Competition Authority discontinues 8 investigations instigated in 2004 for alleged anti-competitive practices in the liquid road-fuels sector

The Decisions

The Competition Authority has ruled that no further action will be taken on eight administrative-law investigations instigated on its own initiative in 2004, for alleged anticompetitive practices, against the oil companies that were operating then in Portugal.The oil companies in question are as follows: BP – Portugal Comércio de Combustíveis e Lubrificantes SA ('BP'); ESSO – Portuguesa Petróleos SA ('ESSO'); CEPSA – Portuguesa Petróleos SA ('CEPSA'); REPSOL Portugal Petróleos SA ('REPSOL'); TOTAL Portugal Petróleos SA ('TOTAL'); SHELL Portuguesa SA ('SHELL'); and GALP Energia SGPS SA ('GALP'). As a result of Community decisions not to oppose REPSOL'S purchase of the SHELL network in Portugal in September 2004, TOTAL's purchase of the CEPSA network in the Iberian Peninsula in September 2006, and GALP's purchase of the AGIP and ESSO networks, also in the Iberian Peninsula, last September and October respectively, there are four oil companies in Portugal at present: BP, GALP, REPSOL and TOTAL.

The Authority ordered the preparation of an administrative-law case following the detection of possible evidence of parallel behaviour among the oil company trading names on a national (continental) level in the retail prices (henceforth “RP”) of liquid road fuels (petroleum and diesel road fuels) in the stations operating under these trading names and among the respective gross average retail margins in 2004.

The objective of these investigations was to examine the existence of possible concerted practices between oil companies, in breach of Article 4 (1) of the Competition Act and/or possible abuses of a dominant position, in breach of Article 6 of the Competition Act (Law No. 18/2003 of 11 June).

Within the scope of the preparation of this case, the Competition Authority made an indepth analysis of the retail prices charged at the stations under the oil companies' trading names since the year 2004. Alongside this analysis, the Authority also carried out na investigation of the way in which the development in the national average before-tax retail prices (ABTPs) of diesel fuel and 95-octane petrol compared with the development of other ABTPs, per fuel, in the EU15.

This analysis also benefited from the study “The Liquid Fuel and Bottled Gas Sectors in Portugal”, for which the final report was completed on 31 March 2009.

The results of these analyses concluded that the parallel behaviour among the oil company trading names, on a national scale, may not be understood as a competitive offence of price parallelism, either in the retail prices or the respective average gross retail margins.

In fact, with respect to this case, restricted to the oil company trading names in Portugal and their retail prices and average gross retail margins, the results of the econometric assessment of the in-depth studies carried out by this Authority and the results of the enquiries made by the AuthorityIn particular, the results of the analysis of the information requested from the different parties involved in the sector within the scope of the sector monitoring process, under the Competition Authority's supervisory powers (by force of Article 7 (3) of the Competition Authority's Statutes), as well as analysis of this Authority's quarterly Newsletters on Liquid and Gaseous Fuels, the Report on the Fuel Market in Portugal (2 June 2008) and the Competition Authority's Interim Report on the Liquid Fuel and Bottled Gas Sectors in Portugal (December 2008). do not support the existence of competitive offences in the whole of the period analysed. This led this Authority to drop the case for lack of sufficient evidence of breach of the competition rules.

It is to be noted, however, that there were signs, initially, of very close pricing in the course of 2004, since the timing of the decision to liberalize the prices of liquid road fuels was not far behind.

With regard to the other seven investigations, the matter at issue relates to the noncompetition clauses in the standard supply contracts for liquid road fuels (henceforth “fuels”) signed between each of the oil companies and the retailers under its trading name during the years 2003 to 2005; it also relates to possible vertical retail price fixing by the companies, in breach of Article 4 (1) of the Competition Act.

With respect to the distribution contracts, assessment of the clauses in question has shown that they are not incompatible with the national or Community rules applicable.

This conclusion is based on the provisions of Regulation (EC) 2790/1999 of 22 December, relating to the application of Article 81 (3) of the EC TreatyThe Treaty establishing the European Community. to certain categories of vertical agreementsOJ L 336, 29.12.1999, p. 21-25, 'Block Exemption Regulation'. (henceforth referred to as the Block Exemption Regulation). This Community legislation has direct application in the Portuguese legal system.

As more precise information on the legality of these clauses, the Council of the Competition Authority considers it expedient to provide the following explanations:

The distribution contracts signed between the oil companies and the retailers using their trading names are generally distinguished according to the ownership of the filling station and the right to operate it. We normally find the following types:

(i) COCO (“Company Owned and Company Operated”): filling stations owned by the oil company and operated by it or by one of its subsidiaries;(ii) CODO (“Company Owned and Dealer Operated”): filling stations owned by the oil company and operated by third parties, of which those referred to as COFO (“Company Owned and Franchise Operated”) are a special case, with characteristics belonging to a franchise contract; (iii) DODO (“Dealer Owned and Dealer Operated”): filling stations owned and operated by third parties, of which those referred to as DOFO (“Dealer Owned and Franchise Operated”) are a special case, in a similar fashion to the COFO type above.

In this context, it should be stressed that, for the purposes of the application of the Competition Act, the contractual relations between companies that make up the same business group do not give reason to exclude, for the purposes of competition-law evaluation, the contracts governing the operation of stations owned by oil companies and operated by them or their subsidiaries (i.e. COCO-type stations).According to Article 2 (2), 'a group of undertakings that, though legally separate, constitute an economic unit is considered as a single undertaking (…)'.

Possible restrictions to competition in the distribution contracts analysed

Non-competition clauses
Agreements containing this kind of clause may be incompatible with the competition rules, in particular when, by force of their provisions, other suppliers in the market may be unable to sell to buyers, with the resulting closure of such companies (exclusion of other suppliers by the creation of entry barriers) and weakening of inter-brand competition. However, such anti-competitive practices may be justified when they offer an economic balance favourable to the consumer. With regard to this, the European Commission has defined a category of vertical agreements that are considered compatible with the competition rules if they fulfil the conditions laid down in the Block Exemption Regulation.

With the exception laid down in Article 4 (2) of the Competition Act, the above Regulation considers this exemption to be applicable provided that the supplier concerned's share of the relevant market does not exceed 30%. It is presumed that, in such circumstances, if the contract does not contain serious anti-competitive practicesAs stipulated in Article 4 ((1) of the Competition Act and/or Article 81 (1) of the EC Treaty., there will be an improvement in production or distribution and, concomitantly, this will allow consumers a fair share of the resulting benefits.

Accordingly, it should be stressed that, during the years under consideration and for the purposes of the competition-law assessment, all the oil companies held less than a 30% share of the relevant market.It is to be emphasised that, on the one hand, the contractual relations between companies that make up the same business group are not taken into consideration for the purposes of the application of the Competition Act (i.e. those of the COCO type) and, on the other hand, with respect to CODO-type contracts, given that the oil company owns the station, it is difficult to consider the duration of the noncompetition clauses excessive. Thus the calculation of the estimate of relevant shares, for the purposes of assessing the contracts in question, only considered distribution contracts relating to stations that were not owned by the petrol company (i.e. DODO-type).

In addition, as a general rule, the European Commission considers that vertical agreements between undertakings that do not contain any serious restrictions do not appreciably restrict competition when “[…] the market share of each of the parties to the agreement does not exceed 15% in any of the relevant markets affected by the agreement […].”The Commission Communication relating to agreements of minor importance that do not appreciably restrict competition according to Article 81 (1) of the EC Treaty (De Minimis), (2001/C 368/07).

It should, therefore, be underlined that CEPSA, TOTAL and ESSO held market shares of less than 5% between 2003 and 2005. Thus, in principle, their agreements are covered by the Commission Communication on agreements of minor importance (henceforth the “De Minimis Communication”). See the proceeding footnote. Nevertheless, when market entry or competition is significantly restricted by the cumulative effect of parallel networks of similar vertical agreements concluded by competing suppliers, non-competition obligations may not be covered by the Block Exemption Regulation.Point 73 of the European Commission guidelines on vertical restrictions Thus, it is to be stressed that all the distribution contracts supplied to this Authority, the DODO-type contracts, represented, as a whole, less than 24% of the total market during the period in question (2003-2005). In addition, the Commission generally considers that suppliers with a market share not exceeding 5%, as was the case with CEPSA, TOTAL and ESSO, do not appreciably contribute to a cumulative effect of exclusion and whenever, as in the present case, contracts do not exhibit serious restrictions to competition, they will be excluded from the scope of the application of the rules on competition, on the grounds of their not appreciably restricting the latter.

Accordingly, the present or potential effects of the non-competition clause in those distribution contracts are, similarly, not covered by the prohibition contained in Article 4 of the Competition Act.

The Retail Price
In the contracts under consideration, the oil companies limited themselves to recommending a retail price, leaving the retailers the freedom to set the actual selling price above or below the recommended price, without reducing the companies' income.The practice of recommending a retail price or demanding that a retailer respect a maximum retail price does not normally arouse competition questions and is covered by the Block Exemption RegulationRegulation (EC) No. 2790/1999 of 22 December 1999., where the supplier's market share does not exceed the 30% threshold, as happened in these casesCommission Communication, Guidelines on Vertical Restraints (2000/C 291/01), para. 225 et seqq.

In summary, according to Regulation (EC) No. 2790/1999, the non-competition clauses and (maximum) retail price recommendation clauses contained in the distribution contracts of the oil companies under investigation are to be considered justified.

Synopsis

Thus, in the light of the lack of sufficient evidence of a breach of the competition rules in relation to the alleged retail price parallelism and the non-existence of anti-competitive clauses in the contracts analysed, the Competition Authority has decided to drop the eight cases that are the subject of this press release.

It is to be emphasised that the rulings of no further action that are the subject of this press release do not bind the Competition Authority as regards any alteration in the information and/or assumptions on which they were based.

In all cases, in the exercise of its supervisory powers, the Authority will continue its close monitoring of the liquid road-fuels sector.

(Nº: 7/2009)