The Concentration Law deals with a number of different issues: Separating the holdings of major real corporations from major financial corporations; Eliminating the pyramid structure of public companies by which they hold companies through a long chain of publicly held companies; Concentration considerations in the overall economy and competition in sectors where the State is allocating rights.
Of all the topics in which the Law deals, the section dealing with the allocation of rights by the State has in fact received very little public attention, even though it has significance for the long term impact on the economy and the character of our economic development The aim at the heart of the chapter dealing with the allocation of rights by the State is obvious but welcome. If until today, the State would allocate rights only to somebody who has made the most attractive offer, the State is now required to add to the mix of considerations factors of competitiveness in the sector and concentration in the economy as a whole. However, between this simple aim and the complicated law, bureaucracy and their confines that the legislator has succeeded in pushing through, the distance is great.
The chapter dealing with the allocation of rights by the State applies to all rights awarded by the State such as rights to acquire government companies when they are privatized or the option of transferring rights in a government company, concessionaire, licensee or tender winner conducted by the government or its authorities. In accordance with the instructions in the chapter, when the State allocates rights under its auspices, it must take into account in its considerations the competition factor in the sector and in accordance with this it must build a rights allocation procedure. In addition, the Antitrust Commissioner is authorized to create a list of rights, and the State and its authorities will not be permitted to allocate rights without consulting with the Antitrust Commissioner regarding the conditions for allocating the rights. In addition, the Concentration Law specifically deals with the allocation of rights in vital infrastructure sectors for concentrated bodies. In accordance with the Law, the State is required to take into account concentration considerations in the overall economy at the time of allocating rights in a vital infrastructure sector (such as communications, water, electricity, natural gas, roads, quarries, ports, shipping, and more). The State is permitted to refuse to allocate to an organization that has a concentration of rights in a vital infrastructure (even if it wins in a competitive procedure) and the relevant authority is required to consult with the Committee to Reduce Concentrations prior to allocating the rights for the vital infrastructure to the concentrated organization.
What are the overall economic considerations? The Law has no answer to this. In effect, no one seems to know what exactly the concentration considerations are for the overall economy that the State authorities are supposed to take into account, and the Committee to Reduce Concentrations is supposed to promote. The concentration considerations for the overall economy are a special creature created by the Israeli legislator, which has no parallel. We do not know how the concentration in the overall economy is measured, what is concentration that is effective, desirable and promotes economic growth, and what is concentration that the State is being asked to combat? Why prohibit somebody who owns a private power station from operating a quarry? Why prohibit a bus company that operates public transport from being involved in operating a television station? While the level of competition in a sector can be measured and there are economic theories that are clear and developed, and which know how to analyze when the level of competition in a sector is not sufficient, when it comes to concentration considerations for the overall economy, we then find ourselves in a position of great uncertainty.
At first sight, the chapter in the Concentration Law dealing with the allocation of rights does not impose any operative instruction on private bodies in the economy. All of it deals with internal government conduct when allocating rights by a State authority. But the ramifications of this chapter on private bodies, and especially on those that interface with the State and its authorities, is dramatic.
The bureaucratic obstacles that the Law imposes on allocating rights by the State transform the progress of the State towards the private market into almost impossible. If until now there were privatization procedures that awarded licenses and concessions or tenders in large infrastructure projects that took place over months and even years, then from now onwards we can expect such progress to be far more difficult and awkward. Important projects that deal with pushing ahead with infrastructures will become entangled in internal government disputes over considerations of choosing the winning bid and the protracted legal discussions that will no doubt accompany them.
Against this background, we should not be surprised at the presence of this phenomenon when allocating vital infrastructures in the State of Israel to foreign bodies. The Concentration Law provides foreign bodies a basic and outstanding advantage over Israeli bodies. It is not possible to come to foreign companies with charges about concentration in the overall economy and even not to disqualify them because of a lack of competitiveness in the sector. Whether knowingly or unknowingly, the legislator of the Concentrations Law has reversed the trend. If until today, it was possible to give preference to an Israeli body over a foreign body in government tenders and allocations of rights, then now the Concentrations Law provides a clear preference to foreign bodies, which are not forced to get entangled in the bureaucratic mire related to the concentration examination for the overall economy and competition in the sector.
The instructions of the Concentration Law will come into effect in December 2014. It remains for us to wait and see what will grow in the experimental laboratory of the Israeli legislator in everything regarding the allocation of rights, which is in the hands of the various government authorities.
By Head of the Antitrust and Competition Group, Meitar Liquornik Geva Leshem Tal, Law Offices.