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CADE’s General Superintendence adopts a preventive measure in the fuel cartel investigation in Brazil’s Federal District (DF)

Cartel

Measure determine intervention in the fuel sector in the federal district
published: Feb 03, 2016 10:00 AM last modified: May 11, 2016 02:43 PM
In the afternoon of 25 January, CADE’s General Superintendence decided to enforce a preventive measure in the administrative investigation regarding the investigation into an alleged cartel in the fuel sector in the Federal District which culminated on November 24th, 2015 with the outbreak of “Dubai Operation” carried out by the Federal Police, Federal District’s Prosecution Service, and CADE (AI 08012.008859/2009-86).
 
The investigation had already produced studies that pointed out to evidence of cartel in the fuel sector in Brazil’s national capital, Brasília, Federal District. Those studies were recently confirmed by wiretapping carried out by the Federal Police and by evidence obtained in the search and seizure orders conducted in the “Dubai Operation”.
 
Following the outbreak of the “Dubai Operation”, CADE continued monitoring the market, and, by analyzing the current price surveys conducted by the National Agency of Petroleum, Natural Gas and Biofuels (ANP in its Portuguese acronym), the General Superintendence found that after the recent adjustment of the Tax on the Circulation of Goods and Services (ICMS in its Portuguese acronym), the gas stations, instead of taking advantage of the opportunity to define their prices in an independent manner, simultaneously increased their prices in identical levels. It was also found that this price increase was greater than the adjustment of taxes, which further increased the markup of the gas stations, which are already at much higher levels when compared to most states in Brazil.
 
In addition, the General Superintendence observed that the evidence already collected in the investigation showed that the Cascol group (Gasol) is the absolute market leader, controlling around 30% of the Federal District’s gas stations, and that there was direct evidence both of its participation in the alleged cartel as well as its leadership position in the collusion, making the competing gas stations follow its guidance and its prices increases.
 
Given this circumstance and the growing losses affecting the DF’s consumers, considering the prices set well above the competitive level, the General Superintendence decided that there were sufficient evidence of violations against the economic order, combined with irreparable damage to competition and consumers, allowing the adoption of a preventive measure in the market until CADE’s Tribunal reaches a final decision in the administrative proceeding.
 

Preventive Measure
 
The General Superintendence considered that the most suitable and proportional measure to restore competition in this market was to appoint an Interim Administrator, who will independently manage the gas stations with the brand “BR” owned by Cascol, which accounts for approximately two-thirds of the company’s stations.
 
The Cascol group will have 15 days to submit to CADE a list with at least five options of Interim Administrators, who have solid knowledge in law and economics, proven experience and independence to manage the gas station that are the object of the measure. CADE will choose the Interim Administrator among the five nominees.
 
The Interim Administrator chosen will manage the stations independently of the alleged cartel and set their prices without any coordination with other competitors. It was also established by the General Superintendence a guideline that, respecting the business’s economic and financial balance, but also considering the current profit margins artificially set above competitive levels, the Interim Administrator, as much as possible, would seek lower prices in the gas stations under his administration.
 
It is expected that the measure will provide the consumers in the Federal District a wide range of gas stations that are not aligned with the alleged cartel, and that this ends up in a competitive response from other resellers, reestablishing reasonable levels of competition in the fuel market.
 
This measure will last for six months and may be renewed for as long as the administrative proceeding goes. In case of noncompliance, Cascol will be subject to a daily fine of R$ 300,000.00 (USD $75,000.00), and CADE may bring an action to the Judiciary to execute the measure.
 
The preventive measure adopted by the General Superintendence may be appealed to CADE’s Tribunal.