A new law regulating merger control of general scope, applicable across all sectors, was approved in Peru in November 2019, through Urgency Decree 013-2019. This law was originally set to enter into force in August 2020.
On 12 May 2020 the government approved Legislative Decree 1510 which has amended the law establishing that it will come into force as of 1 March 2021 (instead of August 2020). The regulations of the new law are expected to be published in November 2020. The law will come into force for a period of five years. After such period, the Instituto Nacional de Defensa de la Competencia y la de la Protección de la Propiedad Intelectual (INDECOPI) could recommend the Congress to maintain the law in force permanently.
The Electricity Sector
Merger control legislation in Peru currently only applies to the electricity sector. The relevant regulations are Law No 26876 (Antitrust and Antioligopoly Act for the Electricity Sector), enacted on 19 November 1997, and Supreme Decree No 017-98-ITINCI, enacted on 16 October 1998. Moreover, Supreme Decree No 087-2002-EF contains supplementary provisions to Law No 26876 that establish a special procedure for the evaluation of merger transactions resulting from public bidding within the framework of private investment promotion over assets of prior state-owned enterprises.
The entry into force of the new merger control law will repeal the special provisions that apply to the electricity sector, although the procedures pending as of that date must continue to be analysed under those special provisions.
Under current regulations, INDECOPI has issued a guide with instructions for accurately filling out the form for the Notification of Mergers in the Electricity Sector, which specifies the information that must be submitted.
Existing merger control legislation relates only to the electricity sector. Moreover, although not a merger control procedure per se, in the telecommunications sector transfers of concessions and radio spectrum require prior approval from the Ministry of Transport and Communications. Among the aspects that are evaluated to approve these transfers is the possible impact on competition, for which an opinion is requested from the telecommunications sector regulatory agency, OSIPTEL, which also acts as a competition agency exclusively for this sector.
The authority in charge of the procedure in the electricity sector and in the new merger control law is INDECOPI, an administrative entity independent from the executive branch. Its Competition Commission is also the competent body to issue the first instance decision (and it will issue guidelines to inform economic agents about the correct interpretation of the upcoming law). The Technical Secretariat of the Commission is in charge of co-ordinating and instructing the merger control procedure.
Appeals against the Commission’s decision are decided by the Competition Tribunal, putting an end of the administrative proceeding. Furthermore, the Competition Tribunal’s decision is subject to review by a court of law.
Other Authorities Involved in the Review Process
Under existing merger control legislation, during the process of analysing merger transactions in the electricity sector, INDECOPI requests a report from the Supervisory Body for Investment in Energy and Mining (OSINERGMIN) on the market share of companies engaging in electricity generation, transmission or distribution activities.
Under the new merger control law, if the economic concentration involves companies that operate in markets under specific regulation, the Competition Commission is authorised to request non-binding reports from the appropriate Public Services Regulatory Agencies (in charge of issuing the regulations relating to the telecommunication, energy, sanitation and public infrastructure sectors) about the degree of concentration in the specific market and their technical opinion on the possible effects on the market resulting from the transaction under evaluation.
Particularly, in the case of the financial market, the Superintendency of Banks, Insurance and Private Pension Funds Management Companies (SBS), sectoral regulatory authority, maintains its competence to carry out a prior control through a prudential evaluation and a financial stability analysis, while INDECOPI conducts its analysis on competition issues. Authorisation by both entities within their areas of competence is necessary for obtaining full clearance.
Involvement of Deposits or Economic Agents from the Stock Market
However, if the transaction involves companies that receive deposits from the public or insurance companies that pose relevant and imminent risks, compromising the strength or stability of the companies or the systems they are part of, only the prior control of the SBS in its field of competence is required.
When the transaction involves economic agents authorised by the Superintendency of the Securities Market (SMV) to act in the stock market, INDECOPI conducts the prior control procedure through its analysis on competition issues, while the SMV carries out its prudential evaluation on the matters under its competence. Authorisation of both entities is required.
The notification of the merger transaction is compulsory, both according to current regulations on the electricity sector, and the new merger control law applicable to all sectors, providing that the transaction meets the relevant thresholds.
Both current and new regulations establish that there is no exception to compulsory notification if the requirements are met.
Current regulations provide that failure to notify a transaction prior to its performance constitutes a law infringement that can be sanctioned with a fine not exceeding 500 tax reference units (Unidad Impositiva Tributaria, or UIT) (approximately USD631,500). Current regulations provide that, once it is notified, the transaction cannot be executed and will not have any legal effect until the competition authority issues a decision regarding this transaction
Under the new merger control law, if a transaction meets the notification thresholds and falls within the scope of the law, but the economic agents involved fail to notify the transaction, they are subject to a fine within the criteria of the Antitrust Law. Penalties can go up to 12% of the sales or gross revenue value for the infringer in the immediately preceding accounting year to the Commission’s decision (very serious infringements). Furthermore, if the economic agents involved proceed with the concentration without prior authorisation, the Commission could order the dissolution of the concentration or other similar measures.
Currently, there is no record of any penalties to parties for failing in notifying a transaction deemed as "concentration". Both current and the upcoming new law establish that sanctions imposed for implementing a transaction before being authorised would be public, given that the decisions issued by the Competition Commission are public and uploaded on its web page.
Types of Transactions
Current regulations provide that authorisation is required for transactions that involve a concentration. Concentration acts are defined as follows:
Transfer or Change of Permanent Control
According to the new merger control law, economic concentration transactions within the scope of the law entail a transfer or change in the permanent control of a company or part of it – for example, as a consequence of one of the following events:
Legislative Decree 1510 has specified that several operations executed by the same economic agents within a term of two years will be considered as one concentration operation.
Transactions not Considered Concentration Operations
The new merger control law contains a list of the types of transactions that will not be considered concentration operations subject to notification, which comprise the following situations:
It should be mentioned that, prior to the amendment introduced by Legislative Decree 1510 first landing operations for newcomers were not to be notified. However, the amendment has eliminated as an operation excluded from the scope of the regime the acquisition of rights by an economic agent that had not previously participated in the relevant market or its related markets.
Internal Restructurings or Reorganisations
Under current legislation, internal restructurings or reorganisations are not caught, given that these operations do not usually entail a change in control.
Similarly, according to the new merger control law, restructurings or reorganisations do not fall within their scope of application given that they do not entail a transfer or change of control. See 2.3 Types of transactions.
Operations not Involving the Transfer of Shares or Assets
Current regulations state that the transactions that confer direct or indirect control over a company through any contract or legal arrangement must be notified, including the execution of partnership agreements, joint ventures, unincorporated associations, use or usufruct of stocks and/or shares, administration contracts, management contracts, and syndication of shares or any other related, analogous and/or similar business co-operation contracts with similar consequences.
According to the new merger control law, the transfer or change of permanent control in a company or part of it is considered as a decisive factor. Therefore, shareholders agreements that involve a change of control will be caught by the law.
Under current regulations, control is the preponderant and continuous influence in the decision-making of the governing bodies of a legal entity. The concept of control is not defined in the current merger regulation but has been borrowed from low-level regulations in the financial sector (approved by SBS Decision No 5780-2015 issued by the Superintendency of Banking, Insurance and Private Pension Funds Management Companies).
According to the new merger control law, the term "control" is defined as the possibility of exerting a decisive and continuous influence over an economic agent through rights of ownership or use of all or part of a company’s assets, or rights or contracts that allow a decisive and continuous influence on the structure, deliberations or decisions of a company’s bodies, determining, either directly or indirectly, the competitive strategy of a firm.
Acquisitions of Minority or Other Interests Less than Control
Under current regulations, acquisitions of minority or other interests less than control are not caught by the merger control system. However, if the concentration entails the acquisition of less than 10% of the shares with voting rights of another undertaking, it does not need to be notified, unless such acquisition allows the acquirer to exert direct or indirect control over the undertaking that develops electricity activities.
In the new merger control law, these transactions are not included, unless they involve the transfer or change of control of a company.
Under current regulations, thresholds are defined according to a market share criterion. However, it is worth noting that market share is calculated based on a firm's turnover on the year prior to the transaction. With the purpose of determining the market shares, not only the enterprises performing electricity activities that are involved in the transaction shall be included, but also the enterprises performing electricity activities that belong to their economic group.
In cases of horizontal concentration, prior authorisation must be requested for acts of concentration involving, directly or indirectly, companies that generate and/or transmit and/or distribute electric power that hold, prior to or after the act that gave rise to the authorisation request, jointly or separately, a market share equal to or greater than 15%; in cases of vertical concentration authorisation is requested if the case involves, directly or indirectly, companies engaging in electric power generation and/or transmission and/or distribution activities that hold, before or after the act that originated the authorisation request, a share equal to or greater than 5% of any of the markets involved.
In the new merger control law, there are two thresholds to be met concurrently for a transaction to be mandatorily notified to the Authority:
Both in current and new regulations there are no special jurisdictional thresholds applicable to particular sectors.
Under current regulations, the market shares of the companies, involved – based on the firms' turnover – are calculated by OSINERGMIN through the issuance of a half-yearly report based on the reports provided by all sector companies; see 2.5 Jurisdictional Thresholds.
Given that the thresholds are calculated based on market shares of the involved firms within the local markets and determined by OSINERGMIN, current regulations do not require to convert the value sales into foreign currency. In the case of assets booked in a foreign currency, the current regulation does not set a criterion, but the exchange rate generally used is that established by the Central Reserve Bank of Peru.
Particularly, the acquisition of productive assets may be subject to the prior authorisation procedure if they result, by means of their acquisition, in an increased share of the acquiring company or group in the development of sector activities, considering their market value on the date on which the notification is made. The regulations of the new merger control law to be issued by November 2020 should define the rules to calculate the jurisdictional thresholds mentioned in 2.5 Jurisdictional Thresholds.
Under current regulations, the business and corporate entities relevant for calculating the jurisdictional thresholds are those in the local market. Also, it considers the business and corporate entities of the economic group of the enterprises involved in the transaction.
The criteria for determining linkage and business group are contained in Resolution No 5780-2015 of the SBS. An "economic group" is defined as the set undertakings or legal individuals, national or foreign, confirmed by at least two members, when one of them exerts control over the other or others, or when their control over the undertaking corresponds to one or several individuals acting jointly as a unit of decision.
According to the new merger control law, the jurisdictional thresholds shall be calculated considering “the companies involved in the concentration operation”, in the local market. The regulations of the new merger control law to be issued by November 2020 should define which entities are to be included within “the companies involved in the concentration operation”.
Turnovers of Target and its Economic Group
Under current regulation, to define whether the transaction meets the thresholds, both turnovers of the target and its economic group must be considered.
The new merger control law considers the sales volume of the economic agents involved in the merger transaction. However, in the case of the acquisition of the whole or part of one or more economic agents, the law is not clear as to which turnover will be considered for calculations. The regulations of the new merger control law should define the turnover to be included for the calculations of the thresholds for all types of transactions.
For the definition of "economic group" under current regulations, please refer to the definition mentioned above. In the new merger control law, "economic group" is defined as the set of economic agents, local or foreign, comprised of at least two members, when any of them of them exerts control over the others, or when the control over economic agents belongs to one or more individuals that act as a decision unit.
Changes in the Business During the Reference Period
Both current and new regulations establish that companies must reflect their status at the time of notification. No particular mechanism has been pointed out to report changes that may occur during the analysis period, but if these were relevant, they are likely to form part of the additional information that INDECOPI will require at different stages. Companies guarantee, by means of affidavits, that the information they present is reliable and there are sanctions for submitting false information.
Under current regulations, foreign-to-foreign transactions fall within the scope of the law, provided that they directly or indirectly involve companies engaged in electric power generation and/or transmission and/or distribution activities in Peru.
Under current regulations, no test has been established that evaluates the local effects of a transaction carried out between foreign agents. The only criterion for a transaction between foreign agents to be subject to the prior evaluation procedure is that foreign agents are related to companies operating in Peru in the electricity sector. Such agents are not required to obtain Peruvian-source income or have assets in Peru.
The new regulations do not provide that the economic agents carrying out the transaction have Peruvian-source sales or assets in Peru. The criterion to determine whether or not they must notify the transaction is the existence of a direct or indirect relationship with economic agents that carry out economic activities in Peru. Any effect on all or part of Peruvian territory will be taken into account.
According to new merger control law, foreign-to-foreign transactions fall within the scope of the law if they directly or indirectly involve economic agents engaged in economic activities in all or part of the country. The new law expressly states that it covers concentration operations that meet the jurisdictional thresholds and have effects in all or part of the territory, including operations executed abroad which directly or indirectly involve economic agents engaged in economic activities in the country.
See 2.5 Jurisdictional Thresholds.
Under current regulations, joint ventures are subject to merger control whenever such a contract confers direct or indirect control of a company participating in the electricity sector.
According to the new merger control law, joint ventures are subject to merger control if they result in the acquisition of joint control over one or more economic agents. Particularly the law refers to the establishment by two or more independent economic agents of a joint undertaking, joint venture or any other similar contractual arrangement that entails the acquisition of joint control over one or more economic agents, in such a way to permanently perform the functions of an autonomous economic entity
There are no special provisions set forth in the current regulations or in the new merger control law for joint ventures.
Under current regulation, INDECOPI has the power to investigate ex officio transactions that allegedly do not meet the thresholds, in order to assess whether they should have been notified. The burden of proof that the transaction does not fall within the law is on the agents involved in the transaction.
Under the new merger control law, there is a statute of limitation of four years for investigating any infringement to the law, which includes executing a transaction that should have been notified without clearance.
Both current and new regulations provide that the implementation or execution of the transaction must be suspended until there is clearance from the authorities. Such transactions will not have any legal effect.
Under both regimes, if implementation-related actions are taken without first completing the authorisation procedure, the authority may impose sanctions.
Under the new merger control law, if the parties execute the transaction without being authorised, apart from the power to impose fines, the Commission is also entitled to order the divestment or dissolution of the concentration operation until the conditions existing prior to the transaction are restored.
Under the current regulation, in 1999 INDECOPI imposed a sanction for the implementation of a transaction before clearance. The penalty was imposed by the Commission in 1999 to the subsidiaries of the companies Endesa Spain and Enersis, in the process of consecutive acquisition of shares of the first company in the second and the increase of the participation of the second company in its subsidiary, Endesa Chile.
On that occasion, the Commission imposed a solidarity fine of 150 UIT (approximately USD189,483) for failing to notify the transaction prior to the launch of the takeover bid of shares by Enersis subsidiaries up until the date of its general board agreement to increase the shareholding limit one month later, after which the operation occurred almost immediately without the compliance of the notification duty by the subsidiaries. The said sanction was appealed before the Competition Tribunal, which rejected the appellant’s arguments and ratified the amount of the sanction imposed in the first instance. Also, in the decision 0794-2011/SC1-INDECOPI, the Competition Tribunal ruled that Enel violated the provisions of the law, upon having executed the transaction after notification of the operation, but before the Commission issues a decision on the matter, and imposed a 100 UIT penalty (approximately USD126,322).
According to both current and new regulations, a sanction for implementing a transaction before clearance would be made public since the decisions issued by the Commission for the Competition Commission are public and available on its web page. Penalties can be imposed for implementing a transaction involving two foreign economic agents prior to obtaining clearance, such as the cases presented above.
Under both current and new regulations, no exceptions are contemplated for the suspension of the implementation of the transaction until clearance is obtained.
The merger control policy in the electricity sector has special provisions for transactions derived from private participation in state-owned enterprises. According to this regulation, the selection committee in charge of carrying out the bidding will define the moment, within this process, in which the prior authorisation must be requested by the companies before INDECOPI. The regulation provides that this moment must be “preferably” prior to the awarding the concession, as long as it does not affect the competition in the bidding.
Under both current and upcoming regulations, it is not possible to request waivers to the suspensive effect that prevents the implementation of the transaction in any case.
Under both current and new regulations, there are no provisions that allow the implementation of the transaction before clearance.
However, in 2017, ISQ Fund I and ISQ Fund II requested clearance for the acquisition of Inkia Americas Ltd, indirect owner of two electricity generation companies. The transaction had already been closed abroad, but the applicants specified that Inkia had handled over its political rights to a trust managed by an independent third party in an act prior to the closure. This way, the transfer of the said trust (under the control of Inkia and its subsidiaries) to ISQ would be effectively finalised once the authority granted clearance to the operation, which happened later through Resolution 027-2018/CLC.
Under both current and new regulations, the transaction that falls within the scope of the law must be notified prior to being implemented. There are no specific terms or deadlines for notification.
On penalties for failing to notify the transaction before execution, and on penalties effectively applied for failing to notify the transaction before execution, see 2.2 Failure to Notify. Under both current and new regulations, a sanction imposed for failure to notify would be public since the decisions issued by the Competition Commission are public and available on its web page.
Current regulations provide that notification can be done before the closing of the transaction or in parallel to its negotiation. Therefore, it is not required to present, along with the notification, a binding agreement. It is possible to present a less formal agreement, such as a letter of intent, or a draft agreement. The new regulation does not include provisions in this regard.
Under current regulations, it is required to present at least a document that sets out the terms of the transaction or the offer for the sale of the target.
The new merger control law only states that the notification shall include the necessary records to identify the type of operation and the economic agents involved in the transaction, as well as those of its economic groups.
Under current regulations, an administrative fee must be paid to initiate the procedure. Its amount is equivalent to 0.1% of the total transaction value up to a limit of 50 UIT (approximately USD63,161). The value of the transaction is established based on the parties’ affidavit.
If the transaction value is greater than the amount paid, over the course of the procedure, the authority grants a maximum term of two days for the parties to comply with paying the difference.
New Merger Control Law
According to the new merger control law, a fee should be paid to submit the notice. The amount has not yet been established but it will be determined by applying the methodology in force as provided for by the Government through a Supreme Decree issued by the Ministry of Economy and Finance. Under both current and new regulations, the fee must be paid when the request for clearance is submitted, in order to start the procedure.
It should be noted that according to the general rules applicable to administrative proceedings, administrative fees should only cover the costs or expenses related to the activities required to carry out the proceeding.
Current regulations present two scenarios:
The new merger control law also regulates two scenarios:
Under current regulations, the minimum information to be submitted with the notification is the following:
The new merger control law does not describe the specific information to be submitted, since such information will be determined by the regulations of the law.
On documents required to be submitted, see 3.2 Type of Agreement Required Prior to Notification.
Under both current and new regulations, the notification is deemed not to have been submitted if the documentation is incomplete. INDECOPI receives the notification and evaluates whether the necessary information has been provided. If this is not the case, the economic agents are requested to rectify the situation.
There are no penalties for incomplete notifications.
Under current regulations, fraudulent information in the notification or in response to the Commission's requests will be considered an infringement that can be sanctioned with up to 500 UIT (approximately USD631,610). There has been no case of sanction for submission of inaccurate or false information.
According to the new merger control law, the provision of incomplete, inaccurate, corrupted, misleading or false information at any stage of the procedure will be qualified as an infringement to the law and will be sanctioned according to the criteria set out in the Legislative Decree No 1034, Act for the Repression of Anticompetitive Behaviour (Competition Law).
The recent amendment introduced to the new merger control law by Legislative Decree 1510 establishes that unreasonably refuse to provide any information requested by INDECOPI will also constitute and infringement to the law.
Phases of the Review Process Under Current Regulations
Under current regulations, the procedure can be divided into three stages according to the relevant aspects that occur over the course of them and the deadlines that trigger them.
The first stage refers to the notification and compilation of information by the Competition Commission and its Technical Secretariat. This stage is expected to last approximately 30 working days, although it may take longer depending on the time taken by INDECOPI to make the relevant notifications of its requests for information, or the notifying party to lift the initial observations made at its request.
The second stage comprises an analysis made by the Commission and its Secretariat. In principle, it takes 30 working days, a period that only begins to run when the Secretariat formally communicates to the notifying party that the information pertaining to their request is complete.
Once the information has been completed, the Technical Secretariat requests a non-binding opinion from other public entities, such as MINEM, OSINERGMIN and the Ombudsman's Office. In cases deemed to be complex, an opinion is requested from the Economic Operation Committee of the National Grid (COES). At this stage, the secretariat issues an opinion within the first 20 working days of the deadline.
The Commission must issue a decision within 30 working days, otherwise "negative administrative silence" applies. However, one of the possible decisions of the Commission is to extend the term to decide, for a non-renewable period of 30 additional working days. In this case, the Commission may request the parties to clarify, elaborate on, explain or specify the information submitted within a maximum period of ten working days. In general, the Commission extends the deadline.
The third stage refers to the extension of the deadline (30 working days). At this point, the Commission will develop a more in-depth assessment of the transaction and, at the end of the deadline, the Commission must decide on the substance, with the possibility to set conditions or refuse approval.
In case of disagreement with the Commission's decision, it can be challenged before the Competition Tribunal. Either party may appeal the decision within a maximum term of 15 working days. The appeal shall be decided by the chamber within 30 working days; this period may not be extended.
Phases of the Review Process Under the New Merger Control Law
According to the new merger control law, the first stage is the notification phase: after the submission, the Commission’s Technical Secretariat assesses the information filed by the parties to determine whether all the requirements have been met in a period of ten working days. If any of them is missing, a ten-working-day period is granted to the parties for rectification, after which the Commission’s Technical Secretariat declares the application admissible or inadmissible within a period of five working days.
Once the notification is admitted, Phase I involves the Commission’s evaluation as to whether the concentration falls within the scope of the Law, as well as whether it raises serious competition concerns. This stage lasts a maximum period of 30 working days. If the Commission does not find any serious competition concerns or finds that the transaction does not fall within the scope of the law, the transaction is approved. However, if there are serious competition concerns raised in the Commission’s evaluation, the assessment moves on to Phase II. Both decisions must be notified to the parties.
Phase II lasts a maximum of 90 working days, after notifying the parties that the transaction has moved on to the next stage of evaluation. This period may be extended for an additional period of 30 working days, with due justification by the authority for such extension. This period could also be extended for 15 additional working days, if the parties involved require hearings.
After the issuance of the clearance Decision, authorising with conditions or denying the request, only the party requesting the clearance may appeal such decision within 15 working days, after which the Competition Tribunal has maximum 90 working days to make a decision.
The recent amendment introduced to the new merger control law by Legislative Decree 1510 has introduced a simplified notification procedure for concentrations deemed to be less likely to produce any significant restrictions to competition. The specific provisions for this simplified procedure will be further developed in the regulations of the new law.
Timeline for Clearance
Under current regulations, according to the text of the law the overall estimated time is approximately six months at first instance, and 45 working days at second instance.
Under the new merger control law, the approximate term of the procedure is 190 working days at first instance, and 115 working days on appeal.
Under current regulations, there are no formal mechanisms for pre-notification discussions. However, parties may contact the authority to clarify doubts about the completion of the notification form.
According to the new merger control law, prior to the filing of the application, the economic agents involved in the transaction may contact the Commission’s Technical Secretariat, either jointly or separately, in order to consult whether their merger transaction falls within the scope of the law, which information must be submitted with their application, and other related aspects. The Technical Secretariat's opinion is not binding on the Commission.
Both under current and new regulations, information provided by the parties, including prior consultation with the authority are confidential.
Under current regulations, the authority usually requests the submission of additional information other than that provided in the notification. Depending on the specific case, the authority may request more detailed information. Formally, the procedure is not suspended while the party collects the information.
See 3.8 Review Process.
Under current regulation, there is no fast-track mechanism that allows a shorter procedure for certain cases.
The recent amendment introduced to the new merger control law by Legislative Decree 1510 has introduced a simplified notification procedure for concentrations deemed to be less likely to produce any significant restrictions to competition. The specific provisions for this simplified procedure will be further developed in the regulations of the new law.
Under current regulations, the substantive evaluation made by the authority in order to review a transaction seeks to define whether the transaction may reduce, inhibit or prevent the process of competition and free entry in the electricity markets or related markets.
In the new merger control law, the substantive evaluation made by the authority seeks to identify if the transaction creates a significant restriction to competition on the involved markets.
Under current regulations, the determination of the relevant markets has evolved over time in accordance with the changes that have taken place in the electricity sector. The markets are framed within the activities of electric power generation, transmission and distribution. At present, INDECOPI usually considers the following:
According to the new merger control law, it is likely that INDECOPI will conduct its assessments of markets affected by the transaction considering the definition of relevant market included in Legislative Decree 1034 (Competition Law). This regulation indicates that the relevant market is composed of the product market, the good or service subject of conduct and its substitutes, and the geographic market, the set of geographical areas where the alternative sources of supply of the relevant product are located. There is no set de minimis level below which competitive concerns are deemed unlikely.
Given the narrow scope of the current regulations, INDECOPI does not use definitions from other jurisdictions. INDECOPI is expected to take into consideration relevant case law from other jurisdictions with the implementation of the new law.
Under current regulations, the authority evaluates several aspects related to competition, such as the unilateral and co-ordinated effects of the transaction, the potential elimination or restriction of competition and the vertical restrictions that may be generated.
According to the new merger control law, the procedure is intended to analyse whether or not the transaction causes a significant restriction to competition in the markets involved. The law does not set out specific competition concerns that will be assessed. However, it expressly states that the mere creation or strengthening of a dominant position is not enough to prohibit the operation.
Under current regulations, authorities assess whether the transaction is likely to create market efficiencies and whether this contribution is enough to outweigh the restrictive effects on competition resulting from the transaction. The burden of proof on the efficiencies generated lies with the notifying party.
According to the new merger control law, the authority considers the creation of efficiencies when deciding whether or not to authorise a merger transaction. The burden of proving the positive and supplementary impact of the efficiencies falls on the economic agents that notify the transaction. The analysis considers productive, allocation or innovative efficiencies that meet the following requirements:
Under current regulations, the review process considers whether or not the transaction contributes to the improvement of production and energy commercialisation, to the promotion of technical and economic progress and is in the interests of users.
Current regulations expressly state which elements not directly related to competition will be taken into account during the assessment.
Under current regulations, INDECOPI has taken into account the transaction’s impact on the telecommunications sector, through infrastructure sharing, and on the Economic Operation Committee of the National Grid (COES-SINAC), which plays a significant role in the electricity sector. The impact on COES-SINAC has been relevant for the authority because it has led to establishing conditions in two cases.
New Merger Control Law
Under the new merger control law, non-competition issues should not be considered in the evaluation of a transaction. This new law states that INDECOPI does not consider in its evaluation issues different to the set goal of the regime, which is related to economic efficiency and consumer welfare.
Notwithstanding the aforementioned, the recent amendment introduced to the new merger control law by Legislative Decree 1510 sets forth that the authority shall consider in its substantive analysis the major crisis situation of any of the companies involved in a concentration
Under both current and new regulations, there are no special provisions for the evaluation of joint ventures, as they are governed by the general rules.
Both under current and new regulations, INDECOPI is empowered to block the transaction. INDECOPI can also approve the transaction with conditions to prevent damages to competition.
Under current regulations, INDECOPI can sanction enterprises that do not comply with the conditions imposed and shall request to the judiciary branch to null and void the acts or contracts that were executed implementing a blocked transaction or without compliance of the conditions imposed.
Furthermore, according to the new merger control law, the authority can declare null and without effects all acts and contracts entered into by parties executing a blocked transaction or without compliance of the conditions. Also, the law prohibits the registration of blocked transactions into the public registry.
Under current regulations, the INDECOPI’s Commission or Tribunal may, at any stage of the procedure, propose to the economic agents involved changes to the merger transaction that are suitable to remove the elements that cause or may cause limitations to competition. If the interested parties agree with such changes, the transaction is authorised under conditions that guarantee compliance with the accepted commitments. The type of remedies that can be imposed have not been limited.
The new merger control law establish that economic agents may at any time present a proposal of commitments aimed at mitigating or avoiding the possible negative effects derived from a merger transaction. The procedure is stayed until the authority has given its opinion on these commitments. Subsequently, INDECOPI may authorise the transaction under such conditions or under other types of conditions it deems appropriate. The type of commitments that can be submitted or the conditions that can be imposed has not been limited.
Under current regulations, the conditions must be suitable to remove the elements that cause or could cause a limitation of competition in the relevant market or related markets.
According to the new merger control law, the proposed commitments must be suitable for mitigating or avoiding the possible negative effects derived from the merger transaction.
Under current legislation, there have only been three cases in which the Commission has imposed conditions on the approval of a transaction.
Edelnor (now ENEL Distribution Peru)
Firstly, in a case involving the distribution company Edelnor (now ENEL Distribution Peru) the conditions imposed were intended to balance the companies' voting rights in the decision-making process of the Economic Operation Committee of the National Grid (COES) after the transaction, which is in charge of planning and managing the operation of the electric power generation and transmission system. COES’ highest governing body is the Assembly, which is made up of the National Grid (SEIN) agents, grouped into four subcommittees, including generators, distributors, transmitters and free users. The Commission considered that the new entity as a result of the transaction could gain decisive influence over its corresponding subcommittee.
In this case, the Commission also imposed Edelnor (ENEL Distribution Peru) the obligation to bid for its energy acquisition among all the existing generators, in order to avoid any preference to its related generators (Edegel, Etevensa and Eepsa).
Prohibiting Bidding Participation
Secondly, in another case the Commission imposed a remedy by prohibiting the transmission companies controlled by ISA to participate in the second call for bidding for BOOT Contracts for Guaranteed Transmission Network Systems, in order to ensure that they present their best offer in the first call for bidding.
Finally, in a recent decision, dated 10 April 2020, INDECOPI cleared a major transaction within the distribution and power generation segments (China Yangtze Power Co, a subsidiary of China Three Gorges Corporation acquired Luz del Sur). As part of its decision, INDECOPI imposed as a condition to clear the transaction that Luz del Sur should bid for its energy acquisition among all the existing generators, in order to avoid any preference to its related generators. The bid shall be coordinated by Osinergmin or through a competitive and transparent process that shall be informed to Indecopi. This condition intents to assure competition among generation power companies for serving the regulated market.
Under current regulations, it is not possible for the parties to negotiate the remedies to be considered for the transaction. It is the authority who proposes the modifications and conditions to the transaction, but it can gather the opinion of the notifying economic agents, although it is not obliged to take their position into account. Conditions may be proposed at any time during the procedure before issuing the final decision.
According to the new merger control law, the parties may propose conditions to the authority at any time during the procedure before the final decision is issued. In that sense, the parties can propose commitments to mitigate or reduce potential negative impacts on competition, and the authority can accept them and authorise the transaction under that conditions.
Under current regulations, only three transactions have been approved with behavioural conditions. See 5.4 Typical Remedies.
Under current regulations, a transaction is authorised through a decision that expressly states that clearance has been obtained. However, if the decision is not issued within the prescribed period the "negative administrative silence" operates and, thus, the authorisation for the transaction has been denied.
According to the new merger control law, if the decision is not issued within the prescribed term then the "positive administrative silence" operates, which means that the authorisation for the transaction is considered to be granted.
Under current regulations, the authority has not recently imposed remedies for foreign-to-foreign transactions.
Under both current and new regulations, no special provisions for related arrangements have been considered.
Under current regulations, there is no provision enabling third parties to participate in the procedure for the assessment of merger transactions.
According to new merger control law the Commission must publish a brief summary of the reasons justifying the transition to the second phase of the procedure, so that third parties with a legitimate interest can submit relevant information to the authority for analysis, without being considered as parties to the proceeding.
Under current regulations, the Technical Secretariat can request relevant information from the Ministry of Energy and Mines, the Supervisory Body for Investment in Energy and Mining (OSINERGMIN) and to the Ombudsman's Office. The Authority has usually made requests for information by written communication to the entities with questions about the case, which must be answered within a statutory period of 15 working days.
The new merger control law establishes the duty of public entities to provide information to the Authority, at its request.
Also, according to the new law, the Commission must publish a brief summary of the reasons justifying the transition at the beginning of Phase II of the procedure, so that third parties can contribute with relevant information to the analysis of the merger transaction. It also provides the possibility of the Authority to inform third parties of the commitments proposed by the notifying parties, as long as it is deemed necessary for their assessment. However, the new law makes no further reference to the Authority’s power to contact private third parties for other purposes within the framework of the procedure.
Under current regulations, the notification is not made public. With respect to the confidentiality of the information provided by applicants for the assessment of the merger, current regulations provide that all information submitted during the notification procedure is confidential in nature and may only be used for the purposes for which it was requested.
The new merger control law states that the confidentiality of information may be obtained subject to the filing of a special request, a procedure regulated in Legislative Decree 1034 (Competition Law). To this end, the Confidentiality Guidelines of the Competition Commission apply. These guidelines set forth the specific cases in which certain types of information call for confidential treatment.
According to the new law, only the parties and third parties with legitimate interest incorporated in the procedure can access the file of the case. The new merger control law provides that the authority shall keep reserve of all the information received during the merger control review process, avoiding any risk against that could affect the legitimate interest of the companies involved. They are forbidden to disclose any business secrets or to make an undue use of the information.
Related to competition matters, the Third Final Complementary Provision of Legislative Decree 1034 (Competition Law) establishes that the Technical Secretariat may exchange information, including information deemed confidential, with the competition agencies of the countries that are parties to an international co-operation agreement. For that purpose, INDECOPI has subscribed many co-operation agreements with competition agencies, such as Chile, Mexico, France and USA.
The agreements that INDECOPI has signed refer to co-operation in matters of promotion of competition and other matters of its specialty.
The recent amendment introduced to the new merger control law by Legislative Decree 1510 specifies that INDECOPI may sign memoranda of understanding or other inter-institutional agreements with other national or foreign entities in order to seek for inter-institutional co-operation.
Under both current and new regulations, the first administrative instance decision can be appealed to the Competition Tribunal within 15 working days, counted as from the notification of such decision.
The merger approval procedure is administrative in nature according to both current and new regulations. In this connection, all decisions by INDECOPI's last administrative instance can be appealed by the parties to the judiciary through a contentious-administrative action, as established in the Contentious-Administrative Proceeding Act, approved by Supreme Decree No 011-2019-JUS. In this case, the decision issued by INDECOPI’s Tribunal ends the administrative instance.
See 8.1 Access to Appeal and Judicial Review.
Under the sole system of administrative acts appeals, the term to file an appeal with the judiciary is three months counted as from taking cognisance of or being served with the contested action.
Under current regulations only one administrative appeal has been known to exist. This appeal was filed by Enel against the imposition of a fine of 1000 UIT, for executing the transaction before clearance. In the second instance, the Competition Tribunal reduced the fine to 100 UIT.
Notwithstanding the foregoing, in 2013, the economic group formed by Interconexión Eléctrica S.A. E.S.P. (ISA) obtained the reversal of the conditions imposed by the Commission to mitigate the possible anticompetitive effects of the merger transactions entailed by the acquisition of Consorcio Trans Mantaro by said economic group. Even though this was not an appeal, it resulted in the review and lifting of the conditions imposed, given that the Competition Tribunal found that there had indeed been changes in circumstances that diluted the concern that had initially given rise to the conditions.
Neither current regulations nor the new regulations give legal standing to third parties to appeal any type of INDECOPI's decisions within merger control procedures.
However, there are cases in which a private party (consumer association) or a public entity (OSINERGMIN) have tried to appeal INDECOPI's decision without success.
See 1.1 Merger Control Legislation.
As stated, Legislative Decree 1510 has been recently published. This decree amends the new Peruvian Merger Control Act, which was enacted in November 2019. It has extended the entry into force of the law to March 2021, and has also amended some substantial provisions previously described
There is no recent enforcement record on imposing fines under current regulations.
Given the caselaw in the electricity sector under current regulations, INDECOPI's main concerns have been related to possible vertical effects of mergers. In that sense, as mentioned, in a recent decision, INDECOPI imposed a condition in a major transaction involving the distribution and power generation segments. This decision shows that the concern of the authority was to protect competition among power generation undertakings.
This, in order to avoid any possible restriction to competition that could arise as a consequence of the vertical integration that was produced after the transaction.
Given that the regulations of the new merger control law to be issued by November 2020 should clarify several matters regarding the application of the new regime, such as the turnover to be considered for the calculation of the jurisdictional thresholds and the definition of key concepts (eg, “operating productive asset” and “autonomous economic entity”), all major concerns will be focused in those regulations.
To mitigate the economic impact of the crisis and promote economic reactivation, in the context of the state of sanitary emergency caused by COVID-19 outbreak, on 12 May 2020 Legislative Decree 1510 was approved. This decree amends the Peruvian Merger Control Act establishing that the regime will come into force as of March 1st, 2021, instead of August 2020.
Additionally, it has introduced a simplified notification procedure for concentrations deemed to be less likely to produce any significant restrictions to competition and sets forth that the authority shall consider in its substantive analysis the major crisis situation of any of the companies involved in a concentration.
New merger control regime
On March 2021, Peru will enforce a mandatory merger control regime applicable to all fields of economic activities, under Urgency Decree Nº 13-2019 (hereinafter, DU 13-2019). To date, merger control only applies to the Electricity Market (generation, distribution, and transmission of electricity) under the Antitrust and Antioligopoly Act for the Electricity Sector, Law Nº 26876 (hereinafter, Law Nº 26876). The entity in charge is INDECOPI (The National Institute for the Defense of Competition and Intellectual Property) through the Competition Commission (hereinafter, the Commission), the Competition Chamber of its Tribunal and the Technical Secretariats that give support to both resolutory bodies.
The new regime introduces a two-phase review period up to 175 business days. The Technical Secretariat of the Commission reviews the application in 10 business days. If the application is not deemed complete, the Technical Secretariat gives the filing party a period up to 10 business days to fulfil the application. When the application is considered complete, Indecopi admits it for processing.
Within 30 working days after the admission for processing, the Commission will determine if the operation generates concerns about its possible impact on competition. If it is not the case, the operation will be approved immediately. However, if it raises concerns or requires more information, a second stage will begin, which lasts 90 working days, renewable for an additional 30 working days. After that, the Commission issuance its decision which is appealable.
Under the new regime, the following thresholds apply:
• The sum of the value of the annual gross sales or income in the country of the companies involved has a value equal to or greater than 118 000 tax units (approximately, USD 144 millions).
• The value of the annual gross sales or income in the country of at least two of the companies involved is equal to or greater than 18 000 tax units each (approximately, USD 22 millions). In addition, Indecopi can propose the update of the threshold. In case of an increase, the modification must be approved by Supreme Decree endorsed by the Ministry of Economy and Finance and, if it is a reduction, by Law.
Another innovation of the new regime is the participation of entities different from the competition agency. Indeed, operations involving failing banks or insurance companies that threaten the financial system stability, will be cleared only by the Superintendence of Banking and Insurance (SBS). Under this new regime when the transaction involves firms authorized by the Superintendence of the Stock Market (SMV), the operation is cleared with the positive opinion of both Indecopi and the SMV.
Finally, Indecopi may request a non-compulsory opinion to the sector regulator (energy, public infrastructure, telecommunication, and sanitation sectors), the regulators must inform about the market concentration rates and the possible effects of the merger in the market.
Changes in the upcoming regime amid Covid-19
During the pandemic caused by Covid-19, the executive branch of the government approved some changes to the merger control regime, under Legislative Decree 1510 (hereinafter, DL 1510). These changes include a simplified notification for the operations less likely to have anticompetitive effects. The requirements of the application and characteristics of the operations that might apply for the simplified notification will be developed in the upcoming regulation.
Also, the DL 1510 excluded from the DU 13-2019 the relevant market definition and the newcomer exception, which excludes acquisitions by an economic agent that does not participate in the relevant market or its related markets from the scope of the merger control regime.
The DL 1510 introduces a unity rule for a group of minority transactions that independently do not fall under the scope of the DU 13-2019. These transactions must be held by the same enterprises in a period of 2 years. In this case, parties must notify the last transaction (the one that meets the jurisdictional threshold).
One of the most relevant changes to the regime is the introduction of the failing firm defense as a relevant element in the merger review process. Considering the actual economic crisis is foreseeable that firms would engage in merger operations to avoid bankruptcy. More development regarding this issue should be included in the upcoming Guidelines.
Finally, the change to the regime introduces cross border coordination. According to this, Indecopi has the power to share and receive information, even if it is confidential, with the competition agencies with which it has signed a collaboration agreement.
The DU 13-2019 does not cover every angle of the merger control regime, many of the aspects will be further developed in the upcoming regulation. This complementary regulation was published for comments in July and is set to be approved on November 2020. The most relevant topics in the regulation are (i) threshold calculation rules, (ii) applicable rules for the simplified notification, and (iii) remedies review process.
Threshold calculation rules
The regulation states that the term “involved firm” refers to the economic agent that participates in the operation and its economic group.
This document proposes the following rules to determine the relevant gross sales for the threshold calculationMerger of two independent firms to create a new firm Annual gross sales or income of the participant firms and its economic groups, if applicable.
The simplified notification applies in the following cases:
• When the participants or its economic groups does not participate in the same product or geographic market or in the same production or value chain.
• When the operations grants an economic agent exclusive control of another firm that was previously jointly controlled by it.
Remedies review process
According with the regulations draft, during the term stablished by the Commission or the Tribunal for the review of a condition imposed, the agents involved, or the Commission can request the Tribunal to maintain, modify or revoke said conditions if there has been a change in the conditions of competition in the market. In this case, the Tribunal has to issue the decision of initiate or not the proceeding in a term of 10 working days, having since that 90 working days to decide about the condition, given the parties and the Commission enough opportunities to state their position.
On the other hand, the sunset review process is initiated by the Commission before the end of the term stablished for the review of the condition imposed. The Commission has 90 working days to decide if the condition must be maintained, modified o revoked, given the parties enough opportunities to state their position. The final decision can be appealed before the Tribunal.
Both the DU 13-2019 and the regulation stipulates that the Competition Commission can publish Guidelines to further develop the rules applicable to the Merger Control procedure.
In the following lines we refer to the most relevant topics which the Guidelines or the final version of the regulations should clarify.
Relevant market definition
The original version of the DU 13-2019 referred to the Anticompetitive Conducts Act (hereinafter, DL 1034) for the definition of relevant market, this law defines relevant market as the product market, the good or service and its substitutes, and the geographic market, the geographical areas where the alternative sources of supply are located. However, the DL 1510 excluded this definition from the DU 13-2019.
It would be convenient that the Guidelines sets the methodology or relevant factors used to determine the scope of the relevant market. As the European Union Commission Notice (97/C 372/03) on the definition of relevant market for the purposes of Community competition law, clearly states, the scope of the relevant market analysis “might be different when analyzing a concentration, where the analysis is essentially prospective, from an analysis of past behaviour”.
Considering the differences between ex ante and ex post evaluation, the Guidelines should include a relevant market definition including the factors that will be evaluated and the methodology applicable to this evaluation, such as, demand-side substitutability, supply-side substitutability, potential competition and special concerns for multisided markets.
Under Law 26876, the Commission has defined the Electricity Sector relevant market as the spot market (sale of electric power between generators), free user market (bilateral negotiations between generator and users) regulated user market (distribution of electric power to end users), contracts market for regulated users (sales of electric power from generators to distributors for its regulated market) and transmission market.
The DU 13-2019, defines control as the decisive and continuous influence over a firm through: (i) property or use rights of all or part of a company’s assets; or (ii) rights or contracts that enable a decisive and continuous influence on the structure, discussions or decisions of the corporate bodies that determine the competitive strategy (for example, investments or appoint key positions on the firm).
The Guidelines are set to define the concept of “competitive strategy” of a business. Under Law 26876 the decisions on the competitive strategy have been defined as decisions regarding budget approval, strategic planning, investment decisions and board or other directive positions appointment. (See Resolutions 794-2011/SDC-INDECOPI and 1351-2011/SDC-INDECOPI).
Under Law 26786, control is defined as the ability to influence decisively and permanently the competitive strategy of the controlled undertaking (see Resolutions 002-1998-INDECOPI-CLC, 015-1998-INDECOPI-CLC, 012-1999-INDECOPI-CLC, 034-2014/CLC, 1351-2011/SDC or 019-2019/CLC-INDECOPI).
Indecopi has also considered as types of control direct or indirect and exclusive or shared (see Resolutions 006-2002-INDECOPI-CLC, 016-2006-INDECOPI-CLC, 058-2009-CLC/INDECOPI, 034-2014/CLC and 019-2019/CLC-INDECOPI).
Control is direct when a person or company exercises more than half of the voting power in the general meeting of shareholders or partners of a company, and indirect when a person or company has the power to appoint, remove or veto the majority of the members of the board of directors or equivalent body, to exercise the majority of the votes in the meetings of the board of directors or equivalent body, to approve the operational and/or financial policies, to approve the decisions on dividends and other distributions, to designate, remove or veto the general manager or the manager who is authorized to manage the funds; even if it does not exercise more than half of the voting power in the general meeting of shareholders.
On the other hand, exclusive control is the ability of one economic agent or person to influence in the company’s competitive performance decisively and individually without the need for other factors or wills. While shared control exists when two or more economic agents have this ability jointly.
The Guidelines should clarify the definition of market thresholds, clarifying the scope of the “local market” and further developing if the share involved in the operation is going to be comprised by only the revenue of the relevant business object of the operation, this business and other related business or every business of the parties involved.
In terms of remedies, the DU 13-2019 establish that economic agents may at any time present a proposal of commitments (remedies) to mitigate or avoid the possible negative effects of the transaction.
The regulation should develop the types of remedies that the parties may propose, the timing and requirements of the filing. Remedies can be structural, for example divestitures or behavioral, for example, access to infrastructure or “Chinese wall” obligations. Also, is necessary to define if the Technical Secretariat have enough power to negotiate the conditions with applicants.
Since the approval of Law 26786, Indecopi has ordered only behavioral remedies, related principally with the acquisition of energy for the electricity distributors, which in many cases are legal monopolies. In 1999, the Commission imposed to an electricity distribution company the obligation to bid for its energy acquisitions, to avoid a preferential treatment to its related electricity generation companies (Resolution 12-1999-INDECOPI/CLC). Another remedy related with tenders was the prohibition imposed against ISA and its related companies to participate in the second call of tenders, to make certain that they present their best bid in the first call (Resolution 001-2017/CLC-INDECOPI).
Under Law 26876, Indecopi issued a compulsory precedent (Resolution 0623-2014/SDC-INDECOPI), in which the competition agency review and revoke the remedies ordered to clear a transaction. This decision stated the following:
• The remedy ordered to clear a merger transaction must be limited for a period of time, after which the competition agency must review the characteristics and competitive context of the market, to determine whether or not it is appropriate to maintain the remedy imposed.
• The party may request the revocation of the remedy imposed, identifying the change of circumstances that enable the lifting of the conditions previously imposed.
DU 13-2019 establish sanctions against procedural gun jumping up to 1000 tax units for the (i) lack of notification and (ii) the execution of an operation before its approval. However, it is not clear what is the difference between these two infringements, considering that notification can be filed at any previous moment of the execution of the transaction. In that sense, fail to notify suppose necessarily the execution. Is necesary that the upcoming Guidelines helps to clarify this issue.
In the Peruvian experience, the Commission have sanctioned the electricity generator company Enel in 2010 for execute a share acquisition before the issuance of the final decision, since Enel changed some representatives of the acquired firm. A fine up to 1000 tax units was imposed against it (see Resolution 001-2010/CLC-INDECOPI).
Structural changes in the competition agency
Another possible change that would affect the merger control procedure is the possible redesign of the competition agency structure.
To date, the Peruvian competition agency is comprised by two bodies: the Competition Commission as first instance and the Tribunal as appellate body. Both bodies have a technical secretariat in charge of prosecution. In June 2019, the executive branch of the government published for comments an initiative to redesign the competition agency into a one-instance body.
If the changes are approved, merger control will be processed by the actual Technical Secretariat of the Commission and the decision on the merger will be issued by the Tribunal. This decision will end the administrative procedure and the parties might question it only through the courts.
Recent practice under Law 26876
In March 2020, Indecopi authorized the acquisition of Luz Del Sur SA, the largest energy distributor in Peru, by China Yangtze Power International (Hongkong) Co. Limited, whose authorization was requested in October 2019, by exceed the thresholds provided in the Law 26879. This was a transaction of approximately USD 3.6 billion.
CYPI is a company with Chinese capital, controlled by the China Three Gorges group, and which currently participates in the Peruvian generation market through the Chaglla Hydroelectric Power Plant; while Luz Del Sur SA, until before the closing of the operation, was controlled by Sempra Energy International Holdings NV, which participated not only in the segment of electricity distribution to end users, but also in the generation segment of energy through Inland Energy SAC. The complexity of the vertical and horizontal effects derived from this purchase motivated the procedure to be extended to the legal maximum allowed, taking a total of approximately 5 months to issue the decision.
The main risk identified was that CYPI, through Luz Del Sur S.A., might favour its related generating companies for the purchase of energy. However, since the distributor already had long-term energy contracts in force with independent companies, the Commission considered that it was only necessary to implement a moderate condition that ensures competition when, upon expiration of such contracts, CYPI requires the purchase of energy.
For that reason, the Commission obliged CYPI to organize a tender for the acquisition of electricity, but only if Luz Del Sur S.A. wants one of its related generator companies supply the required electricity and only for the users of the regulated markets (families or small companies, principally).