40 million zloty fines were imposed by the President of UOKiK Cezary Banasiński on PKP Cargo for breaching the provisions of the antimonopoly Act. The basic charges against the company, which controls 70 percent of all railway cargo transportation in Poland, are forcing of onerous contractual terms to its clients and creation of barriers to establishment and development of competition

In 2003 the President of UOKiK started antimonopoly proceedings, charging PKP Cargo with the use of illegal practices against competition.

The official proceedings proved, that PKP Cargo abused its market dominant position as confirmed in provisions of long-term contracts in which the company forces its clients to accept onerous co-operation terms and draws unjustified benefits from this.

The onerous contractual terms are manifested in clauses obliging the contractor to use exclusively the services of PKP Cargo when carrying goods by railway, as indicated in an enclosure to the contract (ban on competitive activity). In case of other cargo - as long as the offer of the company is not inferior to terms offered by other carriers (the principle of preferred choice). PKP Cargo conditions long-term carriage contracts on acceptance of those provisions; should those provisions not be observed by the client, the contract may be unilaterally terminated by the company with immediate effect. In the opinion of the antimonopoly authority, such practice is not admissible since each entity should have the right to decide, which carrier it wants to use. When such right is not available, there is no freedom of economic activity - for instance, a cheaper offer may not be selected.

In the opinion of President of the Office, the above provisions bring unjustified benefits to PKP Cargo: first of all, due to absolute certainty that its contractors - bound with those contractual terms for many years - will not use any other carriers over the time, even if their offer was more favourable. In the carriage of other cargo (of less importance and bringing less profit), PKP Cargo will not have to compete with the offers of other carriers.

Long-term contracts are concluded with entities that entrust the carriage of very large quantities of commodities, such as coal and other solid fuels, building materials, raw materials used in metallurgy, etc. Thus, the provisions of the contracts may have an indirect impact on increased prices due to higher transportation costs. It is of common knowledge, that the share of transportation costs in the price of the commodity is significant and in this case even fundamental, as these are the basic raw materials used for the production of commonly consumed products (e.g. coal or thermal energy). Results of those practices shall be covered by final users (an unlimited number of consumers).

The described unlawful practices of PKP Cargo also have an anticompetition aspect, recognised as such by the President of UOKiK. The practises can be described as creation by an enterprise, holding a market dominant position, of barriers to establishment and development of competition.

Other market participants, willing to develop or start provision of railway transportation services, will have difficult access to the market. This is due to the fact that the companies which are the largest consumers of cargo transportation services, are bound with PKP Cargo with long-term contracts. Provisions of those contracts block the use of the services of other carriers. It is an obvious way to impede competition growth in the market.

As from the beginning of 2007 all transitional periods will have ended and foreign entities will be able to enter Polish market without any restrictions. Therefore, UOKiK is involved in a number of other proceedings against PKP Cargo, which are aimed at implementing competition rules in the market.

It is competition in the market that conditions liberalisation of railway cargo transportation. This is the goal served by the President of UOKiK.

In view of the above, the President of the Office instructed PKP Cargo to discontinue the questioned practices and imposed a fine of 40 million zloty on the company. When determining the volume of the penalty, the major aspect was the nature of the infringement, which is classified as major by the European Commission, as well as the economic situation of PKP Cargo. There was an aggravating circumstance which had an effect on the amount of the penalty, as the Office was provided with misleading information. During the antimonopoly proceedings, PKP Cargo informed that they had discontinued the use of some of the provisions in their long-term contracts, which actually was not the case.

The decision is to be enforced immediately. In the opinion of Cezary Banasiński, continuation by PKP Cargo of the use of the above provisions in its long-term contracts will cause an irreparable damage of elimination of competitors. However, this will not occur by way of fair competition - by cost reduction and provision of a better service package - but in effect of use of forbidden practices, breaching the competition law. The immediate enforcement of the decision will free the market and will give the companies an unrestricted freedom to choose the best service provider. On the other hand, the appearance of new railway carriers in the domestic market is subject to financial potential and the related technical potential (rolling stock).

The decision may be appealed to the Court of Competition and Consumer Protection.

Additional information:
Elżbieta Anders, Spokesperson of UOKiK
International Relations and Communication Department
Office of Competition and Consumer Protection
Pl. Powstańców Warszawy 1, 00-950 Warsaw
Ph.: (+48 22) 827 28 92, 55 60 106, 55 60 314
E-mail: [SCODE]ZWFuZGVyc0B1b2tpay5nb3YucGw=[ECODE]