Regulator issues fine over wood chip procurement process

The Latvian Competition Council (KP) said November 2 it was issuing fines over an apparent cartel operating in the supply, transportation and storage of wood chips.

KP made a decision on October 19 to punish the companies SIA "AKE LOGISTIKA", SIA "LATGALES MULČA" and SIA "MG Auto" for a prohibited agreement, after they allegedly exchanged commercially sensitive information on the conditions of participation in five procurements run by state-owned "Latvijas valsts meži" (Latvian state forests, LVM) on the provision of wood chips, delivery, chipping, storage and transportation services. 

A fine of EUR 163,630 was imposed.

KP received information about a possible prohibited agreement from LVM, the customer finding signs that indicated coordinated actions of applicants in submitting bids. The additional information received and obtained during the investigation showed that the offers prepared by the companies in LVM procurements between 2018 and 2022 are comparable both in terms of content and in the way of submitting the offer and were not prepared independently.

During the investigation, KP found that in four out of five procurements, the offers of all companies in the Electronic Procurement System (EIS) were submitted from one IP address, as well as two of the market participants being registered in the EIS with one electronic mail address. Prohibited agreements between companies are also confirmed by the fact that representatives of SIA "AKE LOGISTIKA" were involved in the preparation and submission of procurement documentation of all penalized companies.

Although the companies are interconnected, the KP stated that, under Competition Law, the companies are deemed independent market participants. This is also indicated by the applicants' declarations of independence submitted by the companies, certifying that the offers in procurement have been prepared independently.

Ieva Šmite, Director of the Prohibited Agreements Department of the KP said: "General agreements in procurement are agreements between the customer and several suppliers with the aim of determining the procurement contracts to be concluded in the relevant period and providing for their terms, for example, on prices and expected volume... the exchange of commercially sensitive information and the coordination of activities are not allowed and are punishable."

International recognition

Separately, on 18 October, at the International Competition Network (ICN) Annual Forum in Barcelona, the Latvian Competition Council received an highest award for its competition assessment in the wood chip market, which investigated the reasons for price increases in 2021 and 2022 and made recommendations to strengthen competition in the market.

Within the framework of the International Competition Network, the ICN and the World Bank Group organise the Competition Advocacy Contest every year. The contest aims to highlight the efforts of competition authorities, public and non-government organisations and the private sector to promote healthy competition in different markets. In the category “Embedding competition principles in public policies, especially when responding to crises”, the KP and its market study on the price increase of fuel wood chips was one of two winners.

Juris Gaiķis, chairman of the KP said: “Following the Russian invasion of Ukraine, prices for wood chips rose significantly during the heating season, for example the price of high-quality wood chips increased by 160% in one year. Given the widespread use of wood chips in district heating systems in the regions and the cost shift to end users, the KP aimed to find an explanation for the price increase as soon as possible and provide recommendations to market participants to mitigate the negative consequences for consumers, as well as to policy makers to make data-driven decisions.”

The International Competition Network Forum is one of the world's leading competition law events, providing an exchange of information and experience between competition authorities and leading competition law experts from more than 135 countries.

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