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Latvian railways fined 5.6 million euros for unfair cargo competition

The Competition Council of Latvia (the CC) said February 3 it was imposing a 5.6-million-euro fine on a state-owned railway company over abuse of its dominant market position.

"Since 2007 the public capital company “LDZ CARGO”, abusing a dominant position, made it more difficult for competitors to operate in rail freight transport in Latvia. For example, a different pricing practice was applied to [its] own customers and customers of competitors for freight transport services, and in some instances transport contracts in the border area of Russia and Belarus were terminated," the CC said.

"Also, a charge for downtime on common use railways of freight wagons owned by private persons, was groundlessly imposed in the entire territory of Latvia.

For the detected infringements the CC imposed on the public capital company “LDZ CARGO” a fine of 5,694,174 euros, whereas the state joint stock company “Latvijas dzelzceļš”, which owns 100% of capital shares of SIA “LDZ CARGO”, is jointly and severally liable for payment of the fine," the CC said.

Reforms introduced in 2007 that were supposed to substantially increase and diversify competition had failed to produce the desired results, the CC said. Currently, railway freight transport services are provided by four merchants in Latvia. However, in the period from 2007 to 2020, SIA “LDZ CARGO” still accounted for 70-80% of the total freight transport market in Latvia.

Questionable pricing 

In order to ensure international railway freight transport to and from Russia and Belarus, border stations in Kārsava, Zilupe or Indra have to be crossed. However, stations where actual acceptance and transfer operations of international freight take place are located 50-90 kilometres away at domestic freight acceptance and transfer stations in Rēzekne and Daugavpils.

Historically, railway freight transport from border stations to freight acceptance and transfer stations in Rēzekne and Daugavpils was ensured by state-owned “Latvijas dzelzceļš”, but after its reorganisation the provision of this service was taken over by SIA “LDZ CARGO”. This resulted in SIA “LDZ CARGO” becoming an inevitable cooperation partner for freight transport in the border area for customers that wish to send or receive their freight through Latvia, plus the company is not restricted in determining any transport charge.

Taking into consideration this situation, SIA “LDZ CARGO” applies various relief arrangements for its customers that use the services provided by the capital company throughout the route, not only in the border area, for example, discounts and other conditions that promote cooperation. Whereas for customers that entrust provision of freight transport services in Latvia to any of the three private merchants SIA “LDZ CARGO” applies a tariff for services provided in the border area, the CC said.

In addition, in situations, when a customer wishes to switch the carrier from SIA “LDZ CARGO” to any of the competitors, SIA “LDZ CARGO” terminates the previously concluded transport agreement on more favourable conditions and applies a tariff for transport services in the border area, thus increasing the customer's costs for the entire transport route. The CC holds a view that it is economically disadvantageous for customers to choose competitors of SIA “LDZ CARGO” as service providers, which, in its turn, makes difficult for new service providers to enter the market and encumbers competition among the existing companies, as well as influences the options of choice for a consumer.

Additionally, the CC found that "Groundless charges" were being applied for downtime of wagons owned by private persons and that principles of fair competition were not being observed.

 

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