Cypriot Competition Commission Imposes Heavy Fines on Oil Companies

     By Anastasios Antoniou LLC

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The Cyprus Commission for the Protection of Competition finds the four oil companies as having violated competition rules by carrying out a concerted price in fixing fuel prices and imposes millions in fines.

Four decisions regarding the largest oil companies of Cyprus were issued by the Cyprus Commission for the Protection of Competition (CPC) which found all four as having breached competition legislation. The investigation concerned the respective violations of the Protection of Competition Law 13(I)/2008 (the Law) on behalf of the four main Cypriot oil companies, namely ExxonMobil Cyprus Ltd (Exxon), Petrolina (Holdings) Public Ltd (Petrolina), Hellenic Petroleum Cyprus Ltd (Hellenic Petroleum) and Lukoil Cyprus Ltd (Lukoil). The said undertakings were investigated by the CPC over allegations for infringement of s. 3(1)(a) of the Law, the provisions of which they were held to have breached through the establishment of a concerted practice among them.

Section 3(1) of the Law, being the national counterpart of Article 81 EC, provides for the prohibition of agreements between undertakings, decisions or concerted practices which have as an object or effect the prevention, restriction or distortion of competition in the Republic of Cyprus. Specifically, s. 3(1)(a) makes specific reference to the prohibition of any such agreements, decisions or concerted practices which have an object or effect to directly or indirectly fix purchase or selling prices or any other trading conditions.

The discussed undertakings’ actions in the relevant market at the material time gave rise to the investigation on behalf of the CPC regarding:

a) The adoption of a concerted practice that indirectly fixed their retail fuel prices (unleaded 95-octanes and 98-octanes gas and LS petroleum) between 1/10/2004 and 22/12/2006;
b) The agreement and/or collusion on behalf of the said companies and their retail sellers for the direct or indirect fixing of fuel prices (unleaded 95-octanes and 98-octanes gas and LS petroleum) between 1/10/2004 and 22/12/2006) which had as its object or effect the prevention, restriction or distortion of competition in the Republic.

Prior to the hearing proceedings, the four undertakings raised pre-trial objections as to the validity of the case against them on procedural and due process grounds which were nonetheless largely rejected by the CPC. However, the undertakings succeeded in having any evidence collected during the CPC’s raids to be disregarded and for the Commission to reach its decision using all other evidence collected and presented before it.

In its four relevant Decisions, examined for the purposes of the present report as a joint decision due to the similarity of the factual and legal background, the CPC defined Cyprus as being the relevant geographic market and the retail sale of oil fuel products as being the relevant product market. As regards the latter, it specifically comprised at the material time of the following types of products: unleaded 95-octane gasoline, unleaded 98-octane gasoline and LS petroleum.

In the Decisions under examination the CPC elaborated on the fundamental concepts of competition law and their interrelation on a Community and national level. It also embarked on examining the definition and notion of a ‘concerted practice’, making particular reference to the ECJ’s ruling in Dyestaff. Based on this and other Community case law, the CPC followed the Community Courts in asserting that the coordination and cooperation criteria, necessary for determining the existence of a concerted practice, do not require an actual ‘plan’ to have been conceived and implemented, but are to understood in the light of the principles enshrined in the EC Treaty on competition. Therefore, the pivotal element to be examined should be the independence of each trader as to the policies he intends to adopt in the market and the terms he intends to offer to his customer. The independence requirement precludes any direct or indirect contact between traders with an object or effect to distort competition within the market they are competing in.

The CPC relied on the ratio of the Cement Judgment of the ECJ regarding the case where an undertaking does not distance itself from illegal conduct irrespectively of whether it has knowledge of the illegality taking place, particularly when it is apparent that such conduct shall have an anticompetitive effect. It also referred to the British Sugar Judgment, which concerned an oligopoly – as was the case under discussion – in which it sufficed for the establishment of a concerted practice that one of the participating undertakings provided information over its pricing policy.

The CPC also adopted the principle in Wood Pulp, namely that due to the evidential difficulties under particular market conditions, especially as regards concerted practices contrasted to parallel behaviour which would otherwise be legal, when such behaviour cannot be attributed to the market conditions and consequently there are other grounds to explain such, then this behaviour would constitute a concerted practice. On that basis, the CPC examined the investigated relevant market and its characteristics and emphasized the following elements pertained in the relevant market:

• The small number of competing undertakings;
• The analogy in market shares (with the exception of Lukoil);
• The high rate of concentration in the relevant market;
• The similar cost structures;
• The rates at which demand changes and the absence of unpredictability in demand
• The absence of market power;
• The existence of structural and other bonds between the competing undertakings;
• The absence of innovation;
• The high frequency of interaction and the capability for regular and low-cost adjustments of the recommended pricing of the relevant products;
• The exchange of confidential information.

The CPC also established the existence of artificial transparency conditions created with respect to the relevant market, mainly through the constant dissemination of prices on behalf of the undertakings concerned. This dissemination took place through the media, aimed at informing their competitors for future pricing conditions. That the dissemination of confidential information such as the undertakings’ pricing policies was carried out publicly through the mass media could not be held to relieve the undertakings concerned.

This artificial transparency had the result of relieving the undertakings from the reasonable insecurity that should have prevailed as to each other’s future behaviour and also supported a mechanism which complemented the implementation of the concerted practice under discussion and the practice itself. It is worthy of note that the CPC held that this practice on behalf of the undertakings as offending the ideal of free competition and functions restrictively over the freedom of market participants to responsibly set their prices taking a business risk independently and autonomously.

The undertakings’ pricing policies were subjected to extensive examination on behalf of the CPC. Evidence before the Commission led the latter to rule that fuel prices in the relevant product market were parallel and indeed these undertakings adjusted their products’ prices homogenously to each other and at a rate which indicated that it was not a matter of intelligent business activity but rather a coordinated activity, namely a concerted practice.

The whole behaviour of the oil companies against which the examined Decisions were issued, had created, according to the CPC’s Decision, market conditions that do not correspond to the natural conditions that should exist in the relevant market, also taking into account the size and number of undertakings active in the said market. The parallel adjustment of pricing and the simultaneous announcement to the public during all material time, were assessed by the CPC as constituting unequivocal indications of the existence of a concerted practice among these undertakings.

As a result of the above and following an intrinsic review of evidence before it, the CPC found that the four undertakings were engaged in a concerted practice which had as its object the fixing of prices and the consequent distortion of competition. Having established the object of the scrutinised behaviour, the CPC was not under an obligation to establish the effect of the said behaviour, in alignment with Community and national legislation and case law.

The concerned undertakings, without having concluded any express agreement, achieved in fixing artificially stable fuel prices in the relevant market through their concerted practice. In doing so they consciously substituted the risks of competition and as a result eliminated competition between themselves, on both intra-brand and inter-brand levels.

The CPC found the four undertakings as having violated competition law and in particular s. 3(1)(a) of the Law over both the engagement in a concerted practice between them having their object the fixing of fuel prices and the conclusion of agreements with their resellers (gas stations) on that basis and with the same object. This violation constituted a serious infringement of competition rules and as such carries monetary fines of the highest levels, within the context of the CPC’s competence as such derives by the Law. The CPC imposed strict fines of €14,5 million for Hellenic Petroleum, €13 million for Exxon Mobil, €12,5 million for Petrolina and €2,7 million for Lukoil. Appeals against the four Decisions of the CPC have already been filed by each respective undertaking at the Supreme Court of Cyprus.

ABOUT THE AUTHOR: Anastasios Antoniou
Anastasios Antoniou LLB(Hons), LLM(LSE) is a qualified Advocate practicing the law in Cyprus. He is a Partner at Anastasios Antoniou LLC, a Cyprus law firm based in Limassol and his main areas of practice are competition law, energy law, corporate law and commercial litigation.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.