3.4 The State monopoly situation in Vietnam – some selected examples
3.4.3 State monopoly in the aviation sector – cases involving Vietnam
3.4.3.1 Vietnam Airlines and Pacific Airlines
Because of its sensitive nature, aviation had been an absolute monopoly area before Vietnam started to open its market for civil aviation in the early 1990s. Established in the 1950s, Vietnam Airlines (VNA) is currently the national flag airline.Accounting for 42 percent of Vietnam‟s international passenger traffic and 85 percent of its domestic passenger traffic,208 it definitely holds the dominant position in the aviation sector.209 Pacific Airlines (PA) was established and started operating in 1991.210 This was seen as a breakthrough in removing the monopoly of VNA in the aviation sector. However, since PA was created, VNA remained the largest shareholder, accounting for 86.49 per cent of the total market, whilst the rest was shared mostly by VNA subsidiaries.211 However, until it was acquired by Qantas to form Jetstar Pacific (JPA) in 2008, PA was actually operating under the influence of VNA, which was its major shareholder and also its
207 According to the EVN claim, VNPT cited many reasons to explain the delay in connecting the EVN Telecom system to that of VNPT. Most of them were technical issues such as the limitation of ports and the incapacity of the current systems.Vietnam Net, „Network Jams in 17 Provinces, EVN Telecom Cries‟
(2006) <http://english.vietnamnet.vn/biz/2006/09/613901/>.
208 The U.S. Commercial Service and ITA Trade Development, Aerospace Exports: Market Research Identifies Solid Prospects
<http://www.ita.doc.gov/exportamerica/NewOpportunities/no_aeroex_1002.html>.
209 Not only does it have advantages as goods and passenger carrier, it can benefit from its aviation service facilities which are held by its subsidiaries and affiliates. Vietnam Airlines (VNA) is the national flag airline and a member company of Vietnam Airlines Corporation. VNA‟s parent company consists of the airline and 20 aviation businesses. See also Vietnam Airlines Corporation website
<www.vietnamair.com.vn>.
210 It had been formerly a joint stock airline in which Vietnam Airlines (the National Airline of Vietnam) was a major shareholder before this share was handed over to the State Capital Investment Corporation (SCIC) in 2005. With the purchase of 30 per cent of total shares by Qantas, the Pacific Airlines was renamed Jetstar Pacific and operated as a low cost airline in 2008. Currently, Jetstar Pacific is the second largest airline in Vietnam and a competitor to Vietnam Airlines. See VTV website, „Ra Mat Hang Hang khong Gia Re Jetstar Pacific‟ [Low Cost Airline Jetstar Starts to Operate] (2008)
<http://www.vtv.vn/VN/TrangChu/TinTuc/CKX/2008/5/24/159028/>; Du Lich Online, „Jetstar Pacific:
Hang Hang khong Gia Re Dau tien Cua Viet Nam‟ [Jetstar Pacific: the First Low Cost Airline in Vietnam]
(2008) <http://www.baodulich.net.vn/Story/vn/tieudiem/theodongsukien/tieudiem/2008/4/1848.html>.
211 Vietnam Net, „Tu Pacific Airlines, Can Mot Cuoc Dai phau Sang tao‟ [From Pacific Airlines Case: Must Have a Creative Reform] (2004) <http://vietnamnet.vn/kinhte/2004/12/359266/>.
95 competitor,212 so that there was no real competition between the two rivals.213 For that reason PA had to operate under plans designed and directed by VNA,214 and thus faced unfair competition from its major shareholder.215 Depending on aviation infrastructure,216 PA was exposed to critical difficulties and discrimination,217 including unfair competition in terms of a wide-ranging promotional program of discounts or reductions in fares released by VNA.218 In addition, most international routes had been exploited by Vietnam Airlines.219
Recently, an opportunity for market access in this area has been prevented by VNA, as
212 Ibid. Pacific Airlines was naturally a state owned enterprise. It was created in the form of a joint stock company consisting of 7 shareholders, all of which were state owned enterprises. Hence it was influenced by the methods of conducting business in state owned enterprises.
213 Viet Bao, „Can Xoa bo Doc quyen Tren Thi truong Hang khong‟ [Aviation Monopoly Must be Removed] (2006) <http://vietbao.vn/Kinh-te/Can-xoa-bo-doc-quyen-tren-thi-truong-hang- khong/10955207/87/>.
214 Vietnam Net, „Temasek Dau tu Vao Pacific Airlines‟ [Temasek to Invest in Pacific Airlines] (2005)
<http://vietnamnet.vn/kinhte/2005/06/452855/>.
215 For example, it mostly exploited local routes that Vietnam Airlines did not want to develop and it operated under inconvenient flight schedules.
216 Aviation infrastructure includes airports, terminals, catering and ground services. Such services are currently under the monopoly of Vietnam Airlines and its subsidiaries.
217 For example, Pacific Airlines claimed that Vietnam Airlines had rejected the proposal to equip its own buses for carrying passengers and luggage from terminals to aircraft, forcing Pacific Airlines to rent from Vietnam Airlines at a high rate. Pacific Airlines also complained that while both purchased from the aviation oil company (VINAPCO), it could not enjoy extended time for payment as Vietnam Airlines could.
See Vietnam News, „Domestic Airlines Price War Hurts Industry‟ (2006)
<http://vietnamnews.vnagency.com.vn/showarticle.php?num=03BUS020506>.
218 Pacific Airlines argued that by holding a dominant position, Vietnam Airlines continuously launched mass promotional programs causing losses for Pacific Airlines, a weaker competitor. Pacific Airlines announced it suffered from losses on Hanoi-Ho Chi Minh City flights in 2005 of up to VND60 billion (US$3.77 million) due to the forced reduction in fares led by Vietnam Airlines. Pacific Airlines submitted its complaint to the Ministry of Finance and Vietnam Aviation Administration Department, accusing Vietnam Airlines of breaching Competition Law in 2006. It complained that Vietnam Airlines had launched discount fare programs on three major routes exploited by Pacific Airlines (Ha Noi – TP.HCM, Ha Noi – Da Nang and TP.HCM – Taiwan). Notably, Vietnam Airlines reduced its fare by 50 per cent for Ha Noi – Da Nang flights on the same day Pacific Airlines opened its flights on this route. See Vietnam Business Forum, „Unhealthy Competition Hurting Airline Industry‟ (2006)
<http://vibforum.vcci.com.vn/news_detail.asp?news_id=6535>; VN Express, „Co Canh tranh Khong Lanh manh Trong Nganh Hang Khong‟ [Is There a Fair Competition in Aviation Industry?] (2006)
<http://vnexpress.net/Vietnam/Kinh-doanh/2006/04/3B9E91DD/>.Vietnam News, „Domestic Airlines Price War‟, above n 217.
219 VN Economy, „Cuc Hang khong Viet Nam Bi To Lam Kho Jetstar Pacific‟ (2008) [Vietnam‟s Aviation Administration Bureau was Accused of Causing Difficulties to Jetstar Pacific]
<http://vneconomy.vn/20081124020117887P0C19/cuc-hang-khong-viet-nam-bi-to-lam-kho-jetstar- pacific.htm>.
96 the request of Jetstar Pacific to implement international flights was rejected in 2008.220 This is a good example of how the monopoly position of Vietnam Airlines is still maintained by bureaucratic intervention.
3.4.3.2 Disputes regarding ground service provision by Vietnam Airlines
Vietnam Airlines also has its subsidiaries providing ground services at largest airports,221 including counter check-in services, transport of passengers within airports, VIP lounge service in terminals, etc.
In early 2008, ground service providers (namely Northern and Central Regional Airport Complexes) imposed a new service fee to be applied to all airlines in airports, which was considerably higher than before.222 The change in fees was imposed without prior consultation with the airlines. The previous fees in fact were higher than those of regional rates.223 The rocketing increase in service fees caused difficulties to both local and foreign airlines.224
In April 2008 ten airlines operating in Vietnam collectively submitted a petition to the
220 Ibid. In 10/2008, a request for flight rights to be implemented by Jetstar Pacific (formerly Pacific Airlines) was rejected. As explained by the Vietnam Civil Aviation Administration, the reason was that Jetstar Pacific did not meet the requirements for management apparatus stipulated by law (the rate of foreigners not being allowed to exceed one-third). This was considered as groundless, contrary to the business licence granted to Jetstar Pacific and was not consistent with current laws. While countries which Jetstar Pacific asked for permission to fly to have many airlines operating in Vietnam, Vietnam Airlines has been the only airline to operate international flights on these routes.
221 A list of Vietnam Airlines Corporation subsidiary companies providing ground services at regional airports can be found at <www.vietnamair.com.vn>.
222 Some services fees were raised many times higher than the previous ones, while each airport had its own price list. In particular, at the Noi Bai International Airport the fee for hiring the check-in counter service soared by 6.6 times, from VND 980,000 to VND 6,512,000/flight and at Central Airports, this fee climbed to VND 5,800,000/flight (5,92 times higher). The fee for carrying passengers in airports was increased by 10.6 times from VND 450,000 to VND 4,800,000/flight while at Central Airports, it was up to VND 4,300,000/flight. And the carrying fee for passengers from aircraft to terminal went up to VND 30,000 per person for a distance of just about 100 metres. See VTC News, „Dich vu Doc quyen San Bay Tang gia 5-10 Lan‟ [Airport Ground Services Fees to Increase from 5 up to 10 times] (2008)
<http://vtc.vn/kinhdoanh/doanhnghiep/177753/index.htm>; VN Chanel.Net, „Khon don Voi Dich vu Doc quyen San bay‟ [Troubles Caused by Airport Services](2008) <http://www.vnchannel.net/news/kinh- te/200804/khon-don-voi-doc-quyen-dich-vu-san-bay.70647.html>. In the South, after the new terminal at Tan Son Nhat airport became operational, the Southern Airport Complex raised the service fee for using VIP rooms from $15 to $32 (up by 113 per cent). See Vietnam Net, „Monopoly Exists, Airport Service Fees Gallop‟ (2008) <http://english.vietnamnet.vn/travel/2008/04/779832/>.
223 VTC News, „Dich vu Doc quyen San Bay Tang gia 5-10 Lan‟, above n 222.
224 Ibid. Some airlines, such as Pacific Airline announced they might stop some domestic flights and cancel their plans to open new local routes.
97 Ministry of Finance, Ministry of Transport and Vietnam Civil Aviation Administration regarding the unilateral raising of service fees.225 The Ministry of Finance later sent Dispatch No 4049/BTC-QLG to the Northern, Central and Southern Regional Airport Complexes and Vietnam Airlines Corporation. The dispatch clearly stipulated that the unilateral raising of the ground service fees without negotiating with clients (airlines) was contrary to the current laws on price control.226 Airport service providers had the right to define the fee levels of other types of services227 but they had to negotiate with clients before introducing any changes.228
In fact, agreements between ground service providers and airlines were of the nature of an economic contract. Under no circumstances could the providers unilaterally raise services fees without having an agreement with their clients and even a communication could not be acceptable.229 The situation was criticised as being the consequence of the monopoly situation in providing aviation services. As clients had no other choice of service providers, they had to accept all terms for conditions and fees as released by the providers.
225 VN Economy, „Doc quyen Dich vu San bay, Hang khong Keu Cuu‟ [Airport Ground Services
Monopoly: Airliners Ask for Help] (2008) <http://vneconomy.vn/60536P0C19/doc-quyen-dich-vu-san-bay- hang-khong-keu-cuu.htm>.
226 Ibid. VTC News, „Dich vu Doc quyen San Bay Tang gia 5-10 Lan‟, above n 222.
227 According to a Vietnam Civil Administration officer, there are only five types of service for which the ministry needs to build up frame prices and four types of service for which the ministry needs to set fixed prices. See Vietnam Net, „Monopoly Exists, Airport Service Fees Gallop‟, above n 222. In the EU competition law, the ECJ in Aéroports de Paris held that different prices and fees could be justified based on objective criteria such as the existence of objectively different situations or circumstances capable of justifying any disparity in treatment. See Aéroports de Paris v Commission (T-128/98) [2000] ECR II-3929.
228 VTC News, „Dich vu Doc quyen San Bay Tang gia‟, above n 222.
229 In EC competition law there is the question of whether a dominant firm can decide to terminate
supplying products unilaterally or not and whether it would always be considered a breach of Article 102(b) TFEU (ex Article 82 TEC). This question was analysed by the European Commission in United Brands and some other cases, with the finding that a dominant firm can freely choose competition policies and its customers based on certain objective criteria such as technical skills and the independent level of customers.
Besides, firms can freely renew or terminate contracts or review their entire distribution system and stop cooperating with their customers, provided that such decisions are reasonably notified in advance.
Therefore, the European Commission confirms that a refusal to supply is only considered an anti-
competitive abuse if it is given without appropriate reasons or pre-notification. See United Brands(C-27/76) [1978] ECR 207 152-160. See also Lennart Ritter and Braun W David, European Competition Law: A Practitioner's Guide (2005) 438.
98 3.4.3.3 The dispute regarding aviation fuel supply between VINAPCO and
Pacific Airlines
VINAPCO (Vietnam Air Petrol Company Limited), a VNA subsidiary, functions as a distributor of aviation fuel to all airliners operating in Vietnam.230 VINAPCO definitely holds a monopoly position in the provision of aviation fuel because it is the only company authorized to import and provide JET A1 oil for aircraft.231
In March 2008 a proposal for raising its pumping fee was released by VINAPCO.232 This proposal was not accepted by PA on the grounds that VINAPCO continued to charge VNA at the old rate.233 PA argued that this proposal had to apply equally to both carriers and thus the fact that Pacific Airlines had to pay a higher fee than VNA was unacceptable.234 PA claimed that all domestic airlines had to be treated in the same way, as cited in a government stipulation.235 It also argued that this unfair treatment would force PA to raise airfares, thus reducing its competitiveness while it was undergoing a
230 See VINAPCO website <www.vinapco.com.vn>.
231 Article 12 of the Competition Law 2004 states that an enterprise will be deemed to be in a monopoly market position if there are no other enterprises competing in the relevant market for the goods that it trades or the services it provides.
232 The proposal stated that the price would change from VND 593,000 (US $37) to VND 750,000 (US $47) per ton. This was explained as being due to the rising costs in the world oil market. As explained by
VINAPCO, the latest contract between Vinapco and Pacific Airlines dated on December 31, 2007 stated that the previously agreed price was VND593.000/tonne. However, when this contract was concluded, the world‟s price was only $76.2/barrel and it had soared up to $110-130/barrel. See also Vietnam Net,
„VINAPCO, „Pacific Airlines to Start Talks on Fuel Fee‟ (2008)
<http://english.vietnamnet.vn/biz/2008/04/778019/>.
233 Ibid. In response, VINAPCO stated that the reason why Vietnam Airlines could enjoy lower fees was because it purchased more fuel than Pacific Airlines. Vietnam Airlines purchased 500,000 tonnes of fuel, while the volume was 10-11 times lower for Pacific Airlines. See Vietnam Net, „MOF: VINAPCO Must Apply Single Air Petrol Sale Price‟ (2008) <http://english.vietnamnet.vn/biz/2008/04/777964/>.
234 Other than Vietnam Airlines, VASCO, other domestic airlines did not receive a notification of a fee rise from VINAPCO. See Vietnam Business Forum, „Doc quyen Cung cap Xang dau Hang khong: Ung xu Nhu The Nao Cho Dung Luat?‟ (2008) [Monopoly in Aviation Fuel Supply: How to Behave Legally?]
<http://news.vibonline.com.vn/Home/ttkt/2008/04/1842.aspx>; Vietnam Investment Review, „Aviation Sector Firms‟ Complaints Gain Wings‟ (2008)
<http://www.vir.com.vn/Client/VIR/index.asp?url=content.asp&doc=16155>; Tuoi Tre Online, „May bay Pacific Airlines : Chet dung Vi Khong Duoc Bom Xang‟ (2008) [Pacific Airlines‟ Aircrafts Could not Fly due to No Fuel Supply].
<http://www.tuoitre.com.vn/Tianyon/Index.aspx?ArticleID=250471&ChannelID=3>. It is noted that in the EU competition Law, the ECJ also argued that the application of pricing differences would only be considered as an abuse of a dominant position if a certain tolerance level was exceeded and it became disproportionate and unjustifiable. See United Brands v Commission (C-27/76) [1978] ECR 207, 298 227;
Deutsche Bahn v Commission (T-229/94) [1997] ECR II-1689, 86; P&I Clubs [1999] OJ L 125/12 134-136.
235 Sai Gon Giai Phong, „Govt Orders VINAPCO to Charge All Carriers Same Fuel Price‟ (2008)
<http://www.saigon-gpdaily.com.vn/Business/2008/4/62626/>.
99 restructuring process.236
In April 2008 VINAPCO unilaterally disrupted fuel supply to PA, causing damage to its finances and reputation.237 After an urgent official letter by PA was submitted to the Ministry of Transport, the Ministry ordered Vietnam Airlines to instruct VINAPCO to resume supplying fuel to PA and to apply the same price to both airlines.238 Later, VINAPCO and PA agreed to resume negotiations in mid-April. However, the meeting did not end the dispute, because of the different demands of the two sides. The case was finally submitted to the Competition Administration Department (VCAD).239
3.4.3.4 The first anti-monopoly case on trial
The dispute between VINAPCO and Jetstar Pacific Airlines (JPA), the successor of Pacific Airlines (PA), was finally handled by the Vietnam Competition Council (VCC) on 14/4/2009. VCC, after reviewing relevant documents and claims brought by JPA, considered that VINAPCO had abused its monopoly position when it unilaterally stopped pumping aviation oil for PA in April 2008, which caused the delay of many flights run by this Airline.240 The final decision made by VCC held that VINAPCO's behaviour constituted a breach of Article 14(2) and (3) of the Competition Law 2004 regarding practices abusing dominant and monopoly positions. A fine of 3.37 billion VND (168,000 USD) was imposed on VINAPCO together with a recommendation to separate
236 Vietnam Net, „30 Flights Delayed Because of No Fuel?‟
(2008)<http://english.vietnamnet.vn/travel/2008/04/776572/>.
237 The unprecedented disruption on April 01, 2008 resulted in the delays of 30 domestic flights in 2-3 hours, affecting 5,000 passengers of Pacific Airlines.
238 Nguoi Lao Dong, „Doc quyen Niu Canh Hang khong‟ (2008) [Aviation Sector Hampered due to Monopoly]<http://www.nld.com.vn/220922P0C1014/doc-quyen-niu-canh-hang-khong.htm>. The Ministry of Finance (MOF) also sent a dispatch to Vietnam Airlines Corporation, VINAPCO‟s parent company, asking it to apply a single petrol sale price. The dispatch stressed that Vinapco must apply one sale price policy to all client air carriers because it was supposed to implement the 10th Communist Party Congress‟s resolution on removing all discriminatory treatments on different types of ownership. See Vietnam Net,
„VINAPCO Must Apply Single Air Petrol Sale Price‟ above n 233.
239 VCAD considered it was a sign of making use of a monopoly position as prohibited by the Competition Law and requested that VINAPCO explain its behaviour of not providing petrol. See „Pacific Airlines- VINAPCO Negotiations Failed, MOF to Chair Negotiating
Table‟<http://www.vnbusinessnews.com/2008/04/pacific-airlines-vinapco-negotiations.html>; Vietnam Net, above n 241; Vietnam Net, „Cuc Quan ly Canh tranh Yeu cau VINAPCO Giai trinh‟ [Vietnam Competition Administration Department Asks VINAPCO to Explain] (2008)
<http://vietnamnet.vn/kinhte/2008/04/776744/>.
240 Vietnam Competition Council Website < http://www.hoidongcanhtranh.vn/Tin-Tuc-Chi-
Tiet&action=viewNews&id=967>. See also Vietnam Net, „VINAPCO Told to Abide by Rule to Ask Airlines to Pay Fuel-Bills‟ (2009) <http://english.vietnamnet.vn/biz/2009/04/843697/>.