After a year-long investigation, the Portuguese Competition Authority recently cleared the acquisition by Rubis of the liquefied petroleum gas (LPG) business of Repsol in the Atlantic archipelagoes of Madeira and the Azores, subject to divestiture commitments.
LPG is the most common fuel used in Portuguese households for heating and cooking, and in most cases is supplied by LPG companies through distributors in individual gas cylinders and sold to final consumers at the retail level by supermarkets, petrol stations and grocery stores. The LPG market in Portugal has long been subject to antitrust scrutiny: sectoral inquiries carried out by the Authority in 2009 and 2017 identified high barriers to entry and expansion and included a number of policy recommendations, and in 2015 the Authority adopted an infringement decision against the Galp Group for territorial restrictions in LPG distribution agreements (which was later partially annulled on appeal).
Following the filing of the notification by Rubis on 21 September 2017, the Authority found that prior to the merger the wholesale and retail LPG markets in both Madeira and the Azores was already highly concentrated, with only three players active on the islands: Galp, Repsol and Rubis, who in 2014 had acquired BP’s LPG business in Portugal, including in the Atlantic islands.
Reasoning that the transaction would lead to a three-to-two structure in the affected markets (whose geographic scope was circumscribed to individual islands), the Authority initiated a phase 2 investigation on 22 January 2018.
The in-depth investigation confirmed the existence of significant barriers to entry and expansion, including with regard to the access to existing storage infrastructures, the transport of the LPG from the mainland to the islands, the existing distribution contracts, entry and switching costs, and the relatively small size of the Madeira and Azores archipelagoes (with approximately 270,000 and 246,000 inhabitants, respectively). According to the Authority, these barriers prevented the entry of new market players and therefore the only realistic scenario of market entry was through the acquisition of an existing business.
Rubis subsequently committed to divest to a suitable purchaser a portion of the business that was part of the proposed transaction. The Authority concluded that the commitments were sufficient, proportional and suitable to address the competition concerns and adopted a clearance decision on 27 September 2018.
While details on the divested business and ancillary commitments are not yet available, the press release of the Authority notes that the remedies imposed ensure the presence of a third alternative LPG player in the affect markets and that accordingly the existing market structure is maintained. It is also likely that the implementation of the commitments will be monitored by an independent trustee (as well as enforced by a divestiture trustee, if a sale is not achieved within the time limits set in the commitments), in keeping with the Authority’s guidelines and recent practice in commitment cases.