Draft Brief on The Competition Bill, 2009

This is a discussion brief prepared by the Institute of Economic Affairs (IEAKenya) explaining the objectives, institutional arrangements and the broad policy implications of the Competition Bill, 2009. The primary purpose is to state the main institutions proposed in the bill, the degree to which it proposes amendments to the existing laws governing competition and the possible effects of the bill on business conduct and regulatory policy in Kenya following its expected passage. It is also intended to provide an interpretation of the contents of the bill and comment on the extent to which clauses contained in the bill responds to the regulatory and policy weaknesses in Kenyas competition regime. Because the primary purpose of this brief is to review the Competition Bill 2009 through the created institutions and its policy implications, it is not intended as a substitute to legal opinion. Introduction While Kenya was among the first countries in the sub-Saharan Africa region to draw up a law to govern economic competition, this law was soon made largely redundant by the economic liberalization that followed its enactment. As a result, the Restrictive Trade Practices, Monopolies and Price Control Act (Cap 504) of Kenyas laws has not been effectively applied in the promotion of competition as much. Apart from the suspension of the price control chapters contained in that law, the Cap 504 remained intact. The consensus and professional assessments were that the law was out of consonance with the character of Kenyas economy and that it therefore failed to infuse economic dynamism that is the purpose of competition laws. It has been clear for a while that this law has been in need of full repeal and replacement by a new act. The Minister for Finance, published the Competition Bill, 2009 in April 2009 and this was presented for the first reading in parliament during the fortnight preceding the budget speech in June 2009. The Competition Bill, 2009 is arranged in ten parts to which is added the schedule on the operations of the Competition Authority. The declared purpose of the bill is as follows: .. to promote and safeguard competition in the national economy; protect consumers from unfair and misleading market conduct; to provide for the establishment, functions and power of the Competition Authority and the Competition Tribunal, and for connected purposes. The reading of the purpose of the bill therefore connects the competition law to consumer affairs and establishes both a tribunal and the Competition Authority as the primary regulatory institution for economic competition. In this sense, the law appears to fuse consumer protection within the competition law framework in Kenya.

IEA- Draft Brief on Competition Bill 2009

Substantive Provisions Broadly, the Competition Bill 2009 establishes two institutions namely, the Competition Authority and the Competition Tribunal which will replace the Monopolies and Prices Department and the Tribunal respectively, which are provided for under the existing legislation (Cap 504). It has provisions of defining market power, restrictive trade practices, mergers, control of unwarranted concentration of economic power, consumer welfare provisions and transitory mechanisms. II. Establishment, Composition and Tenure of members of the Competition Authority (Section 7-20) This bill is materially different from the Restrictive Trade Practices, Monopolies and Price Control Act (Cap 504). To start with, one of the main weaknesses of the existing bill is the inadequate independence of the commissioner in charge of the Monopolies and Prices because of the situation of the office as a department within the Ministry of Finance. The Competition Bill 2009 establishes the Competition Authority in Part II of the bill and in sec 7(2) declares that it shall be independent and shall perform its functions independently and impartially. The Competition Authority is explicitly accorded this independence in section 7(3) as a body corporate and separated meaningfully from the Ministry for Finance, as it would regulate its own business and administrative affairs. The bill has placed an enormous set of roles on the Competition Authority compared to the existing Monopolies and Prices Department of the treasury. Primarily, this institution will administer the act, conduct market surveillance and advise government and specifically the Minster for Finance on matters related to competition and consumer welfare. Composition of the Competition Authority Having established the Competition Authority, section 10 provides the mechanism for the appointment of professionals and qualifications to the institution. These are a non-executive chairman appointed by the Minister for Finance, the Permanent Secretaries representing the Ministry for Finance and the Ministry for Trade and Industry respectively, the Attorney General or representative, the Director General of the Competition Authority and five other members appointed by the Minister who are experienced in competition and consumer welfare matters. Of the latter five, one must at least be experienced in consumer welfare matters. While a broad representation to regulatory institutions generally and the Competition Authority is desirable, the structure of this Competition Authority merits some comments. Viewed entirely from an institutional design standpoint, it is essential that the design of the authority should pay close attention to the operational and financial autonomy of the Competition Authority. Looking at the institutional structure laid out in section 10, it is worthy of note that of the ten members of the Competition Authority, only the representatives of the Attorney

IEA- Draft Brief on Competition Bill 2009

General, the representative or Permanent Secretary from the Ministry of Trade and the Director General are not appointees of the Minister for Finance. This structure of appointments does not suggest sufficient operational autonomy from the Treasury. In addition to this, regulatory benchmarks world over are based on a cost-benefit analysis and so the formation of Competition Authority comprised of ten people appears too large. It is still possible to reduce the representation in the Competition Authority to a total of seven excluding the Director General without affecting the quality of its decisions. Tenure of the Members of the Authority While the Competition Bill, 2009 explicitly states the manner of appointment of all the principal officers of the authority in section 10, the terms and period of tenure of all members of the board except for the Chief Executive are defined in the schedule to the bill. With the exception of the members appointed by virtue of holding offices in the Attorney Generals office, the Ministry of Finance and the Ministry of Trade, all other members of the authority should serve a maximum of two terms of no more than three years each. This is a reasonable proposal, as it would ensure that regulatory institutions have a steady inflow of professionals with different perspectives and capacities serving within the Board of the Competition Authority. It is essential to ensure that the Competition Authority maintains openness to new ideas and allows for competition in service within it without entrenching individuals. Formed in the same manner as a state corporation, the Competition Authority will be headed by the Director General who will also be the Chief Executive Officer. The bill does not specify the formal qualifications of the Director General in section 12, except in that the Competition Authority whose members have been defined in section 10(a) to (f) shall appoint the person. The only qualification is that the chosen candidate must be appointed from among persons having knowledge and experience in competition matters. Section 12 does not strictly specify whether such person must be a citizen of Kenya and this is progressive because it implies that this important position may be open to competition to professionals based on their competence only. Thus the working head of the Competition Authority is the Director General with the other holders of statutory positions acting as the oversight and policy guidance body. The Director General, as the chief executive officer, shall be an ex-officio member of the Competition Authority and shall bear no vote during the meetings of the Competition Authority. On the other hand, the bill has not defined the limits to the tenure of the holder of the office of the office of the Director General. Practice elsewhere often accords every Chief executives of comparable institutions service for two terms of five years each. However, should it be considered necessary to extend the term of the Director General for a third term, then legislative approval should be built into the section 10 of the bill.

IEA- Draft Brief on Competition Bill 2009

Considering that the Competition Bill, 2009 envisages that the Competition authority would have jurisdiction over all sectors of the economy, its internal arrangement must reflect ability to conduct sufficient market surveillance and determine issues for action. Section 19 (1) therefore allows the Competition Authority to establish one or more divisions, as it deems appropriate for the performance of its functions in the bill. The subsequent section 19(2) would allow for the appointment of directors for each of its divisions. This is a critical factor because these directorates would probably form the professional side of the Competition Authority. The expectation is that these directorates or divisions would be established to mirror the industries in the Kenyan economy Exemptions and Exclusions One of the outstanding weaknesses of the Restrictive Trade Practices law (Cap 504) was section 5 which exempted the public sector and all quasi-government institutions from the provisions of that law. In a liberalized economy with hopes of building credible businesses in the private sector, this was a significant barrier because state corporations throughout the country were among the largest enterprises in the markets in which they participated. This effectively placed some of the largest monopolies in Kenya outside the domain of competition law and was discriminatory to any competitors that may have subsequently entered the market. Section 5 (1) of the Competition Bill, 2009 expressly states that the act shall apply to the government, state corporations and local authorities in so far as they engage in trade. However, the bill later appears to partially negate this express provision by pulling back the applicability of fines and prosecution in section 5(4). This latter clause states that government shall not be liable for any fine, penalty or prosecution for offences under this act. However, it is possible to argue that while section 5 (1) distinguishes public sector agencies from the Government, state corporations and local authorities, the latter clause refers exclusively to Government. This leads to the interpretation that local authorities and state corporations are not themselves full beneficiaries of the proposed exclusion clause. Regulatory coordination To the extent that competition among firms takes place in a large number of industries, it is critical for the bill to establish the jurisdiction of the Competition Authority that it establishes. It is also essential to note that because of the institutional weaknesses that have existed, the major issues of competition policy have in the main been handled by sector regulators with a degree of discretionary consultation with the Monopolies and Prices Department. Section 5(2) of the Competition Bill, 2009 proposes to place the provisions of the bill regarding competition above other laws and statutes that may exist. In this sense, the main point of reference regarding competition law in Kenya will be this bill. Importantly too, section 5(3)(a) notes that there is need to work with sector regulators in areas of concurrent jurisdiction. In spite of this well designed attempt to ensure that there is no conflict in the regulatory functions, it is an important signal to private sector firms that the last word in industry competition will rest with the Competition Authority.

IEA- Draft Brief on Competition Bill 2009

III. Restrictive Trade Practices (Section 21-40) Part III of the Competition Bill, 2009 addresses the first anti-competitive behaviour and this is under restrictive trade practices. Under section 21, the bill correctly places focus not on the structure but conduct and practices that amount to restrictive trade practices. Section 21(1) define restrictive trade practices as: (A)greements between undertakings, decisions by associations of undertakings, decisions by undertakings or concerted practices by undertakings which have as their object or effect the prevention, distortion or lessening of competition in trade in any goods or services in Kenya or a part of Kenya and declares these prohibited by this bill. This definition is fairly comprehensive and is critical for enforcement because it particularly targets the agreements or behaviour with the object or effect of lessening competition. This places the duty for the establishment of this object and effect on the Competition Authority. Read together with section 21(2) (a) and (b), the agreements may be between horizontal or vertically integrated business entities. Under section 21(3) (a) to (i) clarity is added to the practices that these restrictive practices would include: Direct or indirect price fixing Market division or allocation of customers, area, goods or services, Collusive tendering Minimum resale price maintenance Limits or control of production, outlets or access, investment or development Application of dissimilar treatment to equivalent transactions thereby placing some parties at disadvantage Placement of conditions that conclusion of contracts subject to acceptance by other parties of supplementary conditions which have no connection to subject of contracts at hand Usage of intellectual property rights in manner hat goes beyond limits of legal protection Other actions or practices that otherwise prevents, distorts or restricts competition The most significant area in which Kenyans will immediately see an effect of enforcement relates to collusive tendering in public procurement, price fixing among traders and allocation of markets. However the bill has overtly recognized the possibility that intellectual property rights may be applied and asserted in ways that may subvert economic competition. It is not clear from section 21(3) (h) of the Competition Bill whether there is the necessity to claim or prove evidence of harm regarding aggressive use of intellectual property rights to curtail competition. The recognition of the fact that intellectual property rights could be used in a manner that exceeds the limits of legal protection is without precedent in Kenyan law.

IEA- Draft Brief on Competition Bill 2009

Restrictive Trade Practices Applicable to Trade Associations Granted that trade associations in Kenya are allowed to organize members and sometimes commit members to certain commercial practices, it is noteworthy that the Competition Bill would examine the behaviour of guilds very keenly. Section 22 (1) (a) proposes that coordinated action by trade associations to unjustifiably exclude any person from carrying on trade would be subject to closer scrutiny. The bill goes ahead to state that the purpose for that examination would include a determination about the relevance and reasonableness of such exclusion from trade. This law therefore places trade association licensing within the purview of Kenyas competition law. The opening up of associations to competition from all capable Kenyans is a laudable measure as trade associations in Kenya have arbitrarily applied regulations and changed their standards to exclude other professionals. Equally relevant is Section 22(1)(b) that tackles the price setting behaviour of trade associations and the effects on competition. It states that any direct or indirect recommendation in relation to prices and formulas connected to that would be in contravention of the law. Thus the bill proclaims that irrespective of the powers that trade associations may have in providing rules for determination of fees, any implicit or explicit action providing guidance on the setting of prices or terms of sale for products and services would be a clear restrictive trade practice. Indeed, section 22(4) is a proactive factor, as it requires a presumption of collusion by members of a trade association where a specific recommendation is made by the association. Essentially, where such a recommendation affects the trading conditions, then the Competition Bill would be apply. Under section 22(5) liability for individual members of trade associations will be assumed unless the member expressly dissociates herself in entirety with the recommended restrictions in writing. In section 22 (6) restrictive trade practices under the new bill qualify as a penal offence and carry imprisonment terms of up to five years, a fine not exceeding one million shillings or a combination of both. Abuse of Dominant Position (Section 23-24) Sections 23 and 24 of the Competition Bill are dedicated to addressing the abuse of dominant position. Section 23 sets the criteria for determining the existence of a dominant position. According to the Competition Bill, 2009 a dominant undertaking under the act will apply either one or up to two other independent undertakings which together produce, supply or distribute or otherwise control not less than 50% of the market share of goods or services of any description in Kenya or a substantial part of the country. In section 24 (2)(a) to (e), the itemized descriptions of conduct that qualify under abuse of dominant position in the whole country or a substantial part include, imposition of unfair prices or selling conditions, limiting or restriction of supply, applying different conditions to equivalent transactions with other parties, imposing supplementary conditions to commercial contracts and abuse of intellectual property rights. Any contravention

IEA- Draft Brief on Competition Bill 2009

that creates a finding of abuse of dominant position attracts penal sanction of either imprisonment for up to five years or a fine of up to one million shillings or both. Exemptions Procedures and Reasons for Restrictive Practices Under section 25, relevant undertakings may seek exemption from the restrictive practices that have been outlined in sections 22 to 24 of the bill. The dedicated procedure would require an application under section 25(2) where the application is made in a prescribed manner and accompanied by supporting information justifying the need for exemption. Having received and considered this information, the Competition Authority is statutorily obliged by section 25(3) to publish a notice for public comment in which the particulars of the exemption sought are stated. In addition, the notice shall call upon interested persons to make written representations regarding the application and the merits for it. The formal response is either to expressly grant the exemption, refuse to grant or a declaration stating that the agreement, decision or concerted practice for which leave is sought do not amount to an infringement in the first place and does not warrant an exemption. The allowable reasons stated in section 26(3) are whether the agreement contributes to export promotion, improving or preventing decline in production and distribution of goods or services, promotion of technical or economic progress or where the public benefits would outweigh the harm caused by lessened competition. In spite of the great effort to carefully craft the exemptions, it is of concern that the qualitative reasons are wide hence the possibility that the Competition Authority would be overwhelmed with undertakings seeking to be granted that exemption. In essence, the allowable reasons stated have become significant portions of Kenyas industrial policy. However the weakest link in the determination process comes in the form of section 26(2) that allows discretion to the Competition Authority to grant exemptions for exceptional and compelling reasons of public policy. In addition, the bill proposes to allow restrictive practices provided it is shown that exports are expanded when the ability to subject local products to competition raises overall welfare. Taken together with section 26(4) it is clear that the Competition Authority is not required to limit the time frame or to undertake reviews of the exemptions regularly. It is possible that because of the failure to state it, the periods will be unduly stretched. It is admitted however, that with significant allowances for periodic reviews, limited exemptions for the reasons above are accepted as part of the administration of competition law in many comparable jurisdictions. Revocation and Exemptions for Professional Associations (Sections 27-30) Section 27 and subsequent clauses have asserted the revocation powers of the Competition Authority where the exemptions were granted and certificate of clearance issued. Reasons for the revocations include materially incorrect information being supplied to encourage the issuance of clearance, material change of circumstances since the exemption was granted and the failure of the undertaking to adhere to a condition that was attached to the exemption. In recognition of the material change, it is arguable that the Competition Authority

IEA- Draft Brief on Competition Bill 2009

has the discretion to review the circumstances for any exemptions that it grants. On the other hand, exemptions in respect of professional rules are allowable subject to an application but must satisfy the Competition Authority that the rules for which exemption is sought are necessary to maintain professional standards or the ordinary function of that profession. In this the regulatory requirement rightly places the burden upon the professional associations to provide proof that the exemptions are justifiable. To ensure that the strong provisions contained in the bill against restrictive practices and other anti-competitive behaviour are applied, the bill should state that exemptions, where necessary are for a limited period but that competition should be the default position in Kenyas economy. In order to infuse the required competition into industries or professions governed by professional associations and guilds, the Competition Authority must apply the exemptions narrowly. This is because very wide latitude would encourage the formation of professional associations with the primary aim of restraining competition and fixing prices. Investigatory procedures, processes and powers (Section 31-40) Included in section 31 through to 40 are powers of investigation into prohibited practices. These are procedures for entry and search of premises by officers authorized in writing to legally enter into premises occupied or controlled by any trader, manufacturer or other business enterprise whose businesses qualify for regulation under the bill. Commencement of investigations may be by the Competition Authoritys initiative or from another person or government agency as stated under section 31(1), provided the matter of complaint is related to infringement of Restrictive Trade practices or to infringements related to Abuse of Dominance. Under section 31(2) the bill also commits the Competition Authority to formally communicate its decision whether or not to investigate an infringement for which a complaint was made in addition to the reasons for such decision. Section 32 confers powers for entry and search by authorized persons to enter into and inspect premises of any enterprises in order to have access to relevant information and documents relevant to the investigation. This power of seizure is extended under section 32(3) to involve the impounding and copying of computer records, together with other outputs from computers and issuance of receipt for such attachment. The Competition Authority may also seek the assistance of police officers and other law enforcement agencies to execute the mandate herein. It may be anticipated that constitutional challenges to these search and seizure of business records may be placed in the High Court. However, the most critical clause for constitutional purposes is section 33(1) that authorizes the Competition Authority to receive evidence that is useful for an investigation even where that evidence would not be admissible in court. While regulatory authorities in Kenya have generally had powers of search and seizure, they have often been very rarely utilized. The granting of powers to receive and act upon information that would not stand in the court may render some of this evidence subsequently inadmissible if it was challenged in the High

IEA- Draft Brief on Competition Bill 2009

Court. This is more critical especially considering that section 33 (4) purports to grant to witnesses appearing before the Competition Authority similar immunities and privileges as a witness before the High Court. To the extent that these privileges alluded to are determined by the Evidence Act, the bill does introduce an inconsistency with the provisions of section 33 (1) above. The intent of the bill appears to be in making available evidence that may come from within a firm and that which could be challenged in court. The best way to ensure that this opportunity is made available is to allow for whistle blowers to present evidence before the Competition Authority or the Tribunal in exchange for leniency. A leniency clause is much less likely to be successfully challenged on constitutional grounds than a prescription that tries to circumvent the rules of evidence provided by the Evidence Act. Section 37 grants the Competition Authority the dispensation to grant interim relief where it is reasonably convinced that certain undertaking(s) is engaged in or about to engage in conduct that may result in serious irreparable damage to persons or where conduct requires intervention to protect the public interest. The regulatory action defined by the bill here requires the Competition Authority to issue cease and desist orders until an ongoing investigation is complete. Aside from the powers that come with conducting investigations and collection of evidence, the Competition Authority also bears settlement powers. Prescribed in section 38 (1), these powers allow for the body to enter into an agreement with undertakings concerned during or after concluding the investigation. The agreements are specified within section 38(2) as an award of damages for complainant or a pecuniary penalty. In the interest of transparency and public information, any decision taken in respect of sections 37 and 38 respectively shall be published in the Kenya Gazette as notices in accordance with the requirement of section 39. Appeals against the findings and the decisions of the Competition Authority regarding Restrictive Trade Practices (part III) will be sent to the Tribunal established by this bill and subsequently to the High Court, which bears original jurisdiction (section 40). IV. Merger Policy (Section 41-49) Mergers are covered under part IV of the bill and defined in section 41(1) as occurring when one or more undertakings directly or indirectly acquire or establish control of part or whole of another business or undertaking. It contemplates mergers as achieved through purchase or share lease, acquisition of controlling interests, the taking over of an undertaking under receivership whether within or outside Kenya, through vertical integration, exchange of shares or other forms of amalgamation. Besides the setting out of the comprehensive factors that lead to a merger, the subsection 41(3) states the means through which a person may be considered to control an undertaking. These range from beneficial ownership of more than 50% of the issued share capital, control of the majority of votes at an Annual General Meeting, veto capability on directors of the corporation and the ability to materially influence corporate policy. Clearly, this set of criteria apply in

IEA- Draft Brief on Competition Bill 2009

the main to majority shareholders which allows the individual to exert influence on the firm through a variety of ownership or control mechanisms that are legally permitted. Notification of the intent to merge undertakings is required by section 43(1) by each of the firms that are party to the proposed merger. From a regulatory perspective, it is difficult to justify the reason for two undertakings to each prepare the notification documents when a joint notification would suffice. This presentation of the notification may be followed by request for further information from the Competition Authority. However, upon receipt of all relevant information and having made material requests, the Competition Authority is required by section 44 to make a determination within 60 days of receipt of notification. Where the Competition Authority requests for further information as provided in section 43(2), the determination must be made within 30 days except in the event that a hearing conference prescribed under section 45 is held. In the latter case, the determination is made within 30 days after the convention of the hearing conference. In spite of the elaborate setting of timelines for determination, the bill provides dispensation for the Competition Authority to extend the decision period for a further sixty days through a Gazette Notice. This dispensation is applicable on grounds of complexity of the issues involved in particular merger cases. Still, this section 44(2) demands that the undertakings involved be informed in writing of the delay in reaching a formal decision. A hearing conference referred to above is possible and may be called at the discretion of the Competition Authority. According to section 45 (1) and (2) a hearing conference, if considered necessary, must be held before the expiry of the determination period in section 44 with reasonable written notice to the undertaking. That notice would specify the decision to convene, the date, time and venue in addition to the matters to be discussed. Following section 46 (1), decisions about mergers could result in three outcomes including, an outright approval, a decline in approval and an approval with attached conditions. Within the same section are the relevant factors upon which the decisions for merger may be based. Section 46(2) states the criteria that would be applied by the Competition Authority in reaching a decision on a merger proposal. There are seven specific criteria upon which the authority may base its decisions. These are not circumscribed because the clause states that the Competition Authority may base its determination upon any factors considered relevant and that the delineated factors are among them. As a result, the enumeration of factors therefore leaves the Competition Authority with sufficient regulatory discretion to consider other material reasons in merger decisions. Communication of the decision on the merger is specified by section 46 (6) through notice and includes notice to the parties involved in a proposed merger and the formal notice through Gazette publication. The bill places the duty to provide written reasons for the decisions under section 46(6) (b). These two instances are either where the merger is:

IEA- Draft Brief on Competition Bill 2009

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(i) (ii)

Prohibited or conditionally approved or At the request of any party to the merger

In section 47(1), the Competition Authority would revoke merger decisions where the prior decision was informed by materially incorrect or misleading information presented by a party to the merger. In addition, revocation is contemplated under section 47(1) (b) where a party has failed to comply with conditions attached to approval of that merger. Granted that the Competition Authority would have to issue a formal notice regarding the intent to reverse a merger decision, the lack of a time limit to the use of its discretion here implies that merger decisions will forever remain subject to future reversal. The two factors that would lead to the revocation of a merger decision are significant but the lack of a time limit reveals the assumption that firm consolidation could easily be reversed irrespective of a time lapse. It may be necessary to introduce a time limit within which a merger may be reversed and consider any financial penalties related to deliberate presentation of incorrect information as a separate sanction. The right of appeal to the merger decision rests with the Tribunal, which would consider the decision within thirty days after receiving an application. The procedure for the review is stated in section 48 and this includes the formalities and the notice period. Upon receiving an application for review, the Competition Tribunal shall publish the fact of appeal in a legal notice within thirty days of its receipt. The notice will state the fact that an appeal has been made for a review of the decision in addition to inviting interested parties to make submissions to the Tribunal. While complying with this procedure, the Competition Tribunal must ensure that it issues its decision on the application within four months of the initial application for review having been made. Thus section 48 (3) is primed to ensure that the review of the Competition Authoritys decision on a merger is made and determined within four months. Having reviewed the merger case, the Competition Tribunals decision may specify one of the following four options: (i) (ii) (iii) (iv) Overturn the Competition Authoritys decision Amend the Competition Authoritys decision by ordering restrictions or including conditions Confirm the decision of the Competition Authority Refer matter to the Competition Authority for reconsideration on specific terms

Noting that the High Court in Kenya wields original jurisdiction in all legal matters, section 49(2) confirms that any party may then direct an appeal to the High Court regarding the Competition Tribunals decision. An appeal against the decision of the Competition Tribunal would have to be made within thirty days of notice following the decision. However, the bill attempts to limit the options of the applicant by stating that the decision of the High court would be final. Given the constitutional right of appeal to the Court of Appeal on matters of law, it is unlikely that this prescription would stand strict judicial scrutiny and should be expunged from the bill.

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V. Control of Unwarranted Concentration of Economic Power (Section 50-54) Part V of the bill outlines the means for identification and action on unwarranted concentration of economic power. It starts in section 50(1) by granting power to the Competition Authority to keep the structure of production and distribution of goods and services in Kenya under review. The purpose for this market surveillance being to determine whether unwarranted concentration of economic power does exist and whether such a situation results in a detrimental effects on the markets. Coming specifically to the test for unwarranted concentration of economic power, section 50(4) establishes a set of tests against which concentration of economic power would be tested to determine that the situation that obtains is prejudicial to the public interest. The main factors would be: (a) The concentration of economic power would lead to an unreasonable increase in costs relating to production, supply or distribution of goods or of a service (b) Where there is an unreasonable increase in the prices at which goods are sold, profits derived from the distribution or performance of a service, where competition would be distorted or lessened, where the result would be deterioration in quality of goods or performance of services or result in inadequacy in production or distribution of or goods or services Thus the definition of market power here is focused on its effects on quality of goods and services and the ability of the firm to wield market power by restricting supply or quality of goods. Stated in section 51 is the procedure for request by an undertaking under investigation for the convening of a hearing conference. In anticipation of the possibility that an undertaking may decline to participate or may withhold participation during the course of investigation, section 51 (4), states that, A hearing shall not be deemed inconclusive due to the mere fact of non-cooperation by concerned undertakings. From the perspective of private firms, the most significant clause is section 52(1) to (4) which delineates the range of remedies that the Competition Authority may order after completion of investigations. A firm deemed to hold unwarranted concentration of economic power in any sector may be subjected to an order for disposal of a portion of interests in production, distribution and supply of goods or services as is considered necessary to remove unwarranted concentration. Apart from the order of divestiture, section 52(2) states that specific trading conditions may also be imposed. A disposal of interest under section 52(1) above, may also be accompanied by the requirement for sale of all or part of a persons beneficial interest in an enterprise or components as provided by section 52(3). Exemption of Manufacturing Firms from Subdivision

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The range of remedies anticipated by the bill would be serious as they allow for break up or significant divestiture by an owner or another undertaking for a firm that is found to hold unwarranted concentration of economic power. However, section 52(4) provides an exemption to a manufacturing firm where the effect of an order of subdivision and introduction of independent units would result in a reduction of efficiency and a substantial rise in production costs per unit of output. However, the provision appears to be too tightly prescribed and would benefit only manufacturing firms which are so integrated that the costs of its subdivision would threaten the viability of the firm or raise costs for consumers. All orders and decisions made from findings of the Competition Authority are also subject to appeal to Competition Tribunal in the first instance and ultimately to the High Court (section 54). Sanctions for the any offense related to failure to comply with the orders of the Competition Authority or as modified by the Competition Tribunal is subject to either a prison term of up to five years, a fine not exceeding Kshs. 1 million or to both. VI. Consumer Welfare Provisions (Section 55-70) Consumer protection legislation has recently been incorporated into competition laws as a matter of best practice; the prescriptions of consumer protection in this bill are illustrations of abuses in the advertisement of products and the blatant misinformation of consumers. Contemporary competition policy practices have encouraged this fusion of consumer protection to competition law because of natural synergies between these two. It has been determined that consumers often bear the significant cost due to infraction of competition laws. The Competition Bill, 2009 includes important consumer welfare provisions into the proposed law. From section 55, the bill prescribes offenses related to false and misleading representations of products or services. Under 55 (a) these offenses include false representation in respect of: i) That goods or services meet certain standards, quality value, grade, composition or model ii) The age of goods iii) That a particular person has agreed to acquire goods or services iv) That the goods have sponsorship or carry benefits v) That the goods or services have an affiliation that they do not have On the other hand, section 55(b) defines the offense in trade or commerce where a person makes a false representation in respect of price, availability of repair or spare parts for goods, place of origin, the need for the goods or existence or effect of any condition, warranty or remedy. In all, this section would have an effect on the manner in which salespeople or a corporation makes claims about the attributes of any goods or services that it produces and sells. This section also prohibits the false representation of the origin of goods or its effects without necessarily making it compulsory to state these. In effect, it places responsibility on a seller to make verifiable and truthful claims in marketing of products and services.

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In section 56 (3) and (4), the bill identifies potential abuses perpetrated by financial service providers. It therefore prohibits the imposition of unilateral fees or charges, by whatever name, without prior communication of the intent to levy charges. By a liberal interpretation, these sections it becomes evident that the protections offered to consumers in the bill are related to misrepresentations in advertisement and levies that financial service providers make to their clients. So it is instructive that the consumer welfare portions of the bill have been particularly directed towards the possibility of stealth in raising fees and levies in financial services. For this reason, institutions in Kenyas financial services industries have been placed directly within the purview of the Competition Authority. As part of the protection to the public, the bill provides for offenses on unconscionable conduct in business transactions. Section 57 (2) leaves to the Competition Authority the discretion to determine what qualifies as such. However, it provides a listing of the factors that the Competition Authority may take into account in determining whether any action constitutes unconscionable conduct. These include consideration of the bargaining conditions and knowledge by customers about the services and goods that they are purchasing and the extent to which both supplier and purchaser acted in good faith. In the performance of its consumer watchdog role and enforcer of consumer protections, the Competition Authority is compelled by section 58(1) and (2) to publish a warning notice stating the commencement of an investigation and include a warning of possible risks that are suspected to come from use of goods that are specified. Subsequent to the conclusion of the investigation, another notice announcing the results of that investigation will be published in national newspaper. In summary, the consumer protection portion of this bill has substantially augmented the roles of the Competition Authority beyond those contemplated by the present competition law. Among these new tasks that have been added to the conventional roles of a competition authority are to ensure adequate product information and safety standards through surveillance, investigation, warnings and imposition of penalties. Section 58(3) allows the Competition Authority the dispensation to delegate the duties related to investigation and determination of standards to other specialized agencies in the public sector. Anticipating the possibility of jurisdictional confusion in respect of the definition of product standards and the determination of liability, the bill specifically directs the Competition Authority to consult with the Kenya Bureau of Standards (KeBS) in all matters involving definition, specification and grading of goods for the purposes of the competition law. Consumer bodies are also given recognition as section 68 of the bill asserts their entitlement to notify the Competition Authority of infringements that may be subject to investigations. VII. Establishment and Powers of the Competition Tribunal (Section 71-77) Separate from the Competition Authority, the Competition Bill, 2009 has established the Competition Tribunal comprised of a Chairman in addition to

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between two and four other members. The established qualifications for the Chairman are set as those of an advocate of the High Court of Kenya with not less than seven years standing. Given that the Competition Tribunal will perform functions of hearing and adjudication of matters that emerge from decisions by the Competition Authority, it is understandable that the professional qualifications mirror those of a person qualified to serve as a judge in Kenyas High Court. Additional members of the Competition Tribunal would comprise of between two and four others to be appointed by the Minister for Finance. It is noteworthy that the bill does not specify the qualifications of the other members of the Competition Tribunal and that virtually the entire set of professionals are singularly appointed by the Minister for Finance. Section 71(3) clearly places a maximum of five years as the period of service for though the discretion to appoint for a shorter duration is implied. As a result of this residual discretion, the Minister may appoint members of the Tribunal and accord to each a different period of service in the instrument of appointment. By virtue of section 71 (2) b, the size of the tribunal would range from a minimum of 3 to a maximum of five members. Sitting quorum for the Competition Tribunal shall be the Chairman and two other members. In addition, the Minsters discretion is extended under section 71(5) in the determination of all fees and allowances payable to the members of the Competition Tribunal. The Competition Tribunal may confirm or modify an order appealed against in part or in full. Additionally, Section 75(1) and (2) provide the legal dispensation to refer an entire case back to the Competition Authority for reconsideration while giving its reasons for the same and giving the Competition Authority further directions in respect of the decision for rehearing of the case. Because the Competition Authority would automatically be a party to any appeals before the Competition Tribunal, section 77 accords it too the right of appeal to the High Court against any decision of the Tribunal. VIII. Financial Provisions and Management of Funds (Section 78-82) Part VIII of the Competition Bill, 2009 provides the sources of funds and their management and book keeping by the Competition Authority. The recognized sources of funds for the Competition Authority are grants, donations and bequests, funds allocated by the legislature, fees and penalties levied by the Competition Authority and any refundable litigation costs. According to section 78(2), disclosures of the sources and details of funds managed by the Competition Authority shall be made in the annual report. Similar to all state corporations, section 79 of the bill confirms that the financial year shall be the period of twelve months ending on the 30th June of every year. Annual estimates of revenue and expenditure permitted under section 80 would cover all salaries for officers of the Competition Authority and its agents, payment of pensions and retirement benefits, maintenance of buildings and grounds, repair and purchase of equipment and the creation of a reserve fund. These estimates

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would be prepared up to three months before commencement of the financial year and section 80 (3) requires the submission of the estimates for approval by the Minister for Finance. The proper books of accounts, accounting for income, expenditure, assets and liabilities of the Competition Authority shall be presented in a report to the Controller and Auditor General in preparation for the financial audit. This must be presented within three months of the end of the governments financial year. Section 81(3) of the Competition Bill affirms that the financial audits shall be in accordance with the prescriptions of the Public Audit Act that applies to all state corporations. In anticipation of the possibility that the Competition Authority may have excess funds in its reserves, the bill in section 82 (1) and 82 (2) respectively provides the dispensation for investing reserves either in trust funds and securities with the approval of the minister or place the same in a deposit in banks. In both cases, these investments and savings would be subject to the approval of the Minister for Finance. It is noteworthy that there is no caveat or limit on the proportion of funds that the Competition Authority may place as investments and the decisions are only referred to the Minister. Considering that the discretion to invest public funds is not subject to external review save with the Minister for Finance, the imposition of a limit on the investments is warranted. This is because the choice of instruments for investing reserves is understandable but the primary purpose of the Competition Authority is to enforce the competition law. Such investments are not in any way a critical component of the roles assigned by the legislature to the Competition Authority. Also, the choice of investments and the firms to which the funds are directed expose the public funds to some degree of risk that requires a wider review than the Competition Authority on the one side and the appointing office of the Minister for Finance. IX. Miscellaneous Provisions (Section 83-93) The Competition Authority is charged with preparation and presentation of an annual report by 30th of September of every year for the last financial year and present that report to the Minister for Finance by 30th November of the same year. That annual report is expected to contain details of the performance of the institution, the nature of cases considered, significant studies and other supplementary information required by the act or requested in writing by the Minister for Finance. In turn, the Minister for Finance shall present the Annual Report prepared by the Competition Authority to the national assembly. In recognition of the discretion and powers granted to officers and agents of the Competition Authority, section 85 (1) demands for disclosure of financial or private interest in a matter before the Competition Authority. That individual must make such disclosure to the Chairman of the Competition Authority and may not participate in the investigation of that matter. In section 85 (2), the bill

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prevents any officer of the Competition Authority from using confidential information obtained from the performance of duties for any financial advantage. Whereas the Competition Bill, 2009 has placed criminal sanctions for infringements for most of its provisions, section 86 states that all investigations of such infringements must be initiated within a three year window. Thus no allegations of infringements, whether carrying penal sanctions or civil actions would be subject to investigations after three years from the cessation of such infringements or date of their occurrence. Later in section 92 of the bill, the general penalty prescribed for offences are a fine not exceeding five hundred thousand shillings and a prison term not exceeding three years. X. Repeal of Cap 504 and Transitional Provisions (Section 94-100) One of the main effects of the Competition Bill is the effective dissolution of the Monopolies and Prices Department of the Treasury and the repeal of Cap 504 of the laws of Kenya. Reading from section 95 (1), all assets and property that the Permanent Secretary of the Treasury held on behalf of Monopolies and Prices Department shall vest immediately in the Competition Authority when the bill comes into force. It is also significant when the Competition Bill comes into force, all legal proceedings by or on behalf of the government will be taken over by the Competition Authority as stated in section 97. Other transitional provisions relate to the public sector staff serving under the Monopolies and Prices Department. All these officers, the Commissioner and other staff serving as such will be deemed as seconded to the Competition Authority as soon as the bill comes into force. On the other hand, the reassignment will be valid for twelve months whereupon the Competition Authority may retain those suitably qualified as determined by section 98(2) or redeployed to the public sector in section 98(3). The repeal of the Restrictive Trade Practices, Monopolies and Price Control Act (Cap 504) is explicitly provided under section 99. Notwithstanding the effective repeal of Cap 504, section 100 allows the Competition Authority to take over any pending applications for mergers or investigations related to unwarranted concentrations of economic power and restrictive trade practices. This section intends to ensure that as far as investigations are concerned, there is a smooth transition with minimum breaks in the investigations and enforcement action that was already commenced. Conclusion The passage of the Competition Bill that has been summarized and reviewed in part here would enormously raise the degree of economic competition in Kenya while simultaneously enhancing consumer welfare. For the Institute of Economic Affairs, the passage of a competition law has remained an important goal because it would complete the first part of the economic reform journey that started in the mid 1990s and which lost momentum largely because of the failure of regulatory

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institutions to dispassionately enforce competition policy in their respective areas and the lack of a coordination mechanism with the existing Monopolies and Prices Department provided under Cap 504. The main benchmarks for the bill would be the degree of financial and operational autonomy allowed for the Competition Authority to execute its regulatory policy role and the capacity that is created to enable it demonstrate its value to Kenyan consumers. Granted that the bill leaves certain discretion in the hands of the Minister for Finance, it has substantially expanded the autonomy of the Competition Authority beyond that provided for its predecessor, the Monopolies and Prices Department. The operational autonomy of the Competition Authority could certainly be improved with more scrutiny of its budget and operations, but ministerial discretion in appointments of both the institutions of competition law enforcement should be reduced or ratified independently. The bill also promotes public engagement through recognition of consumer welfare bodies and mandates a comparatively higher level of disclosure on ongoing cases through legal notices and hearing conferences. In all, the present bill marks a great stride forward for Kenyas economy in terms of enforcement of law to infuse economic competition, facilitating market surveillance activity, reduction of restrictive trade practices and ensuring improved operational and financial autonomy for both the Competition Authority and the Competition Tribunal. The crucial test for the performance of the bill and its contribution to Kenyas economy remain the extent to which it improves overall welfare through a reduction in cartelization, protectionism and unwarranted monopoly power. The priority for the legislative committees that will review the law should be to negotiate the moderation of Ministerial discretion for Finance and consider a reduction in the wide exemptions granted for restrictive trade practices.

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