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CADE decides proceedings regarding the Gemini Consortium

Pecuniary and structural sanctions were imposed by CADE’s Tribunal
by Assessoria de Comunicação Social published: Dec 09, 2016 04:26 PM last modified: Dec 09, 2016 06:19 PM

On December 7, the Tribunal of the Administrative Council for Economic Defense – CADE judged the two proceedings involving the Gemini Consortium (Administrative Proceeding 08012.011881/2007-41 and Merger Review 08012.001015/2004-08).

Within the scope of the Administrative Proceeding, the Tribunal decided, in a majority decision, for the existence of the infringement of the economic order, in particular in the provision of natural gas to the Consortium in a lower price than the one practiced in the market, without a legitimate justification to such discrimination. 

Due to the aforementioned conduct, CADE imposed pecuniary and structural sanctions to the defendants. These sanctions sum up to BRL 21,5 million.

Regarding the structural sanctions, the Tribunal confirmed, in a final administrative decision, the preventive measure that have been imposed by CADE in 2015 and confirmed by the Superior Court of Justice (STJ in its acronym in Portuguese). In short, the measure requires Petrobras to sign a supplying contract with White Martins or Gás Local in order to facilitate the verification of potential discriminatory practices in the future.   

However, the companies claim difficulties to fulfill the preventive measure, which has not been duly implemented for one year. In response to this issue, CADE has offered as an alternative to the companies the possibility to operate the Gemini Consortium according to Petrobras’ New Price Policy (NPP in its acronym in Portuguese), in accordance with the principle of the non-discrimination and being subject to monitoring by an independent auditing previously approved by CADE.

Concerning the merger review, the Administrative Tribunal decided unanimously for its approval with restrictions. The majority of the Council joined the proposal of restrictions drawn by the reporting commissioner, Paulo Burnier. The proposal  is identical to the structural measures imposed in the Administrative Proceeding.

Commissioner Paulo Burnier explained that this combined solution brings more consistence and effectiveness to CADE’s decision. “Considering that the Administrative Proceeding determined several structural sanctions, I understand that the structural measures imposed in the present merger must fully reflect those ones predicted in the referred Administrative Proceeding, in such a way to bring consistence to CADE’s decision”, stated the Commissioner.

Case records

 Initially notified to CADE in 2004, the Gemini Consortium is formed by Petrobras, who owns 40% of the business, and White Martins, who owns 60%. Together, the companies created the joint venture Gás Local, which commercializes liquefied natural gas (GNL in its acronym in Portuguese). In the Gemini Consortium, Petrobras supplies the natural gas, which is liquefied by White Martins and commercialized by Gás Local.

At that time, CADE imposed several conditions for its approval – part of the conditions set forth were questioned. In 2013, CADE determined the opening of an Administrative Proceeding to investigate the infringement to the economic order and the merger review, according to what was foreseen by the Federal Regional Court of the First Region.

Cease and Desist Agreements

 Petrobras, White Martins and Gás Local have proposed Cease and Desist Agreements (TCCs in its acronym in Portuguese) to CADE to stop the discriminatory practices and mitigate possible sanctions. However, according to Commissioner Paulo Burnier, the TCCs from Petrobras and White Martins were not consistent with each other and their implementation would not be effective within the scope of the consortium, even if they managed to address the competition concerns raised at CADE. Gás Local did not move forward its proposal.

The Administrative Tribunal voted unanimously for the rejection of the TCC proposal from Petrobras and White Martins and for the filing of the request of Gás Local due to lack of a final proposal.