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CADE’s General Superintendence concludes investigation on Gemini Consortium

Administrative Proceeding

Opinion recommends the condemnation of Petrobras, White Martins and GNL Gemini
published: Jun 01, 2016 01:00 PM last modified: Jun 01, 2016 01:06 PM

By means of an opinion published in the Official Gazette on June 25, CADE’s General Superintendence has recommended the condemnation of Petrobras, White Martins Gases Industriais Ltda. (from Praxair Group) and GNL Gemini Comercialização e Logística de Gás Ltda. – GásLocal (Administrative Proceeding No. 08012.011881/2007-41) for price discrimination and market foreclosure. The Superintendence has also completed the supplementary investigation ordered by CADE’s Tribunal within the reevaluation procedure of the Merger File No. 08012.001015/2004-08, which approved the formation of the Consortium.

 Both procedures will be submitted to CADE’s Tribunal, responsible for the final decision, who can confirm or reject the Superintendence’s decisions.

 The Gemini Consortium operates the liquefaction and distribution of natural gas in liquefied state (LNG). As for the task division within the  Consortium, Petrobras supplies natural gas,White Martins liquefies the gas and GásLocal carries out its sale and distribution.

 The Consortium’s formation was approved by CADE with restrictions concerning transparency of the prices of gas acquired by GásLocal. The aim was to prevent the occurrence of discrimination in the provision of gas, since Petrobras is the sole natural gas supplier in the country. Obligations imposed by CADE were questioned by the plaintiffs before the Judiciary, which suspended the application of some of CADE’s remedies.

 With the restrictions suspended and the arrival of discrimination compaints regarding the provision of gas, CADE decided to review the Merger File, asking the Superintendence to carry out supplementary investigation in order to solve controversial issues concerning the market and the functioning of the Consortium.

 The investigation of alleged price discrimination practiceswas opened following a complaint filed by São Paulo Gas Company – Comgás, one of the pipeline gas distributors in the state of São Paulo, who claimed to be unable to expand its pipeline network to the cities of Cosmópolis, Engenheiro Coelho, Mococa, and Rio das Pedras. The reason for this would be that the large customers from these locations already received GásLocal’s liquefied gas through favored prices, allegedly determined by anticompetitive advantages illicitly obtained by GásLocal.

 Comgás has also reported that its supply contract as well as the supply contracts held by other pipeline gas distributors would bear a number of disadvantages compared to GásLocal’s contract such as take-or-pay and ship-or-pay clauses, more severe and less predictable adjustment conditions, differences in pricing currency, and less flexible terms  of duration and contracted volumes.

 In April 2015, the Superintendence had already determined the application of a provisional remedy in order to preventively stop the investigated practice.

After consultations with the market and opinions from CADE’s Department of Economic Studies – DEE and the National Agency of Petroleum, Natural Gas and Biofuels – ANP, the Superintendence deemed the complaint’s allegations of price discrimination and county markets foreclosure to be robust, thereby confirming its own provisional findings. The Regulatory Agency of Sanitation and Energy of the State of São Paulo – ARSESP has also manifested its position in line with the Superintendence’s conclusions through opinions and petitions filed in the proceedings. CADE’s Superintendence has also found evidence of damage to other market segments such as the compressed natural gas (CNG) distributors sector.

 The information gathered in the investigation of the case has also supported the analysis of the Merger File. In that case, the Superintendence found that the evidence obtained throughout the procedure clarifies the points previously declared controversial by CADE’s Tribunal, concluding in favor of the Gemini Consortium’s Merger Filereview.