Eoin Reeves: In late December 2009 the Irish Times reported that High Court judge (Mr Justice Liam McKechnie) ruled that Dublin’s four local authorities had breached competition law by abusing their dominant position in the household waste collection market in a bid to remove rival private operators. According to the Irish Times:
“Mr Justice Liam McKechnie today quashed a variation to the Dublin region waste management plan whereby only the councils, or contractors appointed by them, could collect household waste”.
A number of interesting issues arise from this particular ruling.
First, according to the Irish Times (December 21st) the judge stated that the actions of the local authorities:
“substantially strengthen the position of the local authorities and substantially influence the structure of the market to the detriment of competition.”
My understanding is that the local authorities sought to exercise more control over the waste collection market by putting contract(s) for waste collection out to competitive tender. The successful bidder would then enjoy monopoly rights to collect waste in accordance with a written contract. This would replace the current system where private operators such as Panda and Greenstar collect waste on the basis of permits (not contracts) issued by the local authorities. These private collectors then compete against each other for customers. Would the change to competitive tendering influence the structure of the market to the detriment of competition as the judge stated?
In my view this argument is very questionable and I have strong reservations about the soundness of the judgement (as reported in the media). It is not clear that the judge has made the distinction between competition in the market and competition for the market.
When the privatisation of refuse collection services came into vogue in the Great Britain in the late 1980s the proponents of privatisation argued that the benefits of competition could be reaped via competitive tendering (competition for the market) and that this was an efficient substitute for competition in the market. In terms of cost efficiency they were proved correct with a host of empirical studies demonstrating that significant costs savings (between 15%-20% on average) were made by moving from direct public provision to private provision after competitive tendering (notwithstanding issues in relation to deterioration of working conditions etc). A key point was that the competitive tension inherent in the tendering process was the key to efficiency gains. These gains were not attributable to privatisation per se. This was evident in cases where local authorities won contracts and also delivered cost savings after competitive tendering.
For a service like refuse collection the argument for competitive tendering is compelling in terms of cost savings. Moreover, the nature of the service is straightforward so writing and enforcing contracts should not be problematic. The contract serves as an instrument for regulating a market where externalities are potentially significant (e.g. illegal dumping in the face of prices set by the private sector) and where market concentration can emerge as dominant private operators squeeze out rivals. The implication of the ‘McKechnie ruling’ is that a market free-for-all is necessary if arrangements are not to be anti-competitive. This results in a light-touch form of regulation compared to contracting out.
It is interesting the note that the Competition Authority has examined this issue in a document published in 2005. Mr. Paul Gorecki, who was then Director of the Monopolies Division in The Competition Authority summarised the findings of the report as follows
“The market for household waste collection is not working well for consumers. Competition law is neither an appropriate or effective remedy in this case. However extensive international experience demonstrates that competitive tendering is the best method of ensuring that household waste collection providers deliver consumers good service at competitive prices.”
Assuming that Dublin’s local authorities were indeed seeking to replace a permit system with competitive tendering there are serious question around the economic reasoning behind the McKechnie ruling.
Some other issues arose from this ruling. These concern the PPP contract for the Poolbeg Incinerator as well as the role of consultants and their influence in shaping public policy. I hope to return to these issues in later posts.
5 comments:
As I understand it, what you state is only partly correct. Whilst DCC were willing to tender for waste collection, they were not willing to tender for waste disposal. They wanted to keep the business of waste disposal for themselves. All waste would have to be disposed of through the DCC waste facility, i.e., the incinerator.
See the report in the Irish Times on December 22.
It is difficult to question McKechnie's economic reasoning in the absence of the full text of the actual judgement, which does not seem to be available yet.
Actually your post entirely misrepresents the judgment as well as being inconsistent.
For example you quote the Irish Times:
“Mr Justice Liam McKechnie today quashed a variation to the Dublin region waste management plan whereby only the councils, or contractors appointed by them, could collect household waste”.
Then you go on to say:
My understanding is that the local authorities sought to exercise more control over the waste collection market by putting contract(s) for waste collection out to competitive tender. The successful bidder would then enjoy monopoly rights to collect waste in accordance with a written contract. This would replace the current system where private operators such as Panda and Greenstar collect waste on the basis of permits (not contracts) issued by the local authorities. These private collectors then compete against each other for customers. Would the change to competitive tendering influence the structure of the market to the detriment of competition as the judge stated
This is wrong. The local authorities themselves operate a waste collection service and are themselves competing against the private operators. They attempted the change the waste management plan which would have given them either the option of tendering out routes or alternatively re-monopolising the the market for their own in-house service.
The judge found not only that this monopolisation in favour of the local authorities was anti-competitive but that it was contrary to both the spirit and letter of the Waste Management Act which allows for private sector permits for household waste collection. He also found that the local authority was biased since a senior official admitted stating that he wished to remove private operators from the market before the statutory process had even started. The judge also found that consultants' reports were manipulated by Dublin City Council to support this goal.
Furthermore your selective quotation of the Competition Authority Greenstar decision (not a report as you say) is misleading. If you actually read the decision you would see that the quotation above was directed to the Minister and not a mandate for local authorities to take the law into their own hands.
In the scheme of things the issue of competition for or in the market was only a small element of the issues.
@ Anonymous.
My understanding is that the full text of the judgement is not yet available so charges of "entire misrepresentation" are not justified.
Your charges of inconsistency might well be applied to your response to my original entry as we both stated that the variation to the waste management plan would have given the coucil the option of putting routes out to tender (as well as other options that you refer to).
This is the substantive point that my entry sought to address. If the ruling prevents the council from pursuing the option of competitive tendering, the widely recognised 'best' option for organising collection is foregone.
That competitive tendering offers the 'best' method of organising collection was the conclusion of the Competition Authority in their Enforcement Decision (not a report) on the Greenstar Case in 2005.
You state that I used the quote (in relation to this document) from Paul Gorecki selectively. First, I never suggested that the quote was a mandate for local authorities to take the law into their own hands. That is your inference and it is incorrect. Second, the quote was from a news release that accompanied the Enforcement Decision. It is entirely consistent with the tenor of the Enforcement Decision document available at at the Competition Authority website. The executive summary states that "the international experience demonstrates that competitive tendering is the best method of ensuring that household waste collection providers deliver consumer good services at competitive prices. This system of competition for the market should replace competition within the market i.e. where waste provider compete side-by-side with each other".
This is 100 per cent consistent with the substantive point made in my entry which deals with the question of the best approach of organising the collection of waste. Do you have views on the merits or de-merits of competitive tendering vis a vis a situation where different collectors compete without regulation by contract?
It is clear that you have not read the judgment.
Suffice it to say the judgment is in the public domain in unapproved form and the final form will not differ in any substantive way.
If you were really interested in writing a serious post you could have got a copy. Instead you chose to make an assumption about the judgment (which is incorrect) without any basis and use that incorrect assumption to criticize the judge and the economic reasoning behind the judgment. It is clear that you are determined not to let the facts get in the way of your opinion.
You should retract this piece of opinionated rhetoric until such time as you have read the judgment and have identified the parts of it that support your views.
You are missing the whole point of the original post. I raised questions about the economic reasoning for the post as reported in the media. As stated clearly the substantive point that I raised concerns the optimal system for waste collection in an urban area like Dublin. There is a strong consensus in the international literature (shared by the Irish Competition Authority) that competitive tendering offers the best system in terms of economic efficiency and scope for regulation. If the ruling in this case precludes competitive tendering, I believe this would be a reason for concern. The concern I raised does not constitiute a criticism of the judge. It raises questions about the economic basis for his ruling. Nothing personal, unlike the tone of your posts that are at odds with the spirit of constructive engagement that characterises the Progressive Economy site. Finally, as the Courts Services have not posted a copy of the ruling on their website, feel free to post a copy here if that is possible.
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