Tap-water supply enterprises violated
the Fair Trade Law for overcharging users for connection line work
Chinese Taipei
Case:
Tap-water supply enterprises violated the Fair Trade Law for
overcharging users for connection line work
Key words:
tap-water supply enterprises, fees for connection line work,
monopoly, natural monopoly, fee standards, ownership of property rights
Reference:
The Fair Trade Commission Decision of December 31, 1997 (the 322nd
Commission Meeting); Letters (87) Kung Erh Tzu No. 8511348-008 and (87) Kung Erh Tzu No.
8511348-009
Industry:
Tap-water Supply Enterprises
Relevant Laws:
Articles 10(1)(ii),
10(1)(iv), and
24 of the Fair Trade Law
Summary:
- According to the Business Charters for tap-water supply enterprises,
the user shall pay for the connection line work, i.e., the facilities set between the
user's water meter and the distribution pipelines, installed by tap-water supply
enterprises. In addition, Taiwan Water Supply Corporation (TWSC) made it a requirement
that the property rights of the connection lines shall be transferred to the water company
after the completion of the work. Tap-water supply enterprises on the one hand ask the
users to be solely responsible for the connection lines fees, and on the other hand
restrict the users' choice of pipeline contractor and demand transfer of property rights.
Such requirements are far from reasonable, and the FTC has received a number of complaints
about the excessive fees charged by tap-water supply enterprises for connection lines
work. Such complaints have been resolved case by case with assistance from tap-water
supply enterprises. However, in view of the fact that tap water has become essential to
people's daily life, the current fee standards must be rationalized, and the rights and
obligations of the users and tap-water supply enterprises be clarified. Therefore, the FTC
took the initiative to invited TWSC for discussion on two resolution proposals which are
(1) the users are allowed to choose the pipeline contractors; (2) Article 65 of the
Tap-Water Law is applied mutatis mutandis; tap-water supply enterprises shall charge the
users no more than one-half [of cost] to users of connection line work. TWSC was suggested
to amend the relevant provisions in its Business Charters.
- The product supplied by tap-water supply enterprises is delivered to
their trading counterparts by means of pipelines. The pipeline distribution approach makes
it inappropriate to have more than one parallel supplier in the same area, thus resulting
in natural monopoly in the particular area. In Chinese Taipei, both TWSC and TWD are
monopoly enterprises publicly announced by the FTC. The monopoly enterprises shall not
violate Articles 10(1), 10(2), 10(4) and 24. In this case, on the one hand tap-water
supply enterprises in their business charter require the users to pay for the connection
line work, in which the enterprises themselves should have invested as part of their
infrastructure. On the other hand, tap-water supply enterprises designate one exclusive
pipeline contractor to monopolize the market so as to acquire excessive surplus. Such acts
may very well raise concerns that they may have violated the provisions of the above
articles.
- In the wake of several discussions, TWSC took the initiative to
propose alternative measures: (1) TWSC would extend the distribution pipelines and collect
from users no more than one-half of the fee based on costs so as to shorten the distance
of connection lines; (2) TWSC would make initial investment in acquiring pipes of bigger
caliber; (3) water meters would be adjusted, if necessary; (4) The total amount would be
charged to users who apply for water supply pipes of 25 millimeter and below caliber, and
the underground pipelines are no longer than 40 meters. For the part exceeding these
specifications, the users would be charged one half fees for the materials. Among the four
measures, item (4) is more meaningful to the reduction of fees borne by the users for the
connection line work and the spread of pipelines, as in practice relatively higher fees
are charged for connection lines work in suburban areas where the distribution pipelines
have not reached. Tap-water supply enterprises are public utilities protected from
competition because relevant laws exclude other enterprises from entering into the
specific market. The purpose of such protection is to facilitate these public utilities to
achieve to their mission, i.e., to develop national resources in the interest of the
people. Therefore, it is ideal that tap-water supply enterprises can take care of those
people living in areas where tap-water supply is not yet prevalent and whose rights to use
tap-water have long been neglected by subsidizing them through the excessive profits
generated through the pipeline connection market. By doing so, tap-water supply
enterprises will be motivated to make initial investments in building underground
pipelines or extending the main and branch distribution pipelines, which may contribute to
better balanced development among different areas. Therefore, the alternative measures
proposed by TWSC should be feasible, which is also similar to the alternative suggested by
the FTC.
- As tap-water supply enterprises are long term businesses, in the
future when their financial structures are sound, higher profitability has been attained,
and changes have taken place in the social context, new needs for increased capacity to
supply tap-water may arise. By that time, questions will need to be asked as to whether it
still makes sense to maintain the 40 meter criterion or if there is room for adjustment.
The answers to such questions will be decided by feedback from the new users and the
operations situation of tap-water supply enterprises. TWD supplies water to more urbanized
areas, where there are extensive underground pipelines, so the income from connection line
work takes up a small percentage of its total revenue. Despite this fact, the first case
regarding excessive fees charged for connection line work that has been complained to the
FTC occurred in Taipei City; it seems that this is a common problem faced by Taiwan
Province and Taipei City. Therefore, the FTC also advised TWD that it shall either follow
TWSC or propose other concrete and effective measures. Failure to do so will prompt the
FTC to investigate whether TWD has engaged in violation of FTL Article 10.
Summarized by Lin, Fen-hsiu
Supervised by Yu, Su-su
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