The Slovenian Competition Protection Agency recently adopted a decision finding that the Slovenian gas distribution company Geoplin had been abusing its dominant position. The abuse in question was the result of Geoplin’s implementation of illegal clauses into long-term contracts for the supply of natural gas, thereby artificially increasing natural gas prices and hindering competition on the relevant market. The temporal element plays an important role here as most customers have only one gas supplier. Therefore, competition among gas suppliers commences only when the previous contract expires and ensues for a short period until the next long-term contract is negotiated and signed. The longevity of said contracts thus plays a vital role.
The Distrigaz decision
It is not the first time that the Agency has dealt with Geoplin with respect to its contractual freedom. In its previous decision on Geoplin’s abuse of its dominant position, it relied heavily on a European Commission decision in the case Distrigaz (COMP/B-1/37966). In that case the Commission reviewed and condemned long-term contracts concluded by Distrigaz, a Belgian gas supplier with a dominant position on the relevant market. Volumes of natural gas were tied to Distrigaz by virtue of said contracts, thereby foreclosing other suppliers’ access to customers.
Some contracts stipulated a fixed annual contractual gas quantity and an annual minimum gas quantity, while Distrigaz had a contractual obligation of a maximum gas quantity. Moreover, even further strengthening its dominant position, Distrigaz was a member of the Suez group together with Electrabel, the largest gas consumer in Belgium.
As a result of the case, Distrigaz agreed to the proposed, and later modified, commitments prohibiting it (inter alia) from concluding contracts with industrial users and electricity producers for periods longer than five years and contracts with gas resellers for periods longer than two years. In addition, Distrigaz agreed to return on average 70% of the gas to the market per year, thereby giving other potential purchasers a fair chance. Finally, Distrigaz agreed to grant its customers a right to terminate a contract with six months’ notice, if their contract was concluded for a period longer than 5 years and still in effect.
The Geoplin case
The contracts in issue in the Geoplin case stipulate contractual quantities of natural gas as well as minimum amounts that are to be purchased. The contracts also set forth penalty payments that are to apply when in the event that these quantities are not reached. Additionally, purchasers are forbidden to resell any excess quantities of gas purchased. As a result, Geoplin has, in effect, bound its contractual parties to buy gas at prices much higher than those in comparable EU Member States (e.g. up to 50% higher than the prices in the Czech Republic, according to the director of the Agency) and, according to the media, the second highest price in the whole EU. These actions, in turn, have the effect of lowering the international competitiveness of its gas purchasers, which are mostly Slovenian companies.
The Agency decision is a continuation of a procedure started in the past. As a temporary result, Geoplin produced a document in which it made commitments not to conclude contracts for periods longer than 3 years, to refrain from limiting buyers of natural gas with the further disposition of gas purchased and to adhere to the progressive decrease of the required minimal quantity of natural gas purchased on a yearly basis.
In its most recent decision the Agency gave Geoplin a 3 months’ notice to implement measures that will eliminate the anti-competitive effects, including but not limited to modifying the contracts in question. A fine of up to 10% of the annual turnover of Geoplin can be imposed in accordance with the applicable law. It has been estimated that such a fine would amount to several million euros. On the other hand, the Agency did not declare the contracts null and void, nor did it give the contractual parties a right of termination (a move, criticized by some of these parties involved).
Geoplin has stated that it deems the decision to be illegal and will make use of all legal means at its disposal in an attempt to overturn it. In the event they indeed follow up on their announcement and lodge an appeal, the procedure before the Agency will be stayed until a final decision with regard to the appeal is reached in a court of law.
The case in question may also have EU legal implications as the soaring prices coupled with market foreclosure through the tying of customers by way of long-term contracts may have driven away foreign purchasers of gas. This can be construed as “affecting trade between member states” in the sense of Article 102 of the TFEU. Due to this reason, while highly unlikely, a European Commission procedure could also be launched.