Executive Summary
3. SOEs and CRIs are required by the Commerce Act to behave as if they did not have a common owner. They are therefore prevented from entering into "contracts, arrangements or understandings" that "have the purpose or are likely to have the effect of substantially lessening competition in a market".
4. As a consequence, they are not able to cooperate to the extent that private sector bodies with a common owner can, and ministers cannot restrict SOEs or Crown entities from competing with each other unless ministers or the companies apply to the Commerce Commission for authorisation.
5. We are concerned that the SOE/Commerce Act framework may inappropriately prevent ministers from issuing directions to SOEs and CRIs. There should be competition between SOEs and CRIs where this was intended (as with the electricity companies) but not in cases where ministers consider that cooperation is in the public interest.
6. In the private sector, many companies derive their strength from being subsidiaries of larger conglomerates and from having committed and supportive owners, who will ensure that competition between subsidiaries of the same group is avoided and cooperation maximised. Ideally such avoidance of competition should be subjected to a Commerce Act test, but such a requirement does not exist probably because it could be structured around and would therefore be of little effect.
7. We have therefore developed a proposal that would allow shareholding ministers to issue directions to most SOEs or CRIs where they consider this to be in the public interest, without running the risk of being in contravention of the Commerce Act. The electricity generators should be excluded because of their importance in the electricity market and the competitive nature of the market.
8. We propose that the necessary legislative changes be included in the next Commerce Act Amendment Bill due for introduction in 2009 (Cabinet decision in August 2008).
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