KPPU Determines that Aqua Danone and its Distributor Breached the Competition Law

 

Overview

On 19 December 2017, Indonesia’s Commission for the Supervision of Business Competition (KPPU) concluded that PT Tirta Investama, a company producing “AQUA Danone” bottled water (Aqua) and PT Balina Agung Perkasa (BAP or Distributor) had breached the provisions of exclusionary conduct under Law No.5 of 1999 on Prohibition of Monopolistic and Unfair Business Competition Practices (Competition Law).

After a series of investigations and hearings that lasted more than a year, KPPU found that Aqua and BAP had violated Article 15(3) and Article 19(a) and (b) of the Competition Law.  KPPU imposed a fine of Rp13.8 billion and Rp6.3 billion respectively, on Aqua and BAP.

The latest KPPU decision sends a strong message that every business actor must comply with the prevailing laws and regulations, including the Competition Law.

Background

The initial case started with a summation (Somasi) made by Aqua’s competitor, Le Minerale (PT Tirta Fresindo Jaya).  The Somasi was published in several national newspapers, demanding that Aqua and its Distributor stop forcing outlets not to sell Le Minerale’s products.  KPPU kept an eye on this news by closely monitoring, and then initiating its own investigation in this case.

During its investigation, KPPU discovered evidence supporting its findings, including conduct in the form of threatening or downgrading the outlets, from a star outlet (SO) to becoming a wholesaler (WS), if they continued to sell Le Minerale’s products.  This downgrading from SO to WS resulted in the outlets paying 3% more when receiving Aqua’s products.  In order to avoid paying 3% more, the outlets (had to) follow Aqua and BAP’s instructions, which have caused a decrease in Le Minerale’s sales in specific areas. 

KPPU findings were also supported by emails from Aqua and BAP or agencies to the outlets, indicating that these instructions were effective in the field.  KPPU considered that the instructions were effective due to Aqua’s domination in the bottled water market shares in Indonesia.

Based on the market share report from Goldman Sachs, in 2015, Aqua occupied more than 46.7% of the bottled water market share in Indonesia, followed by Club 4% (Indofood), 2Tang 2.8% (PT Tang Mas), Oasis 1.8% (PT Santa Rosa Indonesia), Super O2 1.7% (Garuda Food), and Prima 1.4% (PT Sosro).[1]

BAP is Aqua’s exclusive distributor for 12 specified areas, including Cikampek, Cikarang, Bekasi, Babelan, Pulo Gadung, Sunter, Prumpung, Kiwi, Lemah Abang, Cibubur, and Cimanggis.

Exclusionary conduct

In its decision, KPPU considered that Aqua and BAP breached the provisions on exclusionary conduct (e.g. Articles 15(3) and 19(a) and (b)).

Article 15(3) of the Competition Law, stipulates that:

Business actors shall be prohibited from entering into agreements concerning prices or certain price discounts for goods and or services, setting forth the condition that the business actor receiving goods and or services from the supplying business actor:

a.      must be willing to buy other goods and or services from the supplying business actor; or

b.      will not buy the same or similar goods and or services from other business actors that are competitors of the supplying business actor.”

Article 19(a), (b) of the Competition Law, stipulates that:

Business actors shall be prohibited from engaging in one or several activities, either individually or jointly with other business actors, which may cause monopolistic or unfair business competition practices, such as:

a.      refusing to allow and or impeding certain other business actors in conducting the same business activity in the relevant market; or

b.      impeding consumers or customers of their competitors in engaging in a business relationship with such business competitors.

KPPU found that the “exclusionary practices” conducted by Aqua and BAP have satisfied the elements of Articles 15(3) and 19(a) of the Competition Law, which generally prohibits  exclusionary conduct, if it prevents actual or potential com­petitors from supplying the same products or prevents consumers from obtaining similar products that are competitive in price or quality.

This case serves as a reminder of past KPPU cases on exclusionary conduct, as follows:

Arta Boga Cemerlang (ABC, 2004)

In the ABC case, KPPU determined that ABC had breached Article 25 of the Competition Law by engaging in exclusionary practices towards its competitors and entering into agreements with its wholesalers and grocers, which provided that:

•   a 2 per cent discount would be given, if they agreed to sell ABC’s batteries; and 
• an additional 2 per cent discount would be given, if they agreed not to sell ABC’s competitors’ products.

Telkom (2005)

In the Telkom case, the Supreme Court determined that Telkom had breached Article 15(3)(b) of the Competition Law by providing exclusive rebates to hotels and offices on the condition that these hotels and offices would not use international telecommunications services offered by Indosat, a competitor.  With its dominance in the public switched telephone network market, Telkom thereby also abused its dominant position, in contravention of Article 25 of the Competition Law.

Appeal

After KPPU issues its decision, the relevant business actors concerned (in this case, Aqua and BAP) would be obliged to abide by the decision and report to KPPU within 30 days after receiving formal notification of the KPPU decision.[2]  However, the business actors may decide to appeal the decision to the District Court, in which case they must file the appeal no later than 14 days after being notified of the decision.[3] The District Court is then obliged to examine the appeal within 14 days of the filing of the appeal,[4] and must make a decision within 30 days from the date of commencement of the appeal hearing.[5]

Conclusion

KPPU’s decision went against Aqua and BAP, stating that they were proven to have breached the provisions on exclusionary conduct in the distribution and selling of Aqua Danone bottled water.  We note that on 31 January 2018, the appeal has filed by Aqua and we will see that the District Court will review the KPPU findings and determination whether it had correctly applied the provisions on Competition Law.

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[1] https://katadata.co.id/berita/2017/12/20/divonis-kppu-aqua-terbukti-larang-toko-jual-produk-le-minerale accessed on 15 January 2018.

[2] Article 44(1) of the Competition Law

[3] Article 44(2) of the Competition Law

[4]  Article 45(1) of the Competition Law

[5]  Article 45(2) of the Competition Law