What is the Concentration Committee, and how does it limit powerful economic entities?
Shapir attempted to acquire the oil refinery in Ashdod, but the Concentration Committee recommended against the deal. We examine the authority and criteria this body uses to evaluate the influence of major players on the economy.
The Concept
Concentration Committee: A body that advises the government on actions that may affect the level of concentration within the economy.
Current Context
It was recently reported that the deal for Shapir Engineering to acquire the oil refinery in Ashdod (BAZAN) hit a hurdle after the Concentration Committee recommended against approving the acquisition. The final decision now rests with the Government Companies Authority. But what is the Concentration Committee, and on what grounds can it recommend disqualifying deals in the Israeli economy?
What is the Concentration Committee?
As early as 2009, a Bank of Israel study indicated that Israel's concentration level was higher than that of other developed nations, posing risks to financial stability due to the size and complexity of these entities.
To address this, the Committee for Increasing Competition in the Economy was established in October 2010. In April 2012, the government adopted the committee's recommendations, which found that the Israeli economy suffered from high cross-sectoral concentration, threatening the financial system, business competition, and the public of savers. In December 2013, the Law for the Promotion of Competition and Reduction of Concentration was enacted, establishing the Concentration Committee.
The committee consists of three members:
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The Commissioner for Competition (Chairperson, currently Adv. Michal Cohen).
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The Director General of the Ministry of Finance or a department head (currently Israel Malachi).
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The head of the National Economic Council or one of his deputies (currently Prof. Avi Simhon).
The committee is tasked with maintaining lists of centralized and significant financial factors, and providing annual reports to the government and the Finance Committee regarding the allocation of public assets.
The law requires regulatory bodies to consult with the committee before allocating public assets to centralized entities. The committee's recommendations focus on three areas: considering economy-wide concentration in the allocation of rights, limiting control in pyramidal corporate structures, and separating significant real corporations from financial entities.
How is concentration examined?
According to the committee's 2019 methodology, economy-wide concentration is defined as a phenomenon where many significant assets are held by a small number of players. The committee assesses the bargaining power and potential excess influence a central factor might exert over policymakers, particularly in essential infrastructure. Such influence could lead to decisions favoring a specific player at the expense of the public interest.
Evaluation parameters include three groups of variables: the essentiality of the firm's activities, macroeconomic data, and additional characteristics indicating regulatory-political influence, such as media ownership or a policymaker's dependence on that factor.
