aid that distorts or State aids threatens to distort competition by favoring Article 87 3/ certain undertakings or the production of certain goods . Source: Treaty of the Functioning of the European Union. Rules on Competition 1/ Prohibition does not apply to particular agreements (R&D, distribution) that do not distort competition. 2/ It requires the existence of a dominant position 3/ Aid can be granted in specific circumstances (e.g. to promote the economic development of areas where the standard of living is abnormally low). The scope of the application of EC rules on State Aids extends to any State Aid which distorts or threatens to distort competition by favoring certain markets or firms (either private or public). The criteria for application include the following: (i) there must be an intervention by the State or through State resources; (ii) the intervention must be liable to affect trade between Member States; (iii) the intervention must confer an advantage on the recipient; and (iv) it must distort or threaten to distort competition. Finally, and similar to other competition authorities, the RCC engages in various advocacy efforts including:  Identifying anticompetitive public regulatory interventions and rulemaking, and proposing recommendations that government bodies undertake pro-competitive reforms. 7 Provisions are those of the Treaty of Rome consolidated by the Lisbon Treaty that in the substance did not change the original provisions on competition. 8 Motta (2004). Competition Policy. Cambridge Books, Cambridge University Press. 9 For more detailed, see ICN Report on Assessment of ICN Members‘ Requirements and Recommendations on Further ICN Work on Competition Advocacy, 2009. 10 Official Journal C 83 of 30.3.2010. 12  Raising awareness of the benefits of competition policy to all constituencies, including other public authorities in charge of regulation or rule making, judicial authorities, consumer associations, and the academic and business communities III. PERFORMANCE OF THE RCC 7. Even though significant progress has been made in the last few years, Romania still lags behind EU economies in the application of competition policy. According to the Global Competitiveness Report 2009, Romania ranks fourth from the bottom in the effectiveness of anti- monopoly policy for EU economies. Figure 3 : Effectiveness of anti-monopoly policy (1) 2009 3 3.5 4 4.5 5 5.5 6 netherlands sweden germany denmark finland france austria belgium luxembourg united kingdom ireland czech republic slovak republic spain portugal poland greece hungary latvia romania italy bulgaria lithuania Source: Global Competitiveness Report (1) Results to the question "To what extent does anti-monopoly policy promote competition in your country? (1 = does not promote competition; 7 = effectively promotes competition"). 8. Based on information provided by the agency11, the RCC concentrates on the following activities, which in turn can be assessed in terms of comparative EU performance:  Enforcement of anticompetitive business practices. Investigations into possible anticompetitive behavior, such as cartels and abuse of dominance, potentially leading to fines if the law has been infringed.  Merger reviews. Evaluation of notified economic concentrations to assess their impact on competition. The review process concludes with an unconditional approval, a conditional approval subject to the imposition of behavioral or structural remedies, or a prohibition of the proposed transaction.  Sector inquiries. Investigations of the structure and performance of selected markets in order to provide recommendations to improve the competitive performance of selected sectors.  Review and revision of regulations and laws. Revision of public regulatory interventions and rule making in order to guarantee that public policies do not adversely affect market competition. 11 Annex 1 provides more detail on the information requests to the RCC. Information contained in this report has been updated from the last RCC submission, which rectifies and adjusts the previous two submissions. 13  State aids. Monitoring of State Aid Schemes at the national level and coordination of schemes between grantors and receivers of State Aids.  Other advocacy activities. Activities related to raising awareness of the importance of competition policy implementation and compliance. Anticompetitive Business Practices and Merger Reviews 9. Significant progress has been made but the RCC still lags behind in the enforcement of anticompetitive business practices compared to competition agencies in the EU12. According to the information available, during the period 2007-2010, the RCC opened 30 cartels and four abuse of dominant position formal cases. However, it finalized only seven cartel cases. None of the formal cases on abuse of dominance has been concluded even though six of these cases were initiated before 2007 (Table 1)13. Table 1: Anticompetitive Enforcement – Formal Cases Year 2007 2008 2009 2010 2007-2010 Cartels A Oth Cart A Oth Cart A Oth Cart A Oth Cart A Oth O ers els O ers els O ers els O ers els O ers D D D D D Cases opened (1) 4 0 6 6 0 4 10 3 13 10 1 0 30 4 23 Cases finalized 0 0 3 3 0 4 2 0 2 2 0 1 7 0 10 (2) Cases under 9 6 13 15 6 14 22 9 23 30 10 21 35 10 31 investigation (3) Source: RCC Considering only cases that were opened (1) Case opened by year of decision of end of pre-investigation. Includes cases where the result of the preliminary investigation was to move forward with a full investigation (formal case). (2) Case finalized by year of final decision (3) Cases analyzed in a given year Others include vertical agreements, prohibited actions by the central or local public administrative body and mixed cases (alleged practices against articles 5, 6 and 9). Although the number of cases completed does not necessarily measure the quality or the impact of the investigations, Figure 4 a) shows that the RCC, in contrast to other agencies in the region, finalizes a relatively low number of cases, even when comparing to agencies of relatively smaller economies. Figure 4 b) presents the percentage of cases completed relative to cases under investigation for both abuse of dominance and cartel cases - which can be used as a proxy indicator of timely service delivery. For the RCC, the percentage of cases completed relative to the cases under investigation is 20% and 8% for the years 2008 and 2009 respectively, while other economies average 50%. 12 Annex 2 provides more detailed statistical information. 13 Investigations referred to preliminary investigations (analyzed by the RCC staff but that do not necessarily conclude in a formal case) and full investigations conducted by the RCC (which do conclude in a formal case). A preliminary investigation refers to limited scope inquiry undertaken to verify whether an allegation merits a full investigation. 14 Figure 4: Anticompetitive Business Practices Enforcement: Case statistics in the Europe Region, 2008 a) b) poland bulgaria france latvia letonia sweden bulgaria slovenia letonia latvia germany belgium sweden portugal germany netherlands estonia poland lithuania italy italy netherlands france hungary lithuania spain portugal finland denmark romania 2008 romania -2008 spain romania -2009 romania 2009 slovenia 0 50 100 0% 50% 100% Completed Percentage (completed/under investigation) Source: RCC and Annual Reports of Competition Authorities. 10. Merger review cases account for the bulk of the workload in the competition area, although most of the cases analyzed posed no significant threat to competition. For the period 2007-2010, up to 56% of the competition related cases involved merger reviews (Figure 5). Excluding sector inquiries and revisions to laws and regulations, this percentage increases to 70% - which in turn means that only 30% of formal cases involved a potential anticompetitive business practice. In addition, only 2% of the merger notifications were considered for Phase 2 revision (i.e. for a deeper analysis of their impact on competition), while the rest were cleared without major revisions. Figure 5: Number of formal cases by practice area Source: RCC By date of opening a case 11. Consistent with international practice, the RCC has established deadlines for each of the stages of a merger review process investigation. However, the RCC has not established internal 15 deadlines for anticompetitive practice cases. During the period 2007-2010, the average length of time of formal cases has steadily increased over the years from around 100 days in 2007 to more than 1000 in 2010, due to the accumulation of a large backlog of open investigations. The average length for preliminary investigations that lead to formal cases and for preliminary investigations that were closed was 133 days and 38 days, respectively. In addition, the time formal cases have been open has expanded over these years from a maximum of two to three years in 2007 to five years in 2010. In general, if cases are not solved in a timely manner the benefit of the intervention is significantly reduced.14 Figure 6: Average Length (Duration) of Anticompetitive Practices Investigations 1200 1000 800 600 400 200 0 Preliminary open Preliminary closed Formal cases Preliminary pending Formal pending 2007 2008 2009 2010 Source: RCC 12. During 2009, 79% of the competition cases that received final judgments by courts where favorable to the decision made by the RCC. As a result, out of the total fines applied through the acts contested in the 14 cases, 80% were confirmed irrevocably by the courts, with sanctions amounting to 11,697,544.1 Lei confirmed by courts. On average, court cases have duration of less than 3 years. 13. As highlighted in its Annual Report 2009, the RCC is pursuing a plan to be more proactive in the field of competition and has recently initiated several ex- officio investigations. Unlike other agencies that often rely on complaints as a source of their competition enforcement, the RCC starts a greater proportion of investigations on its own initiative - over 50% during the period 2007-2010. However, it is worth noting that the RCC receives a relatively low number of formal complaints per year. 14. While the number of preliminary investigations initiated by the RCC has steadily increased over time, only 24% of preliminary ex officio investigations became formal cases. During 2007-2010, the RCC started 250 preliminary investigations and 57 formal cases, which accounts for 23% of the total number of investigations. Preliminary investigations have been initiated 14 According to the RCC, the increased duration of completed cases in 2010 is due to the fact that a large number of dormant cases were closed. 16 through different means: by initiative of the RCC (ex officio), through formal complaints received from undertakings (complaints) and through less formal complaints (others). In general, the expectation that a preliminary investigation initiated by the competition agency becomes a formal case is relatively high since competition authorities tend to open preliminary investigations in sectors where there is strong evidence and high enforcement impact. 15. Information provided by the RCC reveals that, in relative terms, investigations and complaints related to abuse of dominant position are less likely to conclude in a formal case than investigations related to cartels and horizontal agreements. During the period 2007-2010, the RCC did not open full investigation on 34% of alleged cartels and horizontal agreements. In the case of abuse of dominant position, the RCC closed preliminary investigations and did not open formal cases in 73% of the investigations. Table 2: Anticompetitive Business Practice Enforcement- Preliminary Investigations 2007 2008 2009 2010 2007-2010 Cartel AO Other Cartel AO Other Cartel AO Other Cartel AO Other Cartel AO Other s D s s D s s D s s D s s D s Started (1) 6 13 9 21 22 3 13 32 8 49 17 4 89 84 24 Not 4 10 9 11 12 3 12 14 8 3 15 4 30 61 24 opened (2) Current 6 13 7 27 21 3 15 32 9 49 19 2 95 83 24 (3) (1) Investigation started by year starting of pre investigation (2) By year of preliminary stage decision (3) Investigations analyzed in a given year 16. The sharp expansion in investigations may perversely be contributing to relatively low cartel enforcement given the need to disperse resources to cover the workload. From the point of view of effective enforcement, it is better to concentrate on high impact cases rather than increasing the number of open investigations –something the RCC highlights15- that might not lead to significant savings for consumers or improvements in the competition conditions of the markets. A better approach would be to select fewer investigations that will lead to high profile cases in selected sectors while setting deadlines to investigation currently in the pipeline. Competition agencies such as the NMa (Netherlands) and OFT (UK) have established or are in the process of establishing target timescales for internal monitoring, which enhances prioritization of case openings and also helps identify cases that need to be closed if there is not strong enough evidence to continue. 15 According to RCC‘s Annual Report: ―The proactive activity of the competition authority for identifying and sanctioning the anticompetitive practices had as a result the significant increase of the ex-officio investigations, which increased in 2009 by 130% compared to the previous year‖. 17 Figure 7: Staff of Competition Agencies, 2008 700 600 638 500 400 395 300 308 296 269 266 200 198 158 153 143 100 126 120 118 83 81 73 69 65 53 40 0 27 21 switzerland sweden slovakia hungary poland italy finland ireland netherland spain france greece austria czech republic portugal uk oft germany uk cc romania belgium ca denmark belgium cc Source: GCR, RCC. Figure 8: Percentage of staff working full time on competition enforcement, 2008 100 90 80 70 % of staff competition 60 50 40 30 20 romania- ireland poland slovakia greece republic netherland germany denmark europe spain belgium ca finland switzerland hungary austria portugal france romania - uk oft belgium cc italy sweden uk cc upper… lower… czech Source: GCR , RCC The estimates for RCC have been calculated using two scenarios: Romania upper bound assumes that 270 staff from legal, research and territorial offices devote 50% of their time to competition enforcement, while Romania lower bound assumes only staff full time dedicated to competition matters. 17. Even though in absolute terms the RCC seems to be adequately staffed, the allocation of staff to practice areas reveals relatively low staffing levels for competition enforcement areas relative to comparable EU competition agencies. The RCC ranks 4th compared to other agencies in the region (Figure 7); and it is relatively well staffed even after considering different scopes of functions and mandates,16 (Annex 3). However, a more detailed analysis of staff dedicated to 16 Generally, governments set up institutions for enforcing competition laws and/or performing other tasks in the competition policy area. For instance, competition authorities can also be in charge of applying consumer protection, unfair competition and advertisement rules as well as a coordinating and monitoring state aids schemes. 18 competition enforcement reveals that it lags on the number of full-time staff dedicated to competition enforcement (Figure 8).17 18. A more detailed analysis of the allocation of staff by RCC division reveals that the Competition Inspectorates account for 25% of the total RCC staff , even though they are the main units responsible for carrying out the competition enforcement. Moreover, 33% of staff is scattered around in territorial offices throughout the country without specific performance measures and target deadlines. This revealed preference seems inconsistent with the objective of detecting and sanctioning severely the infringements of competition rules as indicated in the RCC 2009 Annual Report. Figure 9: Allocation of Staff by RCC Division Source: RCC Includes headquarters and territorial offices. Territorial division includes staff working at Territorial - central office, as well as territorial office outside headquarters. July 2010. Internal Audit Unit – one staff – not included. 19. The RCC management has also encouraged territorial offices, accounting for 33% of RCC staff, to allocate resources to competition work at the local level, which has resulted in a significant increase in the participation of territorial offices in preliminary investigations. Previously, territorial offices devoted more resources to monitoring state aid and conducting advocacy activities. Currently, according to information provided by the RCC, 97% of current preliminary investigations and 44% of ongoing formal cases have the participation of at least one territorial office. Table 3: Participation of territorial offices on current investigations- July 2010 Total Total (ongoing) Number of investigations with % of participation Participation of Territorial Office Preliminary 59 57 97% investigations Formal cases 41 18 44% Data contains investigations initiated as complaint, ex officio, intimation, and individual exemptions. Source: RCC. 17 Under a more optimistic scenario, more than 50% of staff in the Legal Directorate can be considered as working in competition enforcement because 90% of them are somehow involved in competition law enforcement: in administrative proceedings phase; as legal adviser to the rapporteur and in some cases as investigation team members; in the phase of judicial process, in supporting the legality of decisions of the RCC. 19 20. Even though territorial offices may assist in addressing anticompetitive behavior and competition constraints at the local level, the RCC needs to carefully select investigations that are related to strategic goals and could lead to significant impact for enforcement purposes. Given the amount of human resources deployed in territorial offices, it is understandable that the RCC management would like to shift their role to the detection of anticompetitive behavior at the local level. However, there is a risk that this will result in an increase in preliminary investigations as local offices may try to signal their productivity by opening more investigations that too frequently have little merit. Territorial offices will need to understand clearly what is expected from them and how they are contributing to the larger goals of the RCC. In addition, during the field visit conducted to one of the largest territorial offices, it became apparent that almost all the inspectors participate in all the cases while it was not clear who was leading the investigation. An analysis of the workload of the territorial offices also reveals that team composition varies significantly with investigations with an average of four inspectors for preliminary investigations and 10 competition inspectors for formal cases. The RCC should carefully evaluate whether a more concentrated organization in headquarters could lead to enhanced results in the long run. Table 4: Number of team members in territorial offices per type of investigation- July 2010 Min Average Max Mode Preliminary investigations 1 4 82 2 Formal cases 1 10 49 1 Total 1 6 82 2 21. Currently, the RCC’s competition enforcement is organized by sectors (services, consumer goods and industry/energy). However, specialization by business line area could lead to better results given that the final objective of a competition authority is to detect different anticompetitive behaviors, an activity that requires a distinct set of agency tools and skills. Cartel detection, especially for hard-core cartels, requires the development of effective alternative policy instruments (leniency, settlements, commitments) as well as the strengthening of investigative tools (effective planning of investigations, interviewing techniques, conducting dawn raids, gathering evidence including digital evidence, etc.). A deep understanding of the industry is less important for cartel investigations. Abuse of dominance and merger reviews require strong economic tools in industrial organization and econometrics in order to assess anti-competitive harm and understand firm behavior. For example, an in-depth understanding of economies of scale and scope, cost of entry, differentiation of products in the market and theories of firms‘ behavior is essential for assessing these types of cases. Sectoral specialization without the development of this distinct set of skills will not lead to an effective enforcement record. 22. In addition, international experience shows that successful investigation of hard-core cartels requires prioritization and specialization. According to the ICN, the prioritization of cartel enforcement, increased staffing of cartel units and dedicated cartel specialists were the most important changes for successful competition enforcement. For instance, the Brazilian competition authority announced its focus on anti-cartel enforcement and undertook several initiatives in order to tackle high impact cases, including the establishment of specialized units on cartel detection. In the case of the Netherlands, the Competition Authority (NMa) prioritized its enforcement effort towards detection of bid rigging and cartels in the construction industry. As part of this initiative, the NMa 20 developed special guidelines and procedures (the so-called fast track procedure) for which companies could opt as an alternative to the regular sanction procedure. Figure 10: Institutional Changes in Anti-Cartel Enforcement Source: ICN 23. The International Competition Network also recognizes that an organization by sectors may negatively affect agency effectiveness. A business line area-based approach is necessary when the different instruments require very different skills (e.g. cartel investigations vs. merger reviews). A division by economic sectors where some work is discretionary and other work is not (e.g. merger cases are obligatory but other cases are discretionary) could result in the obligatory work crowding out the discretionary work. For this reason, flexibility in re-allocation of resources internally (i.e. a project-based allocation of resources) is essential. 24. Given the characteristics of the Romanian economy, sectoral specialization is more critical for analysis of abuse of dominant positions and merger review than for cartel detection. This stems from the fact that the Romanian economy is characterized by large and dominant SOEs, potential cartels in local markets and public bodies issuing anti-competitive regulations. 25. An organization by business line will lead to more effective performance. Benefits of a deeper specialization on anticompetitive practice will include: (i) increasing the number of detected hard-core cartels and the use of alternative instruments, (ii) closing cases in a timely manner since resources will not be crowded out to solve merger cases, (iii) more resources dedicated to tackle complicated abuse of dominant cases and mergers, and (iv) more effective advocacy by focusing sector expertise towards identifying anticompetitive regulation. In addition, common standards for the analysis of anti-competitive practices will emerge within the RCC which should be supported with the enactment of internal guidelines to analyze each different anti-competitive behavior in practical terms. 26. A first step to increase RCC’s output and performance would be to restructure the RCC in such a way that a special unit is set up with well trained staff which can fully concentrate on fighting anticompetitive conducts (specifically hard-core cartels). In addition, the output could further improve 21 if more result oriented working methods were put into place. This would involve working with dedicated teams, using protocols/manuals, defining milestones and clear deadlines. 27. The RCC’s enforcement record could benefit from the implementation of a wider and mixed range of enforcement tools that are currently used by many European counterparts. In cartel detection, the competition framework gives the RCC two important powers - the ability to conduct dawn raids and to apply a leniency program. The RCC seems to have used some of these powers, conducting an average of 12 dawn raids per year. Leniency applications have also been received in the past years. However the current legislative framework does not allow for settlement procedures.18 The new Competition Ordinance has included the acceptance of commitments and order of cease of anticompetitive practices. In general, compliance programs, leniency, commitments and direct settlements are being used by competition authorities as effective tools for combating cartels. Top competition authorities are aware of the importance of all the tools available for effective cartel enforcement and have been using them as alternatives to avoid lengthy investigations. For instance, commitments can be used in non- hard core cartel cases and abuse of dominance cases where the recognition of the anticompetitive effects of the practice can lead to their rapid elimination. 28. Investigative and empirical tools to conduct economic analysis could be further mainstreamed. In the case of mergers and abuse of dominance cases, the RCC recognizes a need to strengthen economic analysis tools applied to the evaluation of these cases, in particular in the case of relevant market definition and competitive effects estimation, as well as estimation of fines and damages. However the relatively limited number of staff in the Economics Research Department is a constraint. Moreover, compared to EU counterparts, the RCC lags behind in the number of competition and industrial organization trained economists. Figure 11: Agency’s PhD economists 20 18 16 X 14 12 10 X 8 6 X 4 X X X 2 X X X X 0 switzerland sweden slovakia hungary italy poland ireland france netherland finland spain czech republic greece portugal germany uk oft uk cc romania belgium ca denmark belgium cc (X: no stand-alone economic office) Source: GCR, RCC 29. In addition, the new changes to the legislation that change the analysis of mergers from a dominance test to a substantial impediment of effective competition test (SIEC) will demand a larger 18 Procedures that involve settling cases by consent, with companies involved agreeing to pay a reduced fine. 22 set of empirical and theoretical economic skills. For instance, it is likely that there will be a higher demand for econometric tools used in estimating demand and competitive effects. 30. Even though the Research and Synthesis Directorate has started to use statistical methods in competition cases, more resources and skills need to be devoted to economic analysis in order to achieve EU parity. For instance, the Research and Synthesis Directorate has started applying econometric techniques to quantify damages (horizontal agreements among bakeries in several counties), provided input to sector inquiries and has an initiative to develop competition indicators. However, there is still need to develop skills to include economic analysis in each competition case, analyze competitive effects of mergers, estimate the impact of competition interventions and assess theories of anticompetitive harm in vertical cases. Currently the Economics Department of the RCC lags behind in being the ―think-tank‖ of the institution. Figure 12: Focus thematic area – Staff survey19 100% 3% 1% 8% 5% 7% 90% 9% 11% 9% 80% 70% Other 60% 43% 44% 43% Merger regulations 50% Help minimize distortion of completion derived from State Aid schemes 40% Cartel enforcement 30% Abuse of dominance in sensitive sectors 20% 38% 36% 35% 10% 0% central regional Total general Source: Staff Survey 31. In addition, competition authorities in the region reflect a different organizational structure than the RCC.20 A majority of agencies either divide their work by main business areas (cartels, abuse of dominance, mergers) rather than economic sectors or have units exclusively devoted to cartel enforcement (unlike the RCC). Another pattern that emerges is that top competition agencies around the world –e.g. US Federal Trade Commission and Department of Justice, UK Competition Commission, NMa Netherlands - allocate a relatively higher amount of staff resources (averaging 19 An econometric analysis of the staff survey – which is summarized in Annex 5 – reveals that staff that worked in the state aid field are more likely to consider state aid as a topic of focus for the RCC as a whole, while younger staff are more likely to consider cartel and competition cases as a priority for RCC. 20 Sample of countries analyzed include: Albania, Armenia, Austria, Belgium, Bulgaria, Czech Republic, Croatia, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Macedonia, Netherlands, Norway, Poland, Portugal, Romania, Slovak Republic, Spain, Switzerland, Turkey, Ukraine, and the United Kingdom. 23 15%) to divisions specialized in economic analysis (i.e. a Chief Economist Office or similar) versus a 5% share of the RCC staff. 32. According to the staff survey and working groups with staff, anticompetitive business practices, in particular the enforcement of hard core cartels, should be a priority for the RCC. The enforcement of hard core cartels should be seen as a priority for increasing RCC effectiveness and mainstreaming the importance of competition policy implementation. In addition, careful consideration should be given to complex abuse of dominance or vertical cases that require proof of market power and an analysis of effects in the market. 33. Given the fact that the RCC would like to strengthen the enforcement of hard core cartels, the RCC should increase the notification thresholds for merger reviews. According to the modification of the law, economic concentrations should be notified in case (i) turnover of the undertakings exceeds 10 million EUR, (ii) turnover of at least two of the undertakings involved in the operation exceeds 4 million EUR on the Romanian territory. RCC data reveals that previous merger notifications have largely exceeded these thresholds. Market Studies, Sector Inquiries and Revisions of Laws and Regulations 34. State-owned enterprises (SOEs) and government participation still play a dominant role in many important markets and sectors in Romania. According to the information available, national, state or provincial governments control at least one firm in 14 sectors. This figure is relatively high compared to the typical OECD economy, which registers government participation in only 9 of the same sectors. Table 5: Presence of State Owned Enterprises National, state or provincial government controls at least one firm in: Yes No Manufacture of refined petroleum products X Manufacture of basic metals X Manufacture of fabricated metal products, machinery and equipment X Electricity generation/import, electricity transmission, electricity distribution, electricity supply. X Gas production/import, gas transmission, gas distribution, gas supply. X Electricity generation/import, electricity transmission, electricity distribution, electricity supply. X Wholesale trade, incl. motor vehicles X Restaurants and hotels X Railways passenger transport, Transport via railways , freight transport, operation of transport X Other urban, suburban and interurban passenger transport X Freight transport by road X Operation of road infrastructure X Water transport X Air transport X Operation of air transport infrastructure X Telecommunications fixed-line services, fixed-line services, X Water transport operation of water transport infrastructure X Financial institutions (not central banks) X Insurance X Motion picture distribution and projection X Total 14 6 Source: RCC 35. State-owned enterprises (SOEs) exhibit significant market shares in the network industries indicating significant scope for more active RCC engagement in these sectors. Currently, SOEs have a market share above 50% in at least one segment or market of the gas, electricity, rail and telecommunications sectors. In addition, recent cases of government involvement in key economic sectors reveal that competition policy principles are still not mainstreamed within 24 government bodies (See Box 3). The RCC Staff survey also reveals that staff considers regulated sectors or sectors where government has an important participation (e.g. energy, finance and telecommunications) as priority areas for RCC enforcement and advocacy activities. Table 6: Government Participation in Selected Sectors Market share No public ownership Less than 50% More than 50% but less than 100% Sector 100% Gas industry Production/import sector X Gas transmission sector X Gas distribution sector X Electricity industry Generation of the electricity industry X Transmission of the electricity industry X Distribution of the electricity industry X Supply segments of the electricity industry X Rail transport Operation of infrastructure sector X Operation of passenger transport sector X Air transport Domestic and international traffic combined X Telecommunication X - up to 100% in 5 operators. Those five operators have insignificant Percentage of shares in the PTO owned by X - in the incumbent market shares in the retail market. government Romtelecom SA Source: RCC 36. International experience also shows that sector inquiries could be used to target markets with active government participation as a seller or a buyer. Based on the current status of SOEs in the Romanian economy, the RCC needs to be vigilant that SOEs do not receive an unfair advantage with the potential to distort the market and deter private participants. Actively studying these markets including the role and impact of state aids could be something that the RCC should consider as part of their activities to mainstream competition policy within government bodies. 37. Consistent with international practice, sector inquiries are being used as a proactive tool but there is scope for improvement in investigation techniques and market selection criteria. During the period 2007-2010, the RCC started 13 sector inquiries. Currently, six of them are still under investigation. The average duration of a sector inquiry is approximately 20 months from beginning to end. As a result of the investigations, the RCC formulated recommendations and intervened with the competent public institutions in these fields. The results of the sector inquiries in drug wholesale distribution and food products commercialization prompted investigations into potential infringements of competition law. 25 Box 3: Competition constraints in the energy sector In 2009, the RCC conducted a sector inquiry regarding the status of competition in the energy sector. According to the information available to the RCC, the main potential competition constraints in this sector are: (i) Concentration of generation segment in a State-owned firm. The possibility of a consolidation of two companies with dominant position on the market pooling together the largest part of the energy sector (electricity/gas/coal) particularly if this operation occurs while the vertical unbundling has virtually stalled. (ii) Bilateral electricity contracts between state-owned companies and private partners with price conditions unfavorable to the State that also give preferential treatment to select private firms in the market affecting the level of competition. A part of electricity produced in Romania is subject to long term contracts. Some of these are completed competitively on the OPCOM market. Another part is negotiated outside the exchange by extending previous contracts from the past. Among these there are also the so-called ―contracts with the smart guys‖ signed between state-owned generators and private partners. For instance, between 2002 and 2004, Hidroelectrica signed contracts with 11 companies and traders, which were annually extended. In 2007, they accounted for 70% of the production of Hidroelectrica or 20% of the electricity traded in Romania. The prices of such contracts negotiated outside the exchange are 50% lower than the prices on OPCOM. (iii) Prices for gas from domestic resources are lower than for imported gas and are used to subsidize some companies or industries. Regardless of these potential constraints, the government proposed the establishment of two national integrated SOE companies, both of which would combine power generation (hydro, thermal and nuclear) with mines. Together, the two companies would initially account for around 90 per cent of electricity generation in the country. Concerns of potential abuses of these companies, as well as the implementation of cross-subsidies within the companies have been raised by different actors in the sector. However, more worrisome to some agents is the poor regulatory governance in the sector, especially the role of the electricity regulator – ANRE. ANRE was set up in 1999 and merged in 2007 with the gas regulator. According to information gathered in different interviews with stakeholders, it is perceived that ANRE has significantly reduced its effectiveness and virtually has no role in promoting the development of competition and adequate regulations in the market. As one participant noted, the RCC is ―the only hope‖ for developing a competitive energy market in Romania. Currently, the RCC is analyzing the impact of these mergers in the market and might be able to impose conditions that will deter anticompetitive behaviors and allow continuation of the reform process in this important sector. 38. Private sector representatives expressed some concerns regarding the RCC’s approach to sector inquiries. When conducting market studies, the RCC elaborates a questionnaire that is sent to market participants for their response. However, it seems there are no preliminary meetings with private participants in order to acquire more informal feedback on the characteristics of the sector that would help target and refine the questionnaires generated by the RCC, which is common practice when conducting market studies. This would also help to define more clearly the scope of RCC‘s information requests on competition cases related to these sectors. In addition, market studies might also be improved by enhancing the authority of the RCC to obtain information from market participants. 39. Currently the RCC does not have a system of competition indicators to track market performance or criteria to identify which markets are more prone to anticompetitive behavior or exhibit higher entry barriers. Traditional criteria used to select products for closer monitoring include: (i) supply goods or services that are essential or that account for a significant part of consumer spending, (ii) have linkages with other sectors/industries as a provider of inputs and services, or (iii) prior public perception of high prices in that market. The RCC should also consider designing a system for monitoring markets including accessing relevant sources of information. For instance, closer interaction with consumer protection authorities would provide the RCC with relevant 26 information on consumer complaints in selected sectors. Likewise, exchanges of information with the National Statistics Office could facilitate the collection of data on retail and wholesale firm-level prices. 40. The impact of RCC’s involvement in revising laws and regulations that could potentially have a negative impact on competition is restricted by the current system. During the period 2007-2010, the RCC issued 56 opinions to revise regulatory interventions by public bodies that had potential negative impacts on competition. Public bodies fully or partially implemented RCC‘s recommendations in only 21 cases. Table 7: Revisions and Opinions Issued Source: RCC 41. According to discussions with the RCC, the agency sees a need to strengthen the current legal framework in order to make its opinions binding for public bodies. The previous Competition law established that any actions by the central or local public administrative bodies which have as an effect the restriction, prevention or distortion of competition are prohibited. In particular, rules and regulations that limit the freedom of trade or set discriminatory business conditions to undertakings were considered particularly harmful. In case central or local public administration authorities do not abide by the Competition Council‘s decision, the latter may challenge the action before the Bucharest Court of Appeal. The amendments contained in the current Ordinance increase the likelihood of compliance of local authorities with RCC recommendations. However, although this modification could contribute to the development of more pro-competitive legislation, the RCC will need to further develop internal guidelines in order to prioritize its activities to markets where the questionable regulatory intervention or non intervention could have a larger negative impact. An alternative solution may be to ensure that public bodies strengthen their capacity to review the impact of their activities on competition. State Aid 42. Under the State Aid regime, the RCC monitors State Aid schemes and coordinates with several grantors and receivers of aid. In its role as the national contact authority in the field between the EC and State Aid suppliers and beneficiaries, the RCC facilitates coordination and provides specialized assistance to institutions involved in State Aid, including in the elaboration of the initial scheme. The RCC also monitors State Aid schemes at the national level, which includes drawing up and updating the State Aid inventory on the basis of reports, data, and other information received from grantors. 27 43. On average, the instrument composition of Romania’s state aid schemes closely follows EU patterns with a larger focus on research and development and regional development. According to information available for 2008, grants are the main instrument to provide State Aids in the EU (52% of total) and in Romania (68% of total). By horizontal objective, 49% and 28% of State Aids in Romania are allocated to R& D and regional development respectively. In the EU generally a larger proportion is assigned to environmental objectives. Figure 13: State aid by instrument and by horizontal objective State aid by instruments - EU members - State aid by instruments - Romania - 2008 2008 3% 1% 0%1% Grants 0% 2% 10% Tax exemptions 3% Equity participations 17% 43% 52% Soft loans Tax deferrals 68% Guarantees 44. Based on interviews conducted with several State Aid grantors, many believe the RCC does a superb coordination job and provides timely technical advice. According to the interviews conducted during the functional review, grantors consistently praised the quality of the technical assistance provided by RCC staff. However, it was also indicated that tight deadlines, government pressures, and quantity of proposals received could potentially undermine the ability of the RCC to operate effectively. 45. There is scope for a larger engagement in analyzing the potential distortions of State Aid schemes in the Romanian economy. From interviews with several state aid grantors, it became clear that the actual impact on competition of state aid schemes is not being analyzed either by the RCC or by individual grantors. Even though the current methodology of assessment of state aid schemes includes a balancing test, this is only applied for schemes that require a deeper assessment. However, state aids are recurrent in the same sectors or applied to the same undertakings so an evaluation of the status of current state aid schemes would only be appropriate in areas where they are most concentrated. The evaluation of state aid schemes should help reduce distortions in markets and provide guidance to grantors and policy makers about future adjudication of aids. 28 Figure 14: Methodology for Assessment State Aid – Balancing Test 46. The RCC should consider analyzing the effectiveness of state aid in sectors where there is still significant government participation. Available information suggests that sectors such as transport account for a significant proportion of state aid schemes. Given that these measures could have significant effects in crowding out potential private investors, the RCC could play an important role in assessing ex post the effectiveness of state aid measures in key sectors. In addition, the RCC possesses a vast amount of information related to state aid measures based on its monitoring activities that could be used to analyze the impact of state aid measures on competition. 47. Initiatives to improve coordination mechanisms among State Aid experts have been implemented. In 2009, the RCC focused on developing the State Aid National Network in order to cluster State Aid experts from the RCC and from the State Aid granting institutions. This is an important initiative given the fact that there are many actors participating in the State Aid area at the level of public institutions (e.g. in some cases, more than 10 people in charge of state aid in one institution) .The evaluation of State Aids could also benefit from implementation of EU simplification procedures such as the Simplification package and from encouraging State aid enforcement by national courts. 29 Figure 15: State aid by main economic sector 1,800,000.00 1,600,000.00 7% 2% 6% 1,400,000.00 20% 1,200,000.00 12% 1,000,000.00 4% euros 12% 3% 800,000.00 11% 12% 5% 33% 13% 600,000.00 7% 72% 48% 30% 400,000.00 60% 200,000.00 50% 35% 0.00 2005 2006 2007 2008 Agriculture Transport - Railways Transport- Air Manufacturing Others Others include aid with sectoral objective provided to other sectors Source: RCC 48. Enhanced coordination between the RCC and state aids grantors would have positive spillovers for competition work. According to several state aid grantors, their interaction with the State Aid Directorate was the start of coordination mechanisms with the RCC that evolve in specific collaborations in terms of providing specific data and information for sector inquires and market monitoring. Given that the appropriate objective of RCC‘s State Aid role is to prevent the implementation of state aid schemes that will likely distort competition, closer coordination between RCC‘s State Aid and Competition Directorates should also be promoted. As stated earlier, further investigations and monitoring could be conducted in sectors more likely to receive State Aid and/or with dominant State owned firms competing with private agents. 49. However, reallocation of state aid review and coordination activities to another branch of the government may be considered since the presence of state aid functions in the RCC may give rise to conflict of interest. Even though the activities related to state aid are carried out by a different unit within the RCC, both competition and state aid functions are under the responsibility of the board of the RCC. The same agency, thus, would have to simultaneously control anticompetitive behavior while assisting state aid grantors on schemes that may reduce competition once implemented. For instance, a growing number of firms may be able to claim implied protection from competition enforcement investigation due to having received state aid authorized by the RCC. This dilemma can only be resolved by shedding state aid functions to another agency in government, although this may not be feasible in the short term. In addition, after many years of successful RCC‘s technical assistance, each grantor – which usually has dedicated staff to design and analyze state aid schemes- should be able to assess if their state aid proposals are consistent with EU regulations. Furthermore, grantors could make use of the state aids simplification package proposed by the European Commission in 2009, which includes a Best Practices Code and a simplified Procedure to present cases. 30 Competition Advocacy, Supporting Institutions and External Relations 50. The RCC has been very active in implementing advocacy activities, but deeper understanding and commitment to competition benefits and adherence to EU/GOR competition policy still needs further consolidation within key stakeholders. For example, a recent proposal to concentrate state owned electricity generation into two large companies have raised concerns in the media and the public that basic competition principles are not fully endorsed by some areas of the Romanian government. 51. The RCC’S advocacy activities have steadily increased in the last few years. In 2004, the RCC conducted 39 advocacy actions. In 2007, the number of advocacy activities increased to 1,243. According to its Annual Report, the RCC organized over 1,100 advocacy actions in 2009 including seminars, roundtables, inter/intra-departmental debates, events with Twinning Projects and meetings with regulatory bodies and other institutions. Attendants at RCC‘s seminars from other public institutions indicated that these seminars are helpful for increasing awareness and understanding of the competition and state aid legislations. However, there are some concerns that seminar attendance is limited to a small target group and suggestions to extend or refocus the target audience were raised. Given the large number of advocacy activities and potential resources devoted to these activities, it may be worthwhile to evaluate their effectiveness and whether some of the resources may be shifted to other areas (e.g. anticompetitive investigations or more targeted advocacy, for example directed to courts). As one RCC staff suggested, the ―best advocacy for competition is the successful conclusion of a highly visible and high impact anti-competitive case‖. This view is generally confirmed by international best practice. 52. The RCC and outside stakeholders also agreed that supporting/enabling institutions still need to be developed in Romania. Several concerns were raised in this area: (i) most universities do not offer specialized courses in competition law or industrial organization which teach indispensable skills to implement competition policy; (ii) consumers and business associations are still not organized in such a manner to bring cases and complaints to the RCC; and (iii) even though the RCC partners with domestic think tanks in order to produce sector inquiries, there are few think tanks with the capacity to conduct independent research on competition matters. 53. The RCC has also promoted a closer collaboration with other public institutions and is active in international fora but there is still scope for improving the effectiveness of these collaborations and working in partnership with other organizations which have complementary power or influence in relation to markets. The RCC has signed Institutional Protocols with several public institutions (e.g. sector regulators, public procurement authorities) in order to foster collaboration and coordination between institutions. Many of these collaborations seem very promising but are of recent origin so there are no tangible results to report yet. For instance, in the case of the public procurement authority, there are plans to develop databases to track procurement conditions in selected markets, as well as to conduct training on competition law to procurement officers. In the case of the telecommunications regulator, the two authorities have collaborated in the definition of relevant markets for the regulation of communication services. Considering international best practice, however, this covers only one aspect of potential effective cooperation between the competition and the sector regulator. One aspect that the RCC could evaluate is to include in these Protocols specific ways of cooperation that will lead to significant improvements in market conditions. For instance, the RCC in coordination with the sector regulator or public authority could 31 commit to review the regulatory framework in order to introduce regulatory reforms that promote competition or increase the quality of regulated services. 54. In the international arena, the RCC participates in the European Competition Network (ECN), the International Competition Network (ICN), OECD Competition Committee, and UNCTAD. Relevant materials are posted in the RCC‘s intranet for easy access by RCC staff. The RCC could also use its participation in the international forums as a way of training and rewarding competition inspectors. 55. Workshops and other dissemination activities should be seen as one of the several competition advocacy tools not as an end in itself . RCC‘s competition advocacy efforts should refocus towards tackling anticompetitive regulation, expand advocacy to key groups within government and implement alternative advocacy tools. Seminars need to be de-emphasized. First, RCC should focus on credible enforcement record. Second, the RCC should also consider being more vocal in order to raise awareness of competition issues and advising policy makers where wider government policies affect competition and markets. This could be achieved by conducting investigations and proposing reforms to current anticompetitive regulations in key sectors of the economy. IV. ACHIEVING THE MANDATE THROUGH IMPROVED PERFORMANCE 56. Given a level of performance relative to EU comparators, which is seen within the agency as less than adequate, the RCC needs to review fundamental aspects of its operation and redouble efforts to improve results. To do so the agency needs to better align its enabling legal and political environment, mission, and institutional capacity guided by an overarching commitment to excellence and impact. The challenges are substantial. The RCC operates in a country that has a relatively recent experience with, and understanding of, competitive market mechanisms and principles, a large number of powerful state owned enterprises influencing if not dominating key sectors, and deep economic/fiscal challenges, all of which limit the agency‘s ab ility to enforce stated competition policy. The RCC needs to also preserve its independency and autonomy from political pressures and vested interests sometimes coming from other branches of the government. While the RCC has made progress towards articulating a strategy, it still consists of short mission and vision statements and a long list of aspirations and potential actions. The RCC is currently responsible for packaging state aid proposals to be forwarded to the EU, maintaining an expensive legacy structure in the territories, reviewing a variety of government regulations which should be handled by those agencies if they understood competition issues, and dealing with a growing list of mergers and acquisitions. It is hard to meet all these mandates simultaneously. In the absence of an agreed, clear, and focused strategy the RCC has been essentially adapting aspects of foreign models and incrementally adjusting the inherited practices and organizational structure of its legacy institutions (one of which was focused on enforcing centralized government price controls). Finally, the RCC‘s freedom of maneuver in terms of more flexibly managing its financial and human resources is significantly constrained by Romania‘s unduly rigid, centralized, and outmoded public sector rules and practices. 32 Existing Initiatives to Reform 57. Despite these challenges, and in apparent contrast to much of the Romanian public sector, it is important to note that the RCC has demonstrated over the last several years a willingness and ability to influence its legal environment, address strategic issues, and pilot internal reforms. The effort seems to enjoy understanding and ownership from various stakeholders within the RCC who are committed to the goal of enhancing results. There seems to be a widely held (and essentially valid) perception that the RCC is a small but elite body of well trained economists and lawyers with a high esprit de corps where individual staff members can exercise considerable responsibilities. The management structure is flat and team focused, staff is relatively highly paid versus the civil service in general, and the management culture in several parts of the RCC appears to encourage individual initiative. The current management, including key individuals such as the President, several Board members and Directors, and General Secretary are actively promoting policies to create a modern professional merit based organization. 58. Notable initiatives include:  Project budgeting in parallel with the traditional and mandatory line item budget, an effort which could evolve into more elaborate program budgeting better linking strategy through resources to results, assuming changes in central government practices  Performance indicators agreed with staff at the beginning of each evaluation cycle which can also enhance a results culture  Electronically based and managed annual performance evaluations discussed with the assessed staff member  Initiatives in terms of knowledge management and digitization of files  Web site development with an extent, candor, and timeliness of information praised by private sector representatives  Increased use of modern ITC throughout the organization and consideration of a move toward Enterprise Resource Planning (integrated linkage of IT to all business processes)  Codification of over 90 core business processes and steps toward process reengineering  Initiation of a job classification effort aiming at codifying the professional requirements for all core business positions  Scope for two Public Managers to advocate and support the implementation of modern management methods (in contrast to most GoR agencies) 59. The RCC is also aware of the importance of strengthening the implementation of competition policy. In the past few years, the RCC has conducted several initiatives at the procedural level (e.g. guidelines on leniency towards ECN standards) and at the organizational structure level (e.g. creation of a Tenders Directorate to fight bid rigging and increase competition in procurement markets) to increase the effectiveness of their competition enforcement work. Moreover, the Emergency Ordinance nr. 75 of June 2010 proposed a new competition law that aligns current legal framework to EU practices. The following amendments contribute to the development of procedural convergence in the EU:  Including the concept of undertaking as defined by EC case law.  Abolishing the notification system, individual exemptions and fostering convergence with Articles 101 and 102 of the Treaty on the Functioning of the European Union and Regulation No 1/2003. 33  Amendments to the main concepts of economic concentration (notion of control, notification obligation, standstill obligation, derogation) follow equivalent provision of the European Union Merger Regulation.  Change from dominance test to the SIEC test (significant impediment of effective competition test) 60. There are some aspects of the current amendments that could be further improved to increase the effectiveness of the competition law framework:  Article 4 related to the possibility of price controls imposed by the government in case markets lack competition is left unchanged. It is recommended to include a provision that establishes that the RCC will need to establish and verify the lack of competition in the market under scrutiny before the Government decides to impose particular price controls.  Article 60 provides for criminal sanctions on individuals for certain competition infringements. However, it is not apparent from the draft amendments to the Competition Law that lenient treatment would be available for individuals in this context. Absent an effective leniency option for the individuals concerned, the enforcement of sanctions on individuals could become more difficult and can also have an adverse effect on corporate leniency. In addition, the introduction of new rules and procedures, involving different courts brings along new opportunities but will also complicate the enforcement tasks.  Even though Article 8 is aligned with the EC‘s de minimis rules, it is not completely clear from the proposed amendments to Art 8 whether hardcore restrictions in vertical agreements are also excluded from the scope of de minimis rules. This is because section 4 of Art 8 explains that the minimis rules do not apply to agreements without distinguishing between horizontal and vertical.  Improve provisions to guarantee accountability of Board Members and consider downsizing the number of Board Members, such as the establishment of quarantine periods and a more competitive appointment process. After the approval of the proposed amendments to the Competition Law currently in force, the RCC has increased its investigative powers (covering inspections, interviews and requests for information). It should be ensured that the RCC has adequate means to put these powers in practice, in the framework of its policy and sectoral priorities, and that it has the support of national courts for their further development. Core Institutional Elements Strategy 61. The RCC’s annual reports convey to the public its mission and vision statements as well as strategic objectives. These are useful building blocks to establish goals, increase accountability, and convey a sense of direction, but do not constitute a fully developed business strategy. Fortunately the RCC has embarked on an internal consultation process involving staff, as well as management and the Board, to articulate a more detailed strategy document. This process, whose usefulness and legitimacy is enhanced by a wide participatory approach, is expected to be completed within the next year. The aim is to produce a practical roadmap to guide substantive and administrative policies. The effort is welcome as heretofore the practical strategy of the RCC appears to have varied depending on the priorities of appointed leadership. While there was a strong commitment in some levels of management to strive toward EU comparator standards (―to achieve the level of the Italian 34 competition authority within ten years‖, a goal which according to RCC management has been surpassed), this target was more implicit than explicit and its pursuit often dependent on individual initiatives without clear benchmarking, timetables, or necessarily consistent Board support for comprehensive and sequenced reforms. Box 4: RCC’s Mission, Vision, Values, And Strategic Objectives 1. Mission: • Efficient measures for a normal competition environment. 2. Vision: • An efficient and dynamic market economy, grounded on acknowledging and complying with the competition values and principles, which is a factor of progress, durable development and welfare. 3. Values: • Independency, responsibility, professionalism, efficiency, integrity, dialogue, results. 4. Strategic objectives: • The improvement of the Romanian competition environment through efficient decisions and solutions. • A just allocation and a more efficient use of the available resources through a clearly defined and systematically monitored system of priorities. • Transparency and partnership at national and international level – a secure way of consolidating the prestige of the Competition Council. Source: RCC 62. Under the reformist impulse of the current RCC leadership, it is to be hoped that the effort to articulate a strategy will focus on achieving specific performance targets measured by annual indicators and supported by structural and operational changes, budget reallocations, and adjustments in policy priorities. The formulation of strategy should aim to increase and sustain a heightened focus on an organization‘s ends and means, as well as lay out clear, tangible, and relevant actions coherently enhancing the organization‘s capacity to meet its mission within its enabling environment. The effort should not be a paper exercise only aiming at a document framed for display, but ideally an easily grasped roadmap fully inculcated by all staff and understandable to outside stakeholders. At present, based on anecdotal evidence gathered from staff interviews, there is scope for improved understanding of RCC goals, suggesting a need for a better articulated strategy. Such a strategy process, if deemed valid by staff, would better mobilize their commitment to the organization. For instance, top competition agencies have a motto that tends to summarize its main objective such as ―Making markets work‖, ―Guarantee that markets work well for consumers‖ or ―Protecting consumers‖- this is absent in the RCC. Successful strategy implementation would be enhanced by creation of a strategic planning unit within the RCC to monitor its execution, track agency performance more broadly, provide senior management with a more robust planning capacity, and in general strengthen the responsiveness of the agency to emerging external and internal developments. 63. While the form of strategy definition, presentation, visible links to budget and organizational decisions, etc. directly impact its usefulness as a tool for successful agency functioning, the substance of a strategy is of course the fundamental consideration . In this the strategy should target anti-competitive practices in Romania (with corresponding adjustments in other activities) promoted through significant reallocation of staff and financial resources, organizational change, supportive human resource and financial management systems, and in general greater attention to time bound quantifiable results. 35 Prioritization and Service Delivery 64. The RCC has already recognized that competition enforcement is a priority for its activities but resources should be better aligned to that decision. In terms of enforcement, priority should be given to hard-core cartels as well as high impact cases that could lead to significant savings for consumers. The RCC should also identify from its current or potential investigations those which would more likely obtain proportionate and effective outcomes. 65. Following international best practice, it is recommended that the RCC establish a results framework for competition enforcement. As a result of this implementation, RCC will be able to monitor its performance, communicate its results to its main constituencies and increase its accountability. In particular, the RCC should consider establishing internal deadlines for competition activities, keeping records and monitoring the status of current investigations at the top management level (currently, the RCC has no updated database that tracks progress of ongoing investigations), reporting progress on internal deadlines and targets monthly to the Board, and communicate performance targets in its Annual Report and webpage. This will involve devoting resources to strategic planning activities. Using this information for competition enforcement, accountability of the RCC towards the public and government could be improved. The OFT and the NMA design and report performance indicators and targets (including value savings to citizens) specifically with the government and consumers in mind. 36 Box 5: Internal Targets and Performance Measures Top competition agencies around the world are setting specific prioritization and performance metrics. In the case of the UK, the OFT Annual Plan 2010-2011 sets objectives for the competition agency including: Objective 1: to deliver high impact outcomes Make markets work well for consumers by delivering high impact work efficiently, focused on priority areas, and spanning the OFT‘s enforcement and non enforcement functions. Objective 2: to be a centre of intelligence and excellence. Monitor markets proactively, systematically and transparently. Evaluate the impact of our work and use this evaluation to inform strategy and future work. Objective 3: to work in partnership Work with our partners to better achieve objectives 1 and 2. This will include working with local authority Trading Standards Services to pursue a risk-based approach to local regulation of businesses, cooperating with other UK regulators, the European Commission, the Competition Commission and other National Competition Authorities to ensure effective enforcement of the competition regime in the UK and working with Government to influence competition, regulation and consumer policy, and reduce the potential for government actions to adversely affect markets Objective 4: to develop the OFT as an organization Develop the skills and talent of OFT staff to deliver high quality outcomes and add skills to the economy. For the current year, the OFT indicates that they will focus on taking high-impact cases, influencing and changing the behavior of consumers, industry and government, improving our overall efficiency and minimizing burdens for business. Prioritization is given to areas of greatest consumer harm based on high-level outcomes rather than individual projects in order to allow flexibility. In the case of Netherlands, lead times are part of the controlling information of Directors and the Board. In order to increase transparency, the NMa has included in this annual report information on its internal targets and to what extent these have been achieved. In particular, with regard to the lead times of cartel and abuse cases, the NMa targets to have 90 per cent of these cases completed within 20 months, counting from the official launch of the investigation by the Competition Department until the (penalty) decision has been drawn up by the Board. In 2009, the NMa completed 86 per cent of the cartel and abuse cases, in which a penalty was imposed, within the internal target of 20 months. The average lead time was more than 14 months. Each year, the NMa conducts a telephone survey among small and medium-sized businesses on the competitive pressure they perceive. Its findings reveal how these undertakings reckon with the NMa‘s activities, which is the so called ‗anticipatory effect‘. This effect is significant because increased compliance with the law means the NMa does not need to step in as much. Almost 28 per cent of those surveyed in 2009 indicate that rulings by competition authorities have an effect on their way of doing business in the market, which is a slight increase over 2008 (25 per cent). Several other agencies are embarking on prioritizing areas of engagement and designing performance metrics as reported by the International Competition Network. Source: NMa Annual Reports, Organization and Structure 66. The RCC is both a public authority and public institution overseen by a Board (or Competition Commission). The former stems from the legal ability of the Board to initiate legal proceedings and levy fines and the latter from the staff structure which supports the actions and decisions of the Board. Seven members make up the Board, including one President (also responsible for management of the RCC) and two Vice Presidents chairing Board commissions vetting decisions to be forwarded to the full Board. Board members are appointed for staggered five year terms, with three (or four) members appointed every 2.5 years. The current board represents a broad array of experience in the private and public sectors, academia, and the law profession. The President of the Board in addition must have held a management position with high responsibilities where he/she was able to prove professional and managerial competence. Members are full time, receive a salary and benefits, and depending on their responsibilities can play a role in RCC management beyond policy decision making. 37 67. The Board is responsible for strategic direction, authorization of budget proposals and adjustments during budget execution, HR policy guidance and organizational restructuring as well as substantive decisions on investigations, fines, court actions, etc. Board members have a salary equivalent to the rank of Deputy Minister. Board member offices are located within the RCC headquarters and the members and Board as a whole are factors not only in the political legitimacy of the RCC but actors in its routine functioning. Areas of concern, however, include how to sustain the political neutrality, professional competence, and collegial working environment of the Board (i.e. can new rules on selection processes, qualifications, explicit representation of various stakeholders — academia, private sector, government, legal profession, etc.—work to add or in the end detract to the maintenance of an effective Board.) Box 6: Boards The use of Boards and Commissions as, in effect, a fourth branch of government became increasingly common in many OECD countries during the 20th century. Progressive good government reformers argued that groups of citizens appointed for fixed terms of office could represent the public interest better than either elected officials (too beholden to partisan political forces) or solitary administrators (who could be hired or fired at the pleasure of politicians). Along with civil service systems and increased reliance on public administration experts, boards were viewed as an intelligent way to make the public sector more democratic and competent. Government boards are created as part of a statute establishing a public organization. A typical enabling statute specifies the method for selecting board members, terms of office, board size, composition, levels of compensation, and general functions. Because there is few model statutes for boards, their specific characteristics vary greatly. Most board members are nominated by a chief executive (the President, prime minister, mayor, etc.) and approved by a legislative body (parliament, local legislature, city council, etc.). Alternatively some boards have members appointed by the leadership of legislative bodies, or board members automatically serve in an ex officio capacity given their occupancy of another government position. Terms of office for board members can range broadly. Boards may be composed of full-time members who receive an annual salary, or part-time members who receive nothing for their service beyond expenses. Most boards are involved only with policy- making, although some board members may actually manage day-to-day activities. The appropriate operation of boards is important because they can have powerful impact on citizens and economic actors. Boards often can act in a quasi judicial capacity, call hearings, undertake investigations, subpoena witnesses, issue binding decrees, and determine fines. Given this power the final orders of boards are frequently appealable to regular courts. Despite the widely accepted use of boards, there is relatively limited empirical information about the characters of boards including especially who they represent. Certainly in many cases there is continued public interest representation, although in other cases boards may serve particular political, social, economic, and bureaucratic interests. 68. Board members are selected and appointed by the President of Romania at the proposal of the Cabinet without formal vetting or approval by Parliament (as had occurred until 2004). To assist in the RCC‘s efforts to deepen national understanding of the role of competition in general and the RCC in particular, as well as forestall potential complaints about the democratic legitimacy and accountability of the agency, it might be useful to institutionalize the relationship with Parliament. It would be opportune to hold formal hearings to present the RCC Annual Report, where the RCC would present the results of its activity for the past year and explain the areas of focus for the following year. The RCC does report its activities to the Finance Committee of the Parliament as part of the normal annual budget process and there is consideration being given within the RCC to seek more formal hearings with Parliament to discuss RCC activities. For instance, the RCC could be asked by individual members of Parliament or committees to report on activities (beside current investigations), studies or proposed legislation. The instrument of the Annual Report could also be enhanced and made a transparency/advocacy instrument to build the reputation of the RCC through the reporting of its enforcement activity. 38 69. The size of the RCC Board could be reduced. EU practice varies in terms of the number of members of the Board. On average EU countries have approximately five full time members. Top agencies such as the one from Netherland and the UK only register three full time members. In some cases, countries opt for a combination of full time with alternate or part-time members that evaluate cases when full time members are not available (e.g. Belgium, France, Greece) although this could raise concerns about potential conflicts of interest of part-time Board members that are engaged in other activities outside the agency. The financial cost to the RCC for the salaries and accoutrements (administrative staff, cars, offices, communications, etc.) of Board members is another factor to be weighed given the likely long term pressure on the Romania budget. Figure 16: Number of Full Time Members – Competition Agency Boards 9 8 number of full time commissioners 7 6 avg = 5.33 5 4 3 2 1 0 italy greece latvia france finland spain lithuania ireland slovakia romania austria bulgaria belgium netherlands luxembourg kingdom united Source: Competition Agencies websites and related documents. 70. In addition, even though there are specific requirements for appointment to Board positions there is still scope for improving the appointment process. Currently the law stipulates that the duration of the Competition Council members‘ term is of 5 years. Members may be reappointed once at the most. Criteria to meet for being appointed in these positions includes: higher education, minimum 10 years of experience in activities from the following domains: economic, commercial, prices and competition or legal, high professional competence, a good reputation. In addition, according to the law, the President must have held a management position with high responsibilities, where he was able to prove his/her professional and managerial competence21. 21 Other restrictions include the following: The status of the Competition Council's members is incompatible with any other professional or consultancy activities, with the participation in the management or administration of other public or private entities, with holding public position or dignities, except didactic activity in the high-level education institutions. The Council members cannot be appointed experts or arbitrators, either by parties or by courts or by other institutions. The Council members do not represent the authority that appointed them, and are independent in decision-making. The Council members and the competition inspectors cannot be members of political parties or other political organizations. 39 Staggering the beginning and ending dates of each Council Member lessens the danger of there being so many vacancies on the Board at the same time. However, a more open competitive process for the positions based on specific requirements might contribute to ensure the quality of the Board and its perceived neutrality. 71. There is scope for improving current mechanisms to guarantee independence, accountability and transparency of the RCC. The quality of RCC decisions relies on both the technical staff and on the members of the Board. Potentially, there is a risk for RCC‘s independence from political and private interests since: (i) council members have been previously removed by the government with an Emergency Ordinance raising questions about security of tenure and policy independence, (ii) the RCC‘s Presidency has registered a significant rate of turnover, and (iii) there are no freezing or quarantine periods (affecting employment with interested counter parties) after leaving the RCC. An effort could be undertaken to address these issues in tandem with any proposals to adjust the Board selection process in the sense that increased protection for tenure requires higher and more explicit fiduciary standards for Board members. 72. Consideration should be given to realigning core business units around practice areas (versus the current industry focus). Below the Board the RCC is grouped into so called core business units (Annex 4) dealing with Services, Consumer Goods, Industry and Energy, Tenders and Petitions, Territories, and State Aid. Corporate units cover legal, economic analysis, external relations, internal audit, communications, as well as administrative functions. As suggested in Section III above, this organization around economic sectors contrasts with majority practice in the EU and may inhibit an enhanced focus on anti-competitive behavior and cartels. Assuming a strategic need to improve RCC performance in these areas in line with EU practice and emerging threats to competition in Romania, fundamental structural changes should be considered, with resulting reductions in resources for lower priority programs. A restructuring toward business practices could foster specialization, synergies, and better resource mobilization to address the challenges posed by increasingly more sophisticated and large foreign and domestic private firms. Obviously sectoral characteristics and nuances exist and need to be covered, but the fundamental first principle mission of the RCC is to eliminate various types of anti-competitive behaviors, not to monitor sectors where other regulatory agencies, chambers of commerce, NGOs, etc. can provide the bulk of background information. Of course sector knowledge will be required by investigating teams, but on balance a focus on business practice expertise over sector details seems more appropriate. Should such a restructuring not be undertaken in the short term, the RCC should create a specialized anti-cartel unit to maximize the RCC‘s leverage at least in this priority area. Such a unit could serve as a pilot for a movement toward a full business practice structure. (In no case are units within RCC poorly motivated or led, without value added, or lacking qualified human resources. However given the current and prospective fiscal circumstances of the country those resources must be better leveraged and mobilized for the highest strategic priorities. The presence of hard budget constraints requires hard choices.) 73. The number and staffing of territorial offices should be sharply reduced. EU and OECD practice varies with regard to the level of decentralization, but most countries find a concentration of skills and staff at headquarters and regional hubs to be more cost efficient and effective. In Romania these offices are located in all the 42 counties, and, with an average of two staff in each branch, account for around 90 staff (about 30 percent of the RCC total). Heretofore the branches seem to have lacked the critical mass of skills, interaction with headquarters, or practical independence (being embedded in local communities) to undertake hard hitting investigations of anti-competitive behavior. These offices seem to concentrate on gathering information requested by headquarters or monitoring 40 state aid. From a field visit to one admittedly large office it seems that there is willingness to conduct preliminary inquiries and lead investigations particularly for sectors or large enterprises geographically located in that region. However, the value added from having a full time physical presence in each county must be weighed against the need to significantly strengthen competition enforcement in high impact cases. The RCC has recently initiated a pilot program seeking to group county teams into eight regional units (virtually and electronically rather than through physical transfers) to enhance critical mass, skills available to teams, and physical and moral presence to undertake dawn raids and other actions related to the more problematic area of anti-competitive behavior. This effort should be intensified along with the aim of having no more than eight regional offices at most. Moreover, a rebalancing of job competencies within the branches and headquarters should be undertaken, notably by moving toward lower cost staff in line with the more limited requirements for monitoring state aid or anti-competitive behavior. Those staff remaining in territorial offices should be better integrated into joint operations with headquarters with the expectation that staff quality must be uniformly high and accountable regardless of location. 74. Work load in places is unbalanced and needs priority attention. Regardless of the structure, there are imbalances within and between departments. Viewed against EU benchmarks, for example (see graph below), the percentage of lawyers is significantly smaller within the RCC, leading to excessive workloads plus threats to the RCC‘s ability to most effectively conduct investigations, prepare decisions for Board review, or defend decisions in court. The increasing sophistication of businesses in terms of knowing the law (and if so inclined to better hide anticompetitive behavior and evidence), ability to hire high priced legal counsel, or import experiences known to multi-national companies is testing the RCC‘s legal department. The Economics Research Department also appears understaffed in light of EU comparator figures mentioned above and the growing sophistication of market actors, which requires more refined economic assessments within the RCC. Figure 17: Personnel Structure by Specialty 100% 90% 80% 70% % economists 60% % lawyers 50% % other 40% specialists 30% 20% 10% 0% Spain Slovenia Hungary Portugal Slovak Republic Bulgaria Sweden Italy Luthuania Estonia Letonia Finland Germany Cyprus Romania Poland Luxembourg Netherlands 41 75. Competition inspectors, organized into teams for specific cases and led by “Rapporteurs�, can also appear to suffer from undue workload balances. According to RCC figures as well as interviews, some inspectors can lead teams as Rapporteurs on more than one case while also serving as team members on other cases. Managers naturally tend to select the best staff for the most important work, but have limited ability to reward good performance (other than through recognition or access to foreign training if time allows) given the prohibition on bonuses instituted in 2008, limited pay differences between grades, slow promotion rules, and prospects for continuation of the current pay reduction for some unknown time. This undermines motivation for any staff with clearly above average or excessive work. Given the lack of incentives and disincentives to encourage more equal effort by all staff, the RCC is at risk in the current environment unless it takes actions to better recognize and reward where possible hard work and results, and punish lagging effort. Every organization faces this problem, but it may be more acute in the RCC since the high standards sought by management exceed those of typical public sector agencies so poor performance stands out more clearly with more negative repercussions for staff morale. As such senior RCC management should seek to install and utilize a management information system to provide more accurate quantitative data on staff and department activities, work load balances, team composition, progress of tasks, etc. This information should be analyzed and used to make realignments, better identify training needs to improve lagging performance, and isolate and address serious persistent cases of poor performance not necessarily captured through the annual personnel evaluation process. Figure 18 illustrates that the number of tasks (investigations in charge of or participating in) of the competition inspectors varies significantly with a few inspectors carrying out the majority of tasks while a few others only conduct one or two tasks on average. 42 Figure 18: Distribution of Workload by Staff: Competition Directorates22 4 3 3 Frequency Frequency 2 2 1 1 0 0 0 2 4 6 8 0 5 10 15 Services Consumer Goods 4 3 3 Frequency Frequency 2 2 1 1 0 0 0 2 4 6 8 0 2 4 6 8 10 Ind & Energy Petitions Excludes: other papers – ICN work and guidelines Source: RCC 76. Improved communication from senior management and staff, and in general enhanced transparency within the RCC would be beneficial. The current degree of openness to reform initiatives in the RCC, relatively flat management structure, apparent focus on team based operations, consideration being given to a more formal peer review system, and other initiatives are impressive. Nevertheless, staff survey results suggest a significant gap between staff and senior management (Box 7 and Annex 5). As the RCC is a knowledge based institution which needs to motivate highly educated professionals (many with other career opportunities) sensitive and effective organization management will be critical to the RCC‘s long term success, and must be seen as a priority responsibility of senior management. Undue resort to traditional command and control processes, hierarchy, and rote implementation of rules obviously is not, nor could be successfully, employed in the RCC. A strategic shift to an even more results focused organization (with all the attendant structural, physical, budget, and human resources changes) would require heightened internal communication as well. The cost should be relatively small and the benefits tangible from internal electronic newsletter and/or more frequent RCC wide open assemblies conveying key decisions, promoting internal debate, outlining challenges external to the RCC, recognizing significant achievements by units and individual, etc. These could enhance coherence in RCC operations and morale. 22 Annex 8 provides more detail figures of current workload. 43 Box 7: RCC Staff Survey With the full support of senior RCC management, a confidential survey of headquarters and field based staff and middle management was conducted in early July. There were 202 respondents (out of 307) to the 50 item questionnaire, broadly reflective of all functions and departments. The responses were analyzed by Romanian survey experts and subjected to a factor assessment. The survey was a unique exercise and lacks earlier baseline findings or similar surveys in other agencies to complete a fuller analysis. Nevertheless the findings provide first order indications of strengths of the RCC as well as challenges going forward. More details are provided in Annex 5. Highlights include: Strengths - Directors and the staff believe they have ―very good‖ or ―good‖ knowledge about the direction in which the institution is going and are proud to be working with the CC. - A majority of respondents (X%) concur that the RCC focuses on performance management, although giving higher marks to immediate supervisors than senior management. - Delegation of responsibility and authority to directors and on to staff seems to work. - The annual performance evaluation system is well regarded in general. - Communications within departments seems good, as both the annual budgets and the new policies and strategies are ―always‖ discussed by the directors and the staff. - Directors seek information from staff and use it in their decision-making. - RCC staff has access to many sources of data and information that can be used in making administrative, technical and strategic decisions. - Directors chair meetings effectively, and manage ―well‖ or ―very well‖ both their own time and the staff‘s time. - Their current workplace is evaluated as ―good‖ or ―very good‖ compared with other employers that respondents know of. - Internal regulations and procedures help the staff ―effectively‖ fulfill their tasks, the work, teams and work flow are ―well‖ organized and departments have clear objectives. - Directors promote collaboration between departments, and collaboration is good with partner institutions. - Staff training and development is ―much‖ (23%) and ―very much‖ (43%) supported by managers in practice and through the budget. Challenges - ―Good performance‖ is not regularly acknowledged (44%) - ―Poor performance‖ is not signaled immediately (47%) nor constructively (42%) or decisively (44%) addressed. - Transparency does not apply to new director appointments; the reasons for the selection are not made public in the institution (75%). - There is little explicit focus on staff career development (48%). - Effective collaboration between territorial offices and headquarters is ―very poor‖ (19%) or ―poor‖ (21%). - Although the communication between the direct superior and the staff is perceived as good or very good, communication between staff and the CC management/ Council members is ―very poor‖ (22%) or ―poor‖ (23%). - A majority support more active rotation of staff among departments. 77. A knowledge based organization needs a knowledge based management. More feedback to management and better collection and use of operational information could be helpful in enhancing the flexibility and efficiency of the RCC. Staff surveys should be undertaken on a regular basis to inform staff and management of evolving issues in RCC performance. An annual exercise of this nature could over time provide important baseline and trend data providing valuable insight, and early warning, to senior management from the perspective of front line staff on RCC operations and challenges. A robust operational reporting system providing senior managers easily grasped dashboard (key) information on the status of investigations, outreach efforts, staff developments, etc. (i.e. whatever is critical to timely strategic decision making) could also enhance the quality and timeliness of decision making. The various initiatives in the area of organization and human resources as described in sections below suggest the need for adequate staffing and funding of a management support unit. Such a unit would provide the analytical, data generation, planning, and implementation capacity which would be more strategic and dynamic than what is normally considered ―administration‖. 44 78. A focus on results would also benefit from peer review efforts. Peer reviewing is an important tool of quality control in a knowledge based organization. It is indeed vital to an organization confronting well funded adversaries in the courts of law and public opinion. The aim of peer reviewing is to ask the right questions, bring different perspectives, share lessons, and in general stimulate a rethinking or reconfirmation of a position in front of an internal and supportive audience. Staff selected as peer reviewers should be trained on the most effective means of communicating messages, and should be recognized for their guru status and effort. The selection of peer reviewers should be handled carefully to ensure neutrality and relevant expertise. Assessments, while written, should also be discussed in an open forum which provides the task team full opportunity to explain their decisions, and move toward a synthesis of points and relevant guidance as appropriate and conveyed by the responsible Director. Minutes of the review meeting can focus on decisions taken rather than being a record of conversation. 79. 360 degree reviews of managers should be considered as an important feedback channel for both reviewed managers and more senior staff. Managers and their staff can benefit significantly from well designed confidential staff surveys rating managers on an array of substantive and management questions. Few managers could not benefit from candid feedback, and the best managers recognize the value of this exercise. Senior officials who would use these reviews in discussions with the reviewed manager realize, of course, that the manager also needs to meet output targets, adhere to budgets, confront unanticipated challenges, maintain quality, etc. so ratings from staff are hardly the only element in successful job performance. However, such reviews taken together with broader staff surveys can provide senior RCC officials with important information about overall developments and differences between units, besides helping individual line managers improve their effectiveness. 80. Conflict of interest always is a potential problem in fiduciary institutions and should be forthrightly addressed through quarantine provisions preventing staff and Board members from exiting the RCC into organizations which were a focus of the individual’s work in the RCC. The normal period of quarantine is two years, and of course does not prohibit employment in an RCC related field, but rather firms where there would be a reasonable perception of a conflict of interest and leakage of confidential RCC information. Similarly, the RCC should give high priority to establishing, through legislation or internal regulation, prohibitions on the hiring of close relatives (immediate family members, aunts, uncles, cousins, nieces, and nephews, etc.). In a small organization it is extremely difficult to prevent an overlap of responsibilities and management lines not conducive to suspicions of favoritism. The RCC should also issue guidelines on unacceptable workplace harassment or interpersonal behavior potential contrary to the RCC‘s integrity and professionalism. Human Resources 81. Where salaries account for 80% of the budget, the RCC is, and must be, a knowledge based organization. Staff is clearly the core asset of the institution and successful personnel management must be seen as a top priority for the institution. The breakdown of staff by education, age, and gender confirms the cursory view of an outside observer—the staff is young, educated, and gender balanced. Sixty percent of staff are economists by training (a ratio which has held steady for 5 years) and 16 percent are lawyers (up from 13.5 percent in 2005). There are 74 Masters Degree graduates of which 7 have completed PhDs. The question remains, however, whether the mix of staff, 45 despite continuing intake efforts, has attained yet the right balance of skills. As indicated above, there seems to be a need to expand the Legal Department and the Economics Research unit as well as the Competition Divisions. A job classification effort must be completed and carefully linked to the RCC training program, career development counseling, promotion criteria, etc. 82. Intensified commitment to a robust training program is warranted to compensate for a lack of in country courses on core competition issues as well as keep up with market developments. The RCC appears to take this challenge seriously, as training in a wide variety of substantive courses has been ramped up (in 2009 19 courses were offered and over half of staff -165- participated). The RCC solicits staff requests for training and brings in outside experts as possible. Recognizing the impact of exogenous government decisions on compensation the RCC has apparently sought to recompense staff to the extent possible through foreign training or observational visits to other European competition counterparts. That said, there is anecdotal evidence from staff that while some training is useful (especially that concentrating on practical issues and operations) other courses can be unduly theoretical and/or simplistic. Such comments can be made in many organizations, but do not relieve the management from continued efforts to refine the training program. An important step in this regard would be to complete the process of defining job competencies, which lays out the education and skills requirements for positions. This in turn would permit assessments of individual staff competencies through background reviews and testing. The overall picture of skills gaps for the organization would also permit management to design a training program linked to agency needs, both current and anticipated in line with priorities identified in the RCC‘s strategy. Such a training program should be more demand driven from the standpoint of business needs and staff skill gaps than supply driven and staff self assessments. 83. Recruitment and selection of staff appears to be merit based. Jobs are posted on the internet and short listed candidates go through written exams and oral panel reviews. According to all staff queried none suggested political affiliation counted in their selection. Vacancies are posted internally and appear open to all qualified staff. Recent selections for Director level posts (just below vice presidents) were filled from within. The staff survey indicated, however, that there is little communication internally to explain the basis for selection of managers. Providing information on the experience, academic background, and behavioral strengths of the chosen candidate could at low cost add to transparency, convey messages regarding preferred characteristics, and enhance a merit culture. According to the Secretary General it is possible to fire staff for cause if the complicated rules for such action are followed (undoubtedly a long and tedious process). Hopefully a robust personnel evaluation system will enhance the focus on performance and lead to more proactivity in addressing poor performance. The staff survey indicated a high level of frustration among staff that poor performance was not appropriately addressed. 84. RCC pay is higher than the average for the civil service and is justified by the RCC by the complexity of the work and fiduciary and legal responsibilities of inspectors. Under the current pay system (whatever the drawbacks nationally in terms of undue reliance on non salary compensation and lack of standardization and equity in terms of equal pay for equal work within and across organizations), core business staff (competition inspectors) are paid at the same rate as Justice Ministry prosecutors. The RCC‘s ability to attract and retain talent is critical to its success, bu t may be threatened if the pay guidelines being finalized under the recently enacted Unitary Pay Law are not appropriately applied to the RCC. Whatever the obvious merits of bringing some equity and rationality to government wide compensation, RCC staff compensation must be at some level 46 sufficient to attract talent in sufficient numbers. Moreover, a long extension of the emergency 25% pay cut for all civil servants could have the effect of driving out many staff with better alternatives. RCC staff, particularly younger ones with recent training and foreign language skills, could normally be expected to leave to law firms, businesses, and private sector organizations anxious to have their substantive knowledge on competition issues and perhaps RCC practices. But a significant increase in turnover risks de-skilling the RCC, demoralizing remaining and even more overworked staff, and blighting the prospects for RCC to attract the professionals it needs to pursue the theme of competition in a society still grappling with the rules of market engagement. The Government and the RCC should urgently consider options for setting compensation levels for competition inspectors at the rank of magistrates, other core economic institutions like those overseeing pension funds, insurance, or banking, or undertake other practical measures to maintain the RCC‘s ability to attract, motivate, and retain high quality individuals. At the same time it might be useful to rectify the job descriptions of those not acting as competition inspectors, considering hiring ―case managers‖ as in other EU counterparts to handle more routine tasks in investigations, and in general provide more differentiation in jobs and pay so as to better recognize job content and reward performance. 85. From the Board on down there also appears to be reliance on teams created to reflect the needs of individual cases. The effort to promote a more democratic and merit based culture appears to reflect recognition by managers that the nurturing of highly trained and self motivated staff with other employment options requires a less hierarchical command and control approach in order to maximize output. Individual staff members who propose initiatives can be placed in charge of their implementation (admittedly additional work but also empowering and perhaps a form of professional satisfaction and career development). Staff at various levels are also tapped to run these projects involving substantive or organizational priorities, which can cut across unit boundaries. Again, this can be a form of compensation in the sense of recognition, professional challenge, and skill enhancement. These forward looking practices in line with those in the most advanced EU governments would, of course, be even more effective were staff not concerned about deep reductions in pay or the prospect of a limited advancement within government. 86. Introduce more flexible ways of working across units. Specifically, case teams are being assembled to combine the right mix of experience and skills. For instance, the OFT is using more flexible ways of working including bigger teams. It has introduced greater flexibility in how it allocates staff to projects with greater scope for staff to work on projects across different areas of the Office according to principles of availability, skills and experience, and career and personal development needs. 87. Introduce non-monetary incentives to reward performance. Several incentives have been used by competition agencies to reward the productive and innovative staff, including: (i) prizes and performance rewards (e.g. ―Best Empirical Economic Analysis‖ conducted during the year), (ii) developmental assignments in other competition agencies, (iii) teaching and lecturing antitrust and industrial organization courses in selected universities, (iv) scholarships for graduate studies, and (v) leading high impact cases. According to the results of the RCC Staff Survey, staff perceives non- monetary rewards as an effective tool. Headquarters staff favors performance rewards and developmental assignments in other competition agencies. Territorial staff also favors developmental assignment but has a stronger preference for leading high impact cases (Figure 19). 47 Figure 19: Effectiveness of Non-Monetary Rewards 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% HQ regional Total general Scholarships for conducting graduate Awards/Prizes based on performance Developmental assignements to other competition agencies Leading high impact case/investigations Source: Staff Survey Finances 88. The RCC appears appropriately funded in terms of comparisons with EU counterparts . This reflects several factors including the over the horizon support of the EU (which needs to be maintained). It also stems from the high reputation of the RCC, its careful preparation and defense of budget proposals with less than the normal level of fluff (in its view), bolstered by a record of meeting spending targets in previous years. The RCC might seek to increase its reporting to the Parliament whether at the time of annual report issuance or during budget discussions. In any case Board members seem quite attuned to maintaining good relations with the legislature, and the RCC appears to have close working relations with the Chamber of Accounts (taking action on its recommendations and thus warranting a level of trust and internal government support from that organization). Of course a primary issue is whether these resources could be better allocated and utilized to meet priority strategic goals. With 80% of its budget accounted for by staff costs, there is relatively little room for reallocations in investment spending or efficiency gains outside of personnel decisions. 48 Figure 20: Annual Budgets of Competition Agencies 2008 77.00 72.00 67.00 62.00 57.00 52.00 Millions Euros 47.00 42.00 37.00 32.00 27.00 22.00 17.00 12.00 7.00 2.00 denmark romania sweden netherlands hungary belgium spain italy Slovak Rep. UK Oft bulgaria france finland poland germany portugal UK CC Source: GCR, RCC 89. The RCC appears to internally manage its finances appropriately. The Budget, Finance and Administration Directorate (BFAD) within the RCC tightly manages cash releases and plays a key role in budget execution and cash planning, in addition to its functions in expenditure programming, budget preparation, and completion of required financial statements. Budgets are not significantly under spent (and Finance Ministry controls prevent over spending). The Finance Ministry has withdrawn its delegate from the RCC reflecting its confidence in the agency‘s ability to manage its resources without the need for preventative ex ante review. The RCC has its own basic level financial management software which has been adapted over the years. Annual reports from the Chamber of Accounts contain only limited recommendations for improvements according to RCC staff, and those recommendations are acted upon. The internal audit department in the RCC is facing the same generic issues confronting the whole country. There are very limited staff resources (having only one internal auditor, with two more positions not filled for the past couple of years) permitting only 3-4 audit investigations per year and impairing the effectiveness of a risk based internal audit strategy and annual work plan. Moreover the level of interest of RCC management to use internal audit findings with a view to improve and streamline processes and procedures is unclear. As such the RCC should strengthen its internal audit capacity. Because it focuses on systemic risks, process gaps, and the range of policies impacting financial management going forward (rather than ex post review or second guessing specific management decisions) internal audit can be a positive influence supporting a results based culture. 90. Adapting financial management to enhance a results focus in the RCC will be challenging given central government systems and policies. Romania lacks a modern integrated financial management information system, which impacts the speed, accuracy, and efficiency of government operations nationwide, including the RCC. As indicated in the horizontal review of 49 Romania‘s budgeting system, the primary goal of Finance Ministry operations seems to be first level fiscal control with more limited attention to allocation or efficiency goals. Romania‘s budget classification is by administration, organization, and function and not designed to accommodate program classifications. Revenue projections are often unrealistic (subject to political manipulation) so spending frequently needs to be cut across the board during the year with little forewarning. Quarterly spending authorizations are frequently complicated by weekly cash outlay limits. Information is not up to date or available on line, requiring frequent telephone inquiries by agencies to MoF offices to track down needed data. The effort within the RCC to expand the nascent program budget (project budgets now accounts for about 23% of the RCC‘s budget) within the straight jacket of an antiquated, unpredictable, and overly centralized line item national budget leads to high transaction costs, and contortions in spending patterns/timing. Nevertheless the RCC has taken a preliminary decision to track its 2011 budget with 80% in project budget envelopes. Clearly any effort to link strategy to program to results would be facilitated by broader budget reform within the central government. The RCC has been able to succeed thus far by utilizing its knowledge of budget minutia to exploit acceptable avenues permitting flexibility, supported by investments in financial management software to reconcile the differing charts of account and budget classifications. The high morale and esprit de corps of the finance and human resources teams also encourages them to make the extra efforts to make the new project budget approach work. Full expansion to project and program budgeting as the basis for better funding and monitoring substantive programs should be pursued if and when possible. In the meantime the RCC should continue efforts to update its financial software. It is to be hoped that the relevant external agencies like the Ministry of Finance and Court of Accounts can work with the RCC to support its efforts to promote performance culture and improved results through its important initiatives in project based budgeting. 91. Strengthening supportive information technology. The RCC appears to make considerable use of modern information technology both in its line operations (since data from firms subjected to dawn raids needs to be discovered and recovered from computers) as well as administration (the human resources team identified and purchased a modern computer based personnel evaluation system). With an increased emphasis on results monitoring, tighter control over deadlines, increasing digital use by Romania firms, there is a need to strengthen the utilization of information technology in the RCC. A thorough assessment is required first, especially given the apparent intention to implement an Enterprise Resource Planning system (full alignment of IT to the business). Problems detected during the review which need attention include steps to better assure the security and electronic backup of case files, a better system than having case information contained in personal laptops used during dawn raids, an improved management information system for investigations and administrative purposes, and better internal arrangements to ensure that both forensic and administrative units are properly supported by ITC technicians (currently the team is located in operations and high priority IT needs in administration can be underserviced). 92. In addition, IT is crucial in the course of investigating cartels but also for a proper administration of the agency. In that respect, the amount of staff of the RCC currently working at its registrar and the archives is rather limited (Annex 4). The successful fighting of cartel cases requires hundred percent reliable resources and files. The importance of the related work can hardly be overestimated. 50 V. SPECIFIC RECOMMENDATIONS 93. A proper enforcement of competition rules is crucial to ensure a sound competitive environment which, in turn, is beneficial for the consumers and critical for growth. Investors both from within and from outside Romania will consider the proper functioning of markets crucial for their activities. 94. In the previous sections, a broad range of concerns were raised regarding the status of competition policy implementation stemming from a limiting policy environment, a nascent but still unarticulated and somewhat diffuse strategy to achieve EU comparator levels and the main characteristics of a good competition agency (Box 8), and a still evolving internal reform effort which needs to better conform the structure and functioning of the RCC to a competition enforcement strategy. Box 8: Characteristics of a good competition agency According to the ICN although there is no one size which fits all, some universal characteristics of a "good" competition agency can perhaps be discerned:  it has a clearly-articulated long-term strategy, and a plan for implementing that strategy;  it understands that it has a range of policy tools at its disposal, including notably case investigations and different forms of advocacy and communication, and it has a problem-solving approach which tries to fit the right solution to each problem;  it adapts its internal structure and processes to its environment and objectives, and keeps its internal organization flexible;  it uses clear criteria to select which projects to undertake, among the many (discretionary) actions which it could launch;  it keeps ongoing activities and projects under review and terminates projects which are not meeting their objectives;  it understands that its main resource is its staff, and tries to provide them with a stimulating pleasant and rewarding working environment, to compensate for the lower salaries than in the private sector;  it is constantly reviewing and evaluating its activity, and feeding the results back into the planning process;  it understands that communication is an essential part of its task, and devotes adequate resources to communication, adapted to different stakeholders;  it understands that it cannot work alone and forms alliances with other public and non-public bodies (regulators, NGOs, academia etc.). 95. The following areas should be analyzed, strengthened and changed in order to improve RCC‘s effectiveness: Reform Area 1: Improving the Governing Environment Reform Area Specific Actions Timeline 1.1 Review of A comprehensive review of existing legislation for the government with a Short to changes in the particular focus on: Medium government’s Term  Guaranteeing the enforcement of provisions related to the impact of legal regulations on competition. Currently, the legal framework framework for establishes that government bodies should evaluate the impact on competition competition of all their respective regulations. However, the current framework is not fully enforced with government bodies issuing anti-competitive regulations. Government bodies should justify their actions if the RCC considers that regulations imposed are harming 51 Reform Area Specific Actions Timeline the competitive environment.  Strengthening procurement rules to avoid competitive harm. Currently, the RCC has the mandate to detect bid-rigging and guarantee that tender conditions promote competitive procurement markets. Other authorities also have a role in solving disputes after tenders have been finalized. The legal framework could be strengthened to take advantage of potential synergies between these complementary functions.  Analyzing enforcement framework of unfair competition rules. The Ministry of Finance is currently in charge of analyzing complaints related to unfair competition (e.g. misleading advertisement, among others). Currently, there is no formal coordination with the RCC even though firms could recur to unfair competitive practices in order to deter entry. Given that many competition authorities in the region also have a mandate in this area, the convenience of keeping unfair competition rules under the Ministry of Finance – or any Ministry- should be reconsidered. 1.2 Creation of competition advocacy unit to deter anticompetitive regulation. Short to Mainstream Medium The RCC should refocus its advocacy activities towards deterring term competition anticompetitive regulation established by public and government bodies policy within rather than raising awareness of competition principles only through the seminars. If RCC continues with the mandate on the State Aid area, it should government refocus its activities towards markets with significant government participation and the evaluation of their impact on competition. Currently, the RCC provides technical assistance and guidance to State Aid grantors in order to fulfill EU requirements for permitted State Aid. RCC‘s role should be to evaluate the impact of state aid schemes on competition in order to prioritize state aid resources and minimize their distortions on competition. Strengthening competition advocacy in public and government bodies. The RCC cannot enforce competition policy alone, and requires the coordinated support of key policy agencies (such as the ministries of Finance and Justice) as well as core line agencies (such as Economy, Energy, and Transport). These agencies should ideally, as part of their strategic planning policy review, take into account the potential effects on competition of different government policies and at best to promote broader competition goals within their sectors. Public and government bodies should coordinate with the RCC and request its opinion before laws and rules in their respective sectors are enacted in order to avoid anti-competitive regulation. 1.3 Strengthen The government should undertake on a priority basis a review of the Short to regulatory regulatory framework and governance of key economic sectors (energy, Medium agencies telecommunications and transport) including the role of respective regulatory Term agencies to identify means to strengthen their capacity and ability to oversee their sectors to promote competitive markets. 52 Reform Area Specific Actions Timeline 1.4 Revise An ordinance has been issued and parliamentary action is anticipated in the Short Term RCC’s near term. The ordinance should maintain its important improvements and legislative be further strengthened along the following lines: mandate to  Include the concept of ―undertaking‖ as defined by EC case promote law. competition  Abolish the notification system of individual exemptions.  Amend to include the main concepts of economic concentration.  Change from dominance test to the SIEC test (significant impediment of effective competition test)  Include the presumption that undertakings with less than 40% in the relevant market do not have dominant position.  Include a provision to guarantee that the RCC will need to establish and verify the lack of competition in the market under scrutiny before the Government decides to impose particular price controls.  Review the effects of criminal sanctions on corporate leniency.  Improve provisions to guarantee accountability of Board Members, such as the establishment of quarantine periods and a more competitive appointment process. Consider downsizing the Board to EU average.  Reduce merger thresholds and streamline and apply simplified merger procedures  Evaluate legality and inclusion of settlements procedures The RCC will also need to issue secondary legislation to adjust to the new Competition Law. 1.5 Increase To assist in the RCC‘s efforts to deepen national understanding of the role of Short to accountability to competition in general and the RCC in particular, as well as forestall Medium the Parliament potential complaints about the democratic legitimacy and accountability of Term and public. the agency, it might be useful to return to the practice of parliamentary approval of Board members or at least Cabinet approval. Steps could be taken in legislation to tighten the requirements of the Members of the Board to ensure proper levels of competence and experience. The RCC should also consider methods to increase reporting to the Parliament, perhaps in conjunction with publication of its annual reports if not during the process of budget approval. The number of Board members of the RCC exceeds the EU average and that consideration might be given to a reduction in its size (perhaps through attrition). This could lead to benefits in 53 Reform Area Specific Actions Timeline terms of reduced costs (for salaries, support staff, cars, offices, etc.) and reduced confusion to RCC staff should these full time members become involved in operational management decisions best left to the President of the agency. 54 Reform Area 2: Sharpening the RCC’s Mission Reform Area Specific Actions Timeline 2.1 The core function of the RCC and other competition agencies is competition Short Term Restructure enforcement through technically complex investigations of firm behavior, the RCC along requiring the input of lawyers and economists, and led by expert investigators with the competence and behavioral attributes of investigating business lines magistrates. The current organization of the RCC into industry sectors diffuses this expertise, requiring its staff to spend time on a variety of tasks (sector oversight, mergers and acquisition notifications, review of draft legislation, cartels and abuse of dominance). Creating an elite core of front line competition teams focused exclusively on enforcement would represent the single most important reform to improve RCC performance. A thorough restructuring to the organization to aim at ensuring at least 70% of resources are focused on enforcement and that separate units for Cartels (including bid rigging in public procurement), Abuse of Dominance and Mergers, Advocacy (to mainly review anticompetitive government regulations), and an expanded Economics Research unit (using skilled econometricians and statisticians to monitor Romanian markets) should be implemented. Within these divisions, current sector experts could focus on tackling anticompetitive business practices and reviewing mergers in their respective industries. Without necessarily adjusting the overall complement of staff, the RCC should on a priority basis review the business need for the current distribution of territorial offices, and where appropriate close, consolidate, and reduce those offices to reflect real threats to competition. Staff or their positions could be shifted to higher priority business practices. 2.2 Strengthen The RCC should complete the articulation of its strategy to increase its focus Short Term strategic on competition, establish clear monitorable results for internal performance planning and and external accountability linked to the goal of EU parity, and make the necessary adjustments in internal organization, staffing, and funding to results focus achieve those results. The linkage between agency goals, prioritization of towards operations, and supporting administrative functioning should be made as increasing explicit as possible, management information systems and a strategic enforcement planning and oversight unit established, and in general the performance and record results culture of the RCC (which appears to compare favorably to the rest of government) should be further intensified. Additional actions in this area include: • Complete RCC strategy document based on a broad participatory process with specific targets based on EU parity, planned actions, deadlines, monitoring indicators and outcome goals understandable to agency stakeholders and the general public • Establish internal deadlines and performance metrics for competition cases 55 Reform Area Specific Actions Timeline • Prioritize prosecution of hard core cartels • Analyze state aid measures in markets that lack competition or with significant government participation (e.g. transport). • Modify current Protocols with regulatory agencies to establish targets in terms of successful promotion of competition (e.g. removal of barriers to entry in the sector or elimination of anti- competitive regulation) • Refocus advocacy, reduce number of seminars and evaluate the introduction of alternative advocacy instruments such as compliance programs • Establish criteria to estimate the impact of competition enforcement Communicate performance targets in Annual Report and webpage. 2.3 Improve The RCC should take steps to strengthen quality control since its findings are Short to Quality often subjected to scrutiny in the courts by well funded and expert Medium Control: adversaries. The restructuring of the RCC towards business practices would Term be a major step in this direction, but should be complemented by explicit programs of internal peer reviewing, drafting of operation manuals and guidelines for staff to encapsulate evolving best practices within the RCC and EU, strengthened training in advanced investigative and market assessment techniques, establishment of deadlines for key decisions on case development, careful case selection to promote impact and focus on highest priority abuses, and better integration of economic research and state aid units with competition enforcement. Additional actions in this area include: • Close investigations with a duration longer than 3 years in 2010. • Keep updated records and monitor status of current investigations. • Establish guidelines for opening and conducting preliminary investigations including resources needed and timetables. • Establish guidelines for the analysis of competitive effects (harm and efficiencies) for merger and abuse of dominance cases. • Report progress on internal deadlines and targets monthly to the Board. • Establish protocols for regular exchange of information with the Statistical Office and consumer protection authorities. • Establish a system for tracking competition indicators 56 Reform Area 3: Improve Underlying Capacity Reform Area Specific Actions Timeline 3.1 Ensure the Competition authorities are crucial to keep markets functioning efficiently Short, competitiveness but also face strong vested interests from incumbents and public bodies. medium, of RCC Competition Inspectors represent the key professionals of the RCC and as and long such the core assets of the agency and the government should adopt term compensation arrangements to ensure their proper compensation. To successfully enforce competition policy through investigations, legal proceeding, and even defense of RCC findings and fines in court, the RCC must be able to attract and retain highly educated and motivated staff. Over time the sophistication and legal capacity of domestic and foreign firms engaging in inappropriate behavior can be expected to increase. Whether through maintaining the parity of RCC competition inspector remuneration to those of magistrates, explicitly recognizing the RCC as a key economic organization requiring compensation in line with others such as the national bank, insurance and pension regulators, or taking other practical steps to ensure the market competitiveness of RCC salaries, the decision is for the government. Without such a positive decision the RCC will be hollowed out as the normal pace of rotation accelerates and the best staff flee to opportunities in the private sector and more senior staff are demoralized as they await retirement, with consequent negative effect on competition policy effectiveness. 3.2 Intensify The RCC should in parallel undertake a series of measures to improve Short non-monetary psychic and professional rewards to staff through public recognition of Term compensation superior performance, opportunities through training, observational visits to other competition agencies and inter government organizations to acknowledge performance and enhance professionalization and career development. 57 Reform Area Specific Actions Timeline 3.3 Adjust staff Currently, 220 of 350 staff are considered competition inspectors. However, Short to skills in line not all of them are dedicated to enforcement activities. Medium with business Term Following broader EU practice the RCC should increasingly rely on case needs managers and paralegals which can relieve overburdened and highly skilled competition inspectors from more routine tasks. Simultaneously the RCC needs to increase the number of staff with PhD level training in economic analysis, expand the legal department, and reflecting business needs, complete its job competency review to formalize needed skills, better link training to identified skills gaps, and continue efforts to improve training to reflect business needs utilizing broader EU and academic sources for the most sophisticated topics. Additional actions in this area will include: • Define job competencies with education and skills required for each position as basis for training programs and evaluations • Categorize competition inspectors and case handlers based on job competencies requirements • Assess periodic rotation of personnel and flexibility in assigning teams • Strengthen the skills and experience of staff in key areas of competition work (e.g. specialized training courses in quantitative techniques for competition analysis and partnerships with developed competition authorities for assistance) • Mainstream the use of paralegals to support the work of lawyers and economists competition inspectors 3.4 Improve As a small knowledge based organization RCC management should enhance Short internal its already flat management structure and informal communications networks Term communications with more formal methods including newsletters, staff surveys, explicit explanation of key policy and management decisions, full participation of staff in strategy articulation, etc. These small steps together could enhance RCC cohesion and understanding and alignment of staff efforts toward common goals. 3.5 Continue The RCC plans to increase the internal classification of its budget around Short the movement RCC relevant projects from 23% in 2010 to 80% in 2011 (while adhering to Term toward project current national budgeting norms). This difficult effort, which should be replicated government wide, will strengthen the focus on the performance of budgeting as a the organization and staff. Other government agencies such as the Ministry pillar of results of Finance and Court of Accounts should work with the RCC to facilitate management wherever feasible this initiative. 3.6 Improve As a corollary to project budgeting, the RCC needs to expand its internal Short internal audit staffing and management commitment to aggressively monitor systemic Term 58 Reform Area Specific Actions Timeline auditing fiduciary risks to the RCC. 3.7 Tighten Given the highly confidential nature of RCC investigations and potential Short Security financial implications, the maintenance of physical security to staff, files, and Term information technology should be improved. Without having made a formal investigation, it is a matter of concern that the RCC shares offices on several floors of an antiquated building with the media where security afforded offices is rudimentary, files are not duplicated electronically, access by staff to information may not be as rigorously controlled as needed, etc. 3.8 Better The RCC appears rightly to place considerable emphasis on modern integrating information technology. However, a more thorough assessment of its use information and governance is recommended as several problems seem to exist including lack of proper support for management information systems especially for technology, RCC administration requiring dedicated ITC support to this unit, reliance on premises, etc. personal laptops for sensitive RCC information, limited forensic capability for investigating data obtained from computers in raids on business. 3.9 Reduce The World Bank strongly urges the RCC through legislation to establish potential ―quarantine‖ provisions to prevent staff, managers, or members of the Board conflicts of to leave the RCC for positions in the private sector directly connected with operations with which they are involved. Similarly to protect the reputation interest of the RCC for integrity, internal regulations or legislation is recommended to severely limit the future hiring of relatives of current staff, managers, and Board members. 59 ANNEXES 60 Annex 1. Differences across data submitted by the RCC Detailed information was requested from the RCC regarding enforcement activities and performance between 207-2010. Due to inconsistencies found in the data, the RCC submitted three sets of information on its performance and enforcement Tables below detail the differences between each submission. First three columns show the number of investigations contained in each dataset submitted; and the last two columns, the difference among them. For each type of practice, more investigations were reported by RCC. In addition, since second submission, other category was included in the information labeled as ―Others‖. This basically covered agreements, anticompetitive decisions of public bodies, and possible infringements of articles 5, 6 and 9 of competition law. The last three deals with agreements, abuse of dominant position and actions by the central or local public administrative body prohibited, respectively. Number of investigations 2007-2010 First submission Second submission Third submission Difference 1st-2nd Difference 2nd-3rd Cartels 26 53 132 27 79 Mergers 179 200 200 21 0 AODP 6 23 94 17 71 Others* 0 35 123 35 88 *Includes agreements and practices against article 5, 6 and 9 (agreements, abuse of dominant position and actions by the central or local public administrative body prohibited, respectively) Third submission includes investigations reported in a separate dataset about enforcement activities by territorial offices By examining more in detail the universe of investigations, we find that the ―additional‖ ones were mainly preliminary investigations. Table below shows the number of formal cases reported in each submission. In comparison with the table above, it is clear that the most part of ―additional‖ investigations were preliminary investigations. Number of formal cases 2007-2010 First submission Second submission Third submission Difference 1st-2nd Difference 2nd-3rd Cartels 26 30 35 4 5 AODP 6 10 10 4 0 Others* 0 28 31 28 3 *Includes agreements and practices against article 9 (actions by the central or local public administrative body prohibited). Third submission includes formal cases reported in a separate dataset about enforcement activities by territorial offices Type of investigations from differences between submissions Between Second and First Between Third and Second Ended as preliminary Ended as preliminary Become formal case investigation Become formal case investigation Cartels 4 21 5** 74 AODP 4 13 0 71 Others* 28 7 3*** 85**** *Includes agreements and practices against article 5, 6 and 9 (agreements, abuse of dominant position and actions by the central or local public administrative body prohibited, respectively) ** Reported in territorial offices ***Includes investigations and letters accepted ****Includes preliminary, letters not accepted and forwarded 61 Type of investigations from differences between submissions Between Third and Second Ex officio Complaint Intimation notification/letters Request point of view Cartels 58 4 13 4 0 AODP 31 8 18 14 0 Others* 18 6 0 59 5 *Includes agreements and practices against article 5, 6 and 9 (agreements, abuse of dominant position and actions by the central or local public administrative body prohibited, respectively) Composition of Others by type of agreement 2007-2010 Practice Number of investigations % Agreement 51 41.5% due to public authorities intervention 39 31.7% various (art. 5,6,9) 20 16.3% Merger 5 4.1% Discrimination 3 2.4% Ban 1 0.8% conclusion of contracts 1 0.8% exclusive distribution 1 0.8% possible infringement of art 6 of Competition Law 1 0.8% no identified 1 0.8% Total general 123 Composition of Others by type of agreement and decision of preliminary investigation 2007-2010 point of open formal not letter letter letter view request Total investigation opened accepted forwarded rejected issued notified general agreement 19 8 1 19 4 51 ban 1 1 conclusion of contracts 1 1 discrimination 1 2 3 due to public authorities intervention 4 12 1 17 5 39 exclusive distribution 1 1 merger 5 5 possible infringement of art 6 of Competition Law 1 1 various (art. 5,6,9) 2 1 4 11 2 20 no identified 1 1 Total general 31 24 3 4 50 7 4 123 62 Annex 2: Additional Competition Statistics Number of investigations by sector 2007-2010 Cartel AODP Others consumer goods 23 0 0 services 17 1 0 natural gas 5 14 0 public transport 14 0 3 food 3 1 8 construction 7 0 1 pharmaceutical 2 3 7 telecom 0 6 4 building materials 6 2 0 retail 2 5 0 cable tv 2 4 0 mineral resources 0 4 0 postal services 0 4 0 communication 4 1 1 industry 4 0 0 liberal profession 4 0 0 Repair motor vehicles 0 3 0 advertisement 0 0 3 banking 2 0 3 food and non-food 0 0 3 media 3 0 3 others 34 46 19 Others include agreements and practices against article 5, 6 and 9 (agreements, abuse of dominant position and actions by the central or local public administrative body prohibited, respectively) For Others, investigations do not include those initiated by letters nor requests of point of views. Source: RCC 63 Number of formal cases by sector 2007-2010 Cartel AODP Others public transport 5 0 0 food retail sector 3 0 8 postal services 0 3 0 banking 1 0 3 media 1 0 3 telecom 0 0 2 bread market and related markets 2 0 0 confection 2 0 0 construction 2 0 1 consumer goods 2 0 0 liberal profession 2 0 0 natural gas 2 1 0 oil sector 2 0 1 pharmaceutical 2 0 7 building materials 0 1 0 connecting utility network 0 1 0 port operating 0 1 1 steel industry 0 1 0 therapeutic services 0 1 0 Other 9 1 5 Others include agreements and practices against article 5, 6 and 9 (agreements, abuse of dominant position and actions by the central or local public administrative body prohibited, respectively) For Others, closed investigations include, besides closing formal investigations, letters forwarded and rejected. Total of closed investigations are20. Source: RCC Mergers and Economic Concentrations: 2007-2010* 2006 2007 2008 2009 2010 Mergers notified 5 52 74 45 24 Decision in Phase I 0 42 71 43 15 Decision in Phase II, without Phase I 1 2 2 0 0 Decision after phases I & II 0 0 0 0 0 No decision, being in Phase I 0 0 2 0 5 No decision, being in Phase II 0 0 0 0 3 Approved 1 41 63 40 12 Cleared with remedies 0 2 0 0 0 Structural Remedies 1 Behavioral Remedies 1 Denied 0 0 0 0 0 % of total requiring remedies 5% 0% 0% 0% 64 Annex 3: Scope of Functions and Main Characteristics of Competition Agencies Table: Mandates and Scope of Functions of Competition Agencies: Europe and Central Asia Scope of functions Public Country Number of Anticompetitive State Unfair procure Consumer Functions practices Mergers aids competition Advertisement ment protection Italy 6 Bulgaria 5 Denmark 5 Lithuania 5 Norway 5 Poland 5 Czech Republic 4 Greece 4 Hungary 4 Latvia 4 Netherlands 1/ 4 Portugal 4 Slovak Republic 4 Sweden 4 Switzerland 4 United Kingdom oft 4 Albania 3 Austria 3 Croatia 3 Finland 3 France 3 Germany 3 Letonia 3 Romania 3 Belgium 2 Estonia 2 Luxembourg 2 Slovenia 2 Spain 2 Turkey 2 1/ Includes sectoral regulation on transportation and energu 65 Table: Characteristics of Staff in Selected Competition Agencies in the European Region Staff Number Potential Country Year of allocation of staff Staff total % specialized staff Functions by function United Kingdom OFT 2008 747 n/a 4 187 Netherlands 2008 399 78% 4 100 Turkey 2009 325 33% 2 163 Romania 2007 296 81% 3 99 Poland 2007 281 72% 5 56 Italy 2008 278 64% 6 46 Germany 2009 277 46% 3 92 Spain 2008 198 59% 2 99 Denmark 2008 143 85% 5 29 France 2008 130 68% 3 43 Bulgaria 2008 130 70% 5 26 Czech Republic 2008 126 75% 4 32 Hungary 2007 114 71% 4 29 Sweden 2008 108 79% 4 27 Norway 2008 102 n/a 5 20 Portugal 2008 83 71% 4 21 Slovak Republic 2008 73 65% 4 18 Finland 2008 70 72% 3 23 Switzerland 2008 64 84% 4 16 Belgium 2008 64 61% 2 32 Greece 2007 62 69% 4 16 Estonia 2008 56 85% 2 28 Latvia 2008 55 80% 3 18 Lithuania 2008 53 74% 5 11 Latvia 2009 45 n/a 4 11 Croatia 2007 45 69% 3 15 Albania 2009 34 59% 3 11 Austria 2008 29 76% 3 10 Slovenia 2008 18 95% 2 9 Luxembourg 2009 11 83% 2 6 66 Annex 4: The organizational chart of the Competition Council including vacancies and occupied positions 67 Annex 5: Staff survey results Sample Characteristics: Total number of respondents: 202, of which: Management position: 13 Non-management position:178 Did not disclose: 11 Areas of activity: Competition: 61 State aid: 19 Corporate: 25 Administrative: 33 Competition & state aid: 31 All fields: 26 Not stated: 7 Number of respondents per age group: <29 years: 5 30-40 years: 130 >40 years: 58 Non-respondants: 9 Territorial distribution: Central office: 142 Regional offices: 60 Data collected: July 2010 Main results The predominant opinion in RCC is positive:  Performing management is predominant in RCC , i.e. ―much‖ or ―very much‖ managers organize the activity in a logical, balanced manner, establish clear objectives and quality standards, plan, follow, monitor the progress, perform timely rectification actions, define the outcomes and assess their concreteness;  There are documents establishing RCC‘s objectives;  There is a performance evaluation system based on the pre-established objectives where the staff can challenge, provide constructive feedback and contribute to the decision-making:  The coordination between the directors and the directorates and the one between the CC and the other agencies is ―good‖ or ―very good‖:  Top managers delegate responsibility to the directors, who delegate responsibility to the staff and when delegating responsibility this is accompanied by authority;  Therefore, making the staff responsible is a concern for RCC, both the directors ,the staff and the members of the plenum being ―always‖ responsible  Transparency is also a concern for the CC, both the annual budgets and the new policies and strategies being ―always‖ discussed about by the directors and the staff;  RCC has many data and information that can be used in making administrative, technical and strategic decisions. The directors ―always‖ ask the staff for information and ―always‖ use it in the decision - making.  The directors chair the meetings effectively, manage ―well‖ or ―very well‖ both their own time and the staff‘s time  The directors and the staff have ―very good‖ or ―good‖ knowledge about the direction where the institution goes and are proud to be working with the CC, the current workplace being evaluated as ―good‖ or ―very good‖ compared with other employers that they have information about  The internal regulations and procedures help the staff ―effectively‖ fulfill their tasks, the work, teams and work flow are ―well‖ organized and the departments have clear objectives  The directors promote the collaborations between departments  The CC expects that the new law improves the professional performances. But the opinions diversify when it comes to:  ―Good performance‖ is not regularly acknowledged (44%) 68  ―Poor performance‖ is not signaled immediately (47%) nor constructi vely (42%) and nor decisively (44%)  Transparency does not apply when appointing a new director; the reasons for the selection are not made public in the institution (75%)  There is no talk about staff career development (48%), but staff training and develop ment is ―much‖ (23%) and ―very much‖ (43%) supported by managers in practice and through the budget  The effective collaboration between the territorial office and the central office is considered as ―very poor‖ (19%) or ―poor‖ (21%)  Although the communication between the direct superior and the staff is perceived as good or very good, the communication between the staff and the CC management/ Council members is ―very poor‖ (22%) or ―poor‖ (23%) According to the predominant opinion, the performing management is characteristic to the Romanian Competition Council. There are, however, opinions that differ significantly with regard to the type of management in the institution:  The factorial analysis of the management type based on 10 dimensions (variables Q2, Q3, Q5, Q7, Q8, Q9, Q10, Q12, Q13, Q14); only one factor that explains 64% of the variation  The factorial score was divided into three groups rather equal in size, but with significantly distinct opinions:  About 1/3 of the respondents consider that at CC there is a performing management  About 1/3 of the respondents believe that there is only a partial performing management (i.e. objectives are defined, but without quality standards, results are defined, but not evaluated, etc.)  About 1/3 of the respondents consider that the management is rather dysfunctional.  Irrespective of the position (management/non-management) and age, the respondents from the central office and those working in the state aid field are much more critical towards the type of main management in the institution (have a significantly higher likelihood to consider the management in the institution as dysfunctional). Static profile of the 3 groups: Dysfunctional Partially Performing Management Performing Management Management By Location Regional Offices 6.7 26.7 66.7 Main Office 45.1 36.8 18 By Position Non-managerial 34.1 32.4 33.5 Managerial 16.7 50 33.3 Over 40 30.6 30.6 38.7 By Age 30-40 35.1 40.4 24.6 Under 29 37.5 50 12.5 Frequencies: Objective-based management: Very much Much Little Very little Do Directors /managers set clear, detailed 27 37 27 9 objectives? Do directors/Managers define the outcome 42 31 20 6 of the activities, and clarify not only the objective but also the quality standard? Are there documents about these 95 27 27 36 objectives? Activity Planning and Monitoring Very much Much Little Very little Do Directors/Managers plan the routine 43 30 19 7 daily and general activities? 69 New operations, projects or programs are 48 33 16 3 planned? Directors/Managers regularly monitor “the 57 27 11 5 things to be done�? Directors/managers regularly monitor the 51 33 11 4 progress of ongoing activities? Evaluation: Very much Much Little Very little Do Directors/Managers regularly evaluate 49 31 14 5 the outcome of their directorates? Do Directors/Managers regularly evaluate 48 31 16 3 the concrete results of their directorates? Performance Evaluation System (PES): No Yes Does it contribute to making decisions for the professional development of 27 71 staff? Does it provide constructive feedback to the staff? 31 68 Where the staff has the possibility to challenge the evaluation? 8 91 Is it based on pre-established objectives 4 95 Staff Performance No Yes Good performance is acknowledged regularly? 44 56 Poor performance is signaled in a decisively? 44 52 Poor performance is signaled in a constructive way? 42 54 Poor performance is signaled immediately? 47 50 Non-monetary incentives for staff Frequencies (%) Performance prizes/awards 65.5 Training/development assignment in other competition agencies/institutions 64 Coordination role in major/significant impact cases 48.7 Scholarships to continue university education 17.3 Coordination Very good Good Poor Very poor The coordination between the RCC and 25.8 37.1 32.6 4.5 other agencies is The coordination between the directors 20.1 38.1 30.9 10.8 and the Directorates within the RCC is Delegation of Responsibilities Very much Much Little Very little Do Directors /managers regularly delegate 29.2 40.6 14.4 12.4 the decision making responsibility to their subordinated managers? Do directors/Managers regularly delegate 25.2 36.6 21.3 15.8 the decision/making responsibilities to their subordinated staff? When delegating the responsibility for 35.6 25.2 25.2 13.4 actions they delegate authority as well? Making People Responsible No/Never Yes/Always There is a lot of talk in the RCC about “making people responsible�? 20 90 Both Directors and staff are responsible for their actions? 7 92 Plenary members are responsible for their actions? 17 80 Transparency Never Always There is a lot of talk in RCC about “transparency�? 21 79 Annual budgets are discussed by directors /managers with their staff? 38.6 61.4 70 When a new director is appointed, the reasons of his/her selection are made 74.8 23.8 public in the institutions? New policies and strategies are discussed with the directors, managers and 32.2 66.3 staff? Information Never Always The institution has more data and information that can support the 8 91 administrative, technical and strategic decisions. Directors/managers ask the staff for relevant information when needed in the 10 90 decision making process. Data and information are regularly used by directors/managers 18 81 Efficiency Very much Much Little Very little Directors/managers manage their own 43.1 33.7 12.9 9.4 time efficiently Managers manage the time of their staff 32.2 31.7 21.3 14.4 efficiently Staff professional development Yes No There is a lot of talk about staff career 52 48 development in RCC? Very much Much Little Very little Staff training and development is 43.1 23.33 20.3 13.4 supported in practice by manager and by the budget allocated Workplace Environment Very much/ Much/Good Little/Poor Very Little/ Very Good Very Poor I have a good knowledge/understanding of 43 27 19 11 the direction where the RCC management take the institution I am proud to be working in the RCC 66 25 8 1 How would you evaluate the RCC as a 51 35 11 2 workplace compared with other employers that you know Organization Very much Much Little Very little The work flow/process in my group/team is 50 33 12 4 well organized The objectives of my department /team are 54 36 8 1 clearly defines The internal rules and procedures help me 51 23 19 7 carry out my duties effectively and with good quality The work cooperation between my 42 42 13 4 department/team and other directorates is efficient The objectives of my department/team are 54 36 8 1 clearly defines The staff in the regional offices and the 33.7 25.2 21.3 19.3 headquarters work together effectively My director/manager promotes/encourages 58 25 14 3 the collaboration with other departments/teams with tasks related to ours The RCC management should actively 34 21 23 20 encourage inter-department rotation of staff RCC Priority focus: 71 Practices Frequencies (%) Cartels/monopolies 87 Abuse of dominant position 72.5 Minimization the state aid market distortions 19 Mergers and acquisitions 14.5 Other 2 Sectors/Areas Frequencies (%) Energy: gas, electricity, household fuels 62.8 Financial sectors 41.1 Telecommunications 21.1 Pharmaceutical sector 16.1 Public procurement 14.4 Agro-food sector 13.9 Anti-competitive practices 13.3 Freight and passenger transports 11.7 Institutional reorganization 11.1 Constructions 11.1 Infrastructure-transport 10.6 Retail 7.8 State aid 7.2 Others 28.3 Partnerships Frequencies (%) Regulatory bodies 49.7 Central Public Authorities 48.7 Local Authorities 27.7 Business Associations/Chambers of Commerce 24.6 Consumers Associations 24.6 Ministries 22.6 72 Estimation of Likelihood of Priority Areas Probit regression, reporting marginal effects Number of obs = 202 LR chi2(6) = 55.53 Prob > chi2 = 0.0000 Log likelihood = -69.901155 Pseudo R2 = 0.2843 State Aid dF/dx Std. Err. z P>z x-bar [ 95% C.I. ] 0.46 0.42681 Regional 0.1087164 0.162299 0.74 1 0.29703 -0.20938 7 0.00 0.33168 Age less than 40 -0.1761262 0.043908 -3.31 1 3 -0.26219 -0.09007 0.09405 0.66549 0.97891 State Aid Staff 0.8222072 0.079956 5.73 0 9 5 9 0.00 0.12376 0.69112 Corporate Staff 0.3783692 0.159574 2.74 6 2 0.06561 8 0.05 0.16336 0.49262 Administrative Staff 0.2238087 0.137155 1.91 7 6 -0.04501 7 0.38 0.31683 0.49516 Mixed Staff 0.1408579 0.180774 0.86 8 2 -0.21345 9 obs. P 0.1881188 pred. P .1213616 (at x-bar) Cartel dF/dx Std. Err. z P>z x-bar [ 95% C.I. ] 0.58 0.22573 Regional 0.0521743 0.088555 0.54 7 0.29703 -0.12139 9 0.11 0.33168 0.15351 Age less than 40 0.0717252 0.041731 1.57 5 3 -0.01007 6 0.00 0.09405 State Aid Staff -0.3567517 0.156294 -2.76 6 9 -0.66308 -0.05042 0.32 0.12376 0.14556 Corporate Staff -0.1092707 0.13002 -0.99 4 2 -0.36411 3 0.16336 Administrative Staff -0.415315 0.127095 -3.73 0 6 -0.66442 -0.16621 0.12 0.31683 0.09613 Mixed Staff -0.2120725 0.157253 -1.54 3 2 -0.52028 7 obs. P .8613861 pred. P .8934139 (at x-bar) 73 Annex 6: Mission interviews Competition Council: Mr. Bogdan Chiritoiu , President Mr. Otilian Neagoe , Vice President Mr. Stefan Neagoe, Competition Counsellor Mr. Dan Ionescu, Competition Counsellor Mr. Valentin Mircea, Competition Counsellor Mr. Jozsef Nandor Nemenyi, Competition Counsellor Mr. Vasile Seclaman, Secretary General Ms. Anca Tulus, Director, Budget and Human Resource Directorate Ms. Isabela Barasciuc, Director, Administrative Directorate Ms. Luminita Popa, Public Manager Mr. Marius Lungu, Public Manager Ms. Maria Alexandru, Director Research – Synthesis Directorate Mr. Florin Andrei, Deputy Director, Research – Synthesis Directorate, IT Unit Ms. Daniela Badila, Director, Consumer Goods Directorate Ms. Georgeta Fotino, Director, Services Directorate Mr. Daniel Chilea, Deputy Director, Industry and Energy Directorate Ms. Cristina Cobianu, Director, State Aid Authorising Directorate Mr. Daniel Diaconescu, Director, State Aid Reporting, Monitoring and Control Mr. Gheorghe Radulescu, Director, Territorial Monitoring Directorate Ms. Cristina Butacu, Director, Legal Directorate Ms. Doina Tudoran, Director, External Relations Directorate Ms. Geta Gavriloiu, Competition Inspector, External Relations Directorate Ms. Alis Barbulescu, Competition Inspector, State Aid Directorate Mr. George Anglitoiu. Counselor Mr. Adrian Dodita, Adviser Mr. Ioan Badica, Competition Inspector, Constanta Territorial Office Mr. Constantin Culicea, Competition Inspector, Constanta Territorial Office Ms. Elena Siscu, Competition Inspector, Constanta Territorial Office Mr. Sandel Trache, Competition Inspector, Constanta Territorial Office Ms. Laura Tatiuc, Competition Inspector, Constanta Territorial Office Presidency Mr. Bujor Bogdan Teodoriu, Presidential Counsellor Prime Minister Office Ms. Andreea Paul Vaas, Counselor Prime Minister Office General Secretariat of the Government Mr. Serban Cerkez, Expert, Public Policies Directorate Court of Accounts Mr. Nicolae Vacaroiu, President Mr. Dragos Budulac, Head of Unit International Relations Ministry of Public Finances Ms. Irina Avram, General Director , General directorate for State Aid, Unfair Competition and Regulated Prices Staff in charge of regulated prices, State Aid and unfair competition. 74 Ministry of Economy, Trade and Mr. Doru Voicu, Counselor to the Minister Business Environment Ministry of Agriculture Mr. Adrian Radulescu, Secretary of State Ministry of Transport and Mr. Eusebiu Pistru, Secretary of State Infrastructure National Regulatory Authority in Mr. Eduard Lovin, Executive Director, Regulations Directorate Communications Mr. Gheorghe Rusen, Director, Regulation Directorate Ms. Luminita Nicolae, Head of Unit, Legal Directorate National Regulatory Authority in Mr. Florin Radoi, General Director Energy National Authority for Public Ms. Cristina Traila, President Procurement Ms. Ana Ungureanu, Counselor, European Affairs Association for Consumer Protection in Mr. Razvan Resmerita, Director Romania Petrom Mr. Mihai Berinde, Director (former President of RCC) Academia and Research Centers Gheorghe Oprescu (former President of RCC) Jean Constantinescu, President of IRE (Romanian energy institute) and Former President of ANRE 75 Annex 7: Duration of cases by type of practice and years (in number of days) Average length of investigations (number of days) Figure: Average length from start of preliminary investigation to final decision: Formal cases 1600 1400 1200 1000 800 600 400 200 0 Cartels Finalized AOD Finalized Others Finalized Cartels Pending AOD Pending Others Pending 2007 2008 2009 2010 Source: RCC By date of final decision. Length of time from date of starting preliminary investigation to date of final decision by the board. Pending refers to formal cases not finalized. Pending refers to investigations that have not been finalized yet. Figure: Average length from starting date of full investigation to final decision: Formal cases 1600 1400 1200 1000 800 600 400 200 0 Cartels Finalized AOD Finalized Others Finalized Cartels Pending AOD Pending Others Pending 2007 2008 2009 2010 Source: RCC By date of final decision. Length of time from date of starting full investigation to date of final decision by the board. Pending refers to formal cases not finalized. Figure: Average length from starting date to final date of preliminary investigations: Formal cases 76 140 120 100 80 60 40 20 0 Cartels Finalized AOD Finalized Others Finalized 2007 2008 2009 2010 Source: RCC Includes all preliminary investigations. By date of final preliminary decision. Length of time from date of starting preliminary investigation to date of final decision in preliminary investigation. Pending refers to preliminary investigations not finalized. Figure: Average length from starting date to final date of preliminary investigation: Investigations that do not lead to formal cases 120 100 80 60 40 20 0 Cartels AOP VA 2007 2008 2009 2010 Source: RCC By date of final preliminary decision. Length of time from date of starting preliminary investigation to date of final decision in preliminary investigation. 77 Annex 8: Distribution of Workload by Staff Figure: Competition Directorates 5 5 4 4 Frequency Frequency 3 3 2 2 1 1 0 0 0 1 2 3 4 5 6 7 8 9 10 11 12 1314 15 0 1 2 3 4 5 6 7 8 9 10 11 12 1314 15 Consumer Goods Ind & Energy 5 5 4 4 Frequency Frequency 3 3 2 2 1 1 0 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 0 1 2 3 4 5 6 7 8 9 10 11 12 1314 15 Petitions Services 78 Figure: State Aid Directorates 3 5 4 Frequency Frequency 2 3 2 1 1 0 0 0 20 40 60 0 5 10 15 State Aid Monitoring State Aid Aut. 15 Frequency 10 5 0 0 5 10 15 Territorial 79