Market forces and aggregate pricing in the UK are to the subject of a new report by the Office of Fair Trading
Aggregate prices vary from country to country but most are influenced by the simple factors of supply and demand, as well as quality. Nonetheless, prices in the UK are to come under scrutiny by the
Although some described it as an 'investigation' prompted by complaints about perceived domination by the big players, the OFT stressed that it had not received any specific complaints. It said that it was instead responding to representations received during the course of a number of mergers in recent years.
Specifically the OFT wants to understand the extent of competition between different aggregates producers and whether increasing concentration and integration of operations may affect competition at the local level. How the planning system, in determining the supply of aggregates at a local and national level, and competitive forces interact and affect services and value for money provided to customers will also be reviewed. In addition, barriers to entry and how these differ depending on whether competition is for land based aggregates, marine based aggregates or secondary aggregates will be studied.
"As a lawyer, I'm most interested in how the planning system interacts with and influences the supply and demand market and that's something that is relevant across borders," said Stephen Scowns lawyer Robert Camp.
"In the UK, mineral extraction is basically determined at a local or regional level by local planning authorities. They work with Regional Aggregates Working Parties (RAWPs), which include representatives from the industry, to reach agreement about supply, reserves and landbanks.
"The RAWPs issue annual monitoring reports showing the balance of supply and demand in each region, and every fourth year carry out an expanded survey to assess demand and levels of consumption. All of this informs future planning policy.
"That would seem fair enough, but I continually come across operators who complain about the high costs associated with making planning applications, and the very long lead in time between working up a proposal and the commercial start of extraction activities.
"It would seem therefore that there are plenty of planning-related barriers to entry into the UK market, despite the industry's involvement in assessing demand and supply.
"It's also an issue that has split the industry in the UK. The
"By contrast the
"Whichever argument you subscribe to, it is hoped that the OFT study will bring clarity to the interaction of competitive forces and the planning regime.
"And of particular interest to public authorities of course will be the impact - or not - that this has on prices. As governments across Europe pursue austerity budgets and rein in spending, there will be increasing pressure on publicly-funded infrastructure projects to deliver better value for money." In a statement, the OFT said, "Aggregates is an important sector in its own right but it is also part of the larger construction industry which plays a key role in the UK's economy. As such, the cost of aggregates is reflected in the price consumers, and tax payers, pay for essential infrastructure, from housing through to roads and major capital buildings projects." Camp continued, "That's why governments across Europe will be watching the outcome of the OFT study very closely because if it is shown that the way the planning system operates impacts negatively on value for money provided to customers (including public sector customers), you can bet that there will be changes afoot.
"There are a number of possible outcomes to the OFT's study including enforcement action; a reference of the market to the UK's Competition Commission for investigation; recommendations for changes in laws and regulations; recommendations to regulators; recommendations to self-regulatory bodies and others to consider changes to their rules - or a clean bill of health.
"The OFT's initial consultation ended in October and it is due to report its findings in July 2011. The industry awaits them with interest."
Contact
Robert Camp heads the minerals team at Stephens Scown solicitors in the UK which has more than 70 years' experience representing mining and minerals clients. He can be contacted on +44 1392 210700 or email
