Monday, January 5, 2015

Sultanate of Oman: The Competition Protection and Monopoly Prevention Law

The enactment of the Competition Protection and Monopoly Prevention Law (the “Competition Law”), pursuant to Royal Decree 67 of 2014, is evidence of the Sultanate of Oman’s commitment to promote the “freedom of economic activity practice and to establish the principle of market rules and freedom of prices” and prevent the “practice of any monopolistic behaviour that would affect the market.” Prior to its enactment, competition law and issues relating to the prohibition of monopolistic market practices were dealt with within several laws.

Applicability of the Competition Law

The provisions of the Competition Law are applied widely including all production, trading or service activities including any economic or commercial activities with influence in but practiced outside of the Sultanate of Oman. In addition, any misuse of intellectual property rights, trademarks and patents are dealt with under the Competition Law, if they have detrimental effects on competition. However the Competition Law does not apply to state-owned public utility companies, nor to the activities of research and development carried out by public or private authorities.

What are the main provisions of the Competition Law?

The key provisions of the Competition Law are detailed below:

Market Dominance: The Competition Law has specified that the maximum percentage of the market that a person or group of people may control is 35%. In the event of an acquisition, whether by “partial or complete transfer of the ownership of assets, shares, usufructs, rights, commitment of a person to another or the establishment of federations, or the combination of two of more managements in one mutual management that would place a person or group in a dominant positions whether directly or indirectly,” authorization from the Public Authority of Consumer Protection (the “Authority”), an independent regulatory body, must be sought. However, the Authority may only approve an acquisition to the extent that it would result in no more than 50% of the relevant market share.

Prohibited Practices: The Competition Law provides that an agreement may not be concluded if it aims to prevent, limit or weaken competition and contains specific acts that are forbidden, including:

  1. Identifying prices, discounts, conditions of sale and purchase or service performance.
  2. Determining production quantities, reducing their flow to the market or dismissing them from the market completely or partially by concealing or storing them or refusing to deal with them.
  3. Affecting those who deal in the market by suddenly providing vast quantities of products which may result in unrealistic prices.
  4. Sharing any actual or potential market on the basis of geography, consumption or type of clients or on a seasonal basis or on the basis of goods.
  5. Preventing, obstructing or stopping the practice of economic or commercial activities of some persons.
  6. Dealing or refusing to deal with specific people.
  7. Refraining from handling the product in the market whether by sale or purchase with a specific person or people.
  8. Making the performance of any act conditional on accepting obligations that are by their nature or by their commercial use not connected to the original object of transaction or the agreement.
  9. Colluding in awarding or bidding for tenders between people or adding requirements such as insertion of the trademark of a commodity or classification of its category to the conditions of tenders.

Further a person or company in a dominant position with 35% market share must not practice any act of violation hindering competition, including but not limited to:

  1. Sale of the product at a price that is lower than the actual cost in order to obstruct competitors from entering the market, exclude them or make them subject to great losses in a manner that would prevent them from continuing the practice of their activities.
  2. Imposing restrictions on the supply of the product with the aim of creating an artificial shortage in its availability so as to increase prices.
  3. Imposing certain conditions on the sale, purchase or in the dealing with another person in a manner that would place him in a weak competitive position with other competitors.
  4. Avoiding dealing with another person without justification so as to disable him to enter the market or to force him to leave the market.
  5. Making the sale, supply of a commodity or the provision of a service conditional on the purchase of a commodity or the performance of another service from the same person or another person.
  6. Identifying the prices and conditions for the re-sale of the products directly or indirectly.
  7. Imposing an obligation not to manufacture, produce or distribute the product for a specific period or periods.
  8. Purchasing, storing or damaging commodities in order to raise their prices or prevent their reduction.
  9. Decreasing or increasing the available quantities of the product which may result in unrealistic shortages or abundances of the product.
  10. Discriminating between some clients without an objective justification in similar contracts in terms of prices of products, or sale or purchase conditions.
  11. Requiring those with whom he deals not to allow other competitors to use their utilities or services even though such use is economically possible.
  12. Forcing a manufacturer or supplier to refrain from dealing with another competitor.
  13. Making the conclusion of a contract or agreement conditional on accepting obligations that are by their nature or by their commercial use not connected to the original object of transaction or the agreement.

Exclusive Agents: The Competition Law provides that any person is allowed to conclude an agreement to import any product permitted from abroad for the “purpose of selling, distributing, marketing or promoting it regardless of whether the imported product’s importation, sale, distribution, marketing, or promotion has been restricted by an exclusive agent.” This provision coincides with the Commercial Agencies Law (the “CAL”) (promulgated by Royal Decree 26 of 1977 as amended) which provides that any individual or company may import goods subject to any agency in Oman. The Competition Law is further aligned with the provisions of the CAL which state that “In case of the presence of monopoly of specific types of commodities and services that negatively affects supply and demand, and causes unjustified rise in prices, the Council of Ministers shall determine the number of allowed agencies for each agent and their kinds according to the recommendation of the entity related to competition and prevention of monopoly.”

Penalties: The sanctions imposed by the Competition Law vary depending on the violation committed, where a violator may face imprisonment from three months to three years and/or a fine that is equivalent to his profits of the sale of products as well as between 5% and 10% of his total sales deducted from his annual sales for any violation under the Prohibited Practices heading above. Other violations such as preventing the employees of the Authority from entering the establishment, withholding information, giving misleading information, or concealing or destroying a document may result in the violator facing imprisonment from one month to three years and/or between RO 10,000 and RO 100,000. For a repeated offence, the fine imposed may be doubled and the project or commercial activity stopped for a period of 30 days. The penalties described above are intended to provide an overview of some of the sanctions imposed and do not reflect all the available penalties as provided for in the Competition Law.

Role of the Authority: In addition to the penalties as set out above, the Chairman of the Authority has the control to order administrative fines provided that the fine does not exceed RO 5,000 for the first offence and RO 10,000 in case of recurrence with a RO 500 fine per day for each day the violation is not removed, not exceeding RO 10,000.

What is the impact of the Competition Law?

We are uncertain as to how the Competition Law will impact market behaviour and whether or not it will curb unfair market practices. The Competition Law is to be read in conjunction with the Executive Regulations which should provide greater detail as to its scope. Such Executive Regulations are to be published within six months from the date of the Competition Law and as of the time of writing have not been published. Whilst at this stage we are uncertain as to the Competition Law’s true effect, as the first law of its kind in Oman, the implementation of the Competition Law is certainly encouraging from the perspective of foreign investors who are more likely to consider investing in a country which values and protects free competition. In addition, the Competition Law along with the enhanced Consumer Protection Law (as recently promulgated by Royal Decree 66 of 2014) is likely to improve consumer trust in large corporations, whereby they are prevented from exploiting consumers.