The High Court has granted the Commerce Commission leave to serve proceedings against three European companies for an alleged global cartel that affected the New Zealand electricity industry.

The alleged cartel supplied gas insulated switchgear, which is used to control the flow of electricity in substations.

The allegations are against French companies Alstom Holdings SA and Schneider Electric Industries SA, and German company Siemens AG.

In a Statement of Claim filed in the Auckland High Court on 20 April, the Commission alleges that between 1988 and 2004 the companies gave effect and conspired to give effect in New Zealand to a global cartel for the supply of gas insulated switchgear.

Earlier this year, the European competition regulator fined the defendants and other companies over €750 million for conduct based on the same cartel agreement.

It is alleged that the defendants implemented the price-fixing and bid-rigging cartel through their wholly-owned subsidiaries in New Zealand. Because the defendants in this case are all based overseas, the Commission was required to seek and obtain leave from the Court to serve the proceedings abroad.

"While GIS technology is not widely used in New Zealand, these companies are major players in New Zealand electricity markets, supplying a wide range of products and services," says Commerce Commission Chair Paula Rebstock.

"It is important that the Commission takes action to ensure New Zealand is not seen as a soft touch for international cartels, and to warn these companies that anti-competitive conduct will not be tolerated," says Ms Rebstock.

"These proceedings send a clear message that Commission will act to protect the competitiveness of New Zealand markets from illegal interference by cartels, whether domestic or foreign."

The Commission's investigation was triggered by an application for leniency from one of the participants in the alleged cartel. The Commission's Leniency Policy means the immunity from Commission-initiated proceedings can be granted to the first person involved in a cartel to come forward with information and co-operate fully with the Commission in its investigation.

Background

GIS.

GIS is used to control the flow of electricity in substations. It is a system of circuit breakers (measuring and control devices to switch electric currents) using a high-pressure gas called sulphur hexafluoride to insulate the live elements of the switch. Customers for GIS units include electricity generators, transmission and distribution companies, and power retailers. Those customers operate substations to convert electricity from high voltages, which are most efficient for transmission over long distances, to low voltages, at which electricity is consumed by end users. In New Zealand, there are seven electricity substations using GIS. Substations in the North Island using GIS technology are Bream Bay, Liverpool, Rangipo, Motonui and Wilton. In the South Island substations at Clyde and Tiwai use the technology.

Commerce Act penalties.

The Commerce Act provides for penalties for price-fixing up to the higher of $10 million per breach, three times the commercial gain resulting from the breach, or 10% of a company's turnover.

Cartels.

Cartels harm consumers by raising prices above the competitive level. Cartels harm competitors by "ganging up" to share customers with other cartel members, and to squeeze non-cartel members out of the market. Cartels harm the New Zealand economy by making other businesses pay inflated prices for goods, resulting in more expensive end products that are less competitive.

In 1998 the OECD Council for Competition considered cartel behaviour "the most egregious violation of competition law and hence a principal focus of competition policy and enforcement." An OECD survey confirmed that the parties to cartel agreements, for the most part, are not honest business people who inadvertently become involved in a technical violation. Rather, they fully realised that their conduct was harmful and unlawful, causing them sometimes to go to great lengths to keep their agreement secret.

Price-fixing

. Price-fixing is when firms reach secret agreements to offer the same price, instead of competing to offer the best deal.

Bid-rigging.

Bid-rigging is where firms that should be bidding against each other for contracts secretly agree on which contracts each one will bid for instead of competing to offer the best deal