Public entity in a business: Is it justified?

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From 1st January 2020, the Competition Council of Latvia (the CC) gained the power to supervise the activities of the public entities, which were enshrined in the Competition Law. Initially, the CC developed competition neutrality guidelines. The guidelines were followed by a self-assessment tool, thanks to the fact that in year 2020, most of the public entities of the Republic of Latvia were required to carry out an assessment of whether their involvement in commercial activities through capital companies belonging to them was legally and economically justified according to Article 88 of State Administration Structure Law (VPIL). In view of the need for an opinion of the CC, the CC made a self-assessment tool to facilitate the evaluation process for public administrative bodies related to revaluation of holdings in a capital company. In accordance with the first and second paragraphs of Article 88 of the VPIL, a public entity may engage in commercial activities for the efficient performance of its functions by establishing its capital company, acquiring a holding in an existing capital company, maintaining its participation or extending the activities of a capital company. However, in all these cases, it is mandatory for a public entity to carry out an assessment and to obtain confirmation that it is otherwise impossible to effectively avoid market distortion, to create goods or services, or to manage properties that are strategically important for the development of the administrative territory of the State or municipality. In practice, the Competition Council observes that public entities, particularly small municipalities, have limited resources and the ability to recognise what action has led to abreach of competition law. The objective of the self-assessment tool developed by the CC is to make it easier for public entities to carry out the legal and economic assessment of their commercial activities in a simple and convenient way. It covers all the essential aspects and threats that a public entity should be obliged to pay attention to, thereby obtaining all necessary information before taking a decision on the establishment of a capital company of the maintenance of a holding in a capital company.