General Superintendence concludes opinion about transaction between Ipiranga and Alesat
The General Superintendence of the Administrative Council of Economic Defense – CADE sent the proceeding related to the acquisition of the fuel distributor Alesat Combustíveis S/A by the competing company Ipiranga Produtos de Petróleo S/A to be analyzed by the Administrative Tribunal of the competition authority (Merger 08700.006444/2016-49). The order was published in the Federal Official Gazette on 02 February 2017.
According to the General Superintendence’s opinion, the conduct affects the most those of the distribution of automotive liquid fuels (gasoline, diesel and ethanol) and the resale of these products in gas stations.
The document shows that there are several local and regional distributors that limit themselves to dispute the fringes of the market or the local flows. Only the national distributors, which work within a large scale and wide access to the infrastructure, can access an interregional competition level and establish powerful resale instruments.
According to the General Superintendence’s evaluation, there are only four brands able to compete in this level and Ipiranga and Alesat are among them. In this sense, the transaction would result in the reduction to three national brands in an already concentrated market.
The rivalry offered by the other national distributors – Petrobras and Raízen (SHELL) – would not be sufficient to remove the competition concerns, according to the opinion. CADE’s experience with cartels in the market of fuel highlighted several structural factors that facilitate the practice of coordinated infractions in the sector. The opinion mentions former condemnations in which the possession of a relatively small portion of the market was sufficient for the fuel distributors to influence or coordinate cartels with gas stations.
In addition, after studies and consultations to regulators and market stakeholders, it has been verified that the sector is permeated by economies of scale, regulatory barriers and exclusive advantages in favor of the already consolidated companies, making more difficult the entry of another effective competitor.
Therefore, the General Superintendence concluded that the transaction may result in an increase of distribution and resale fuel prices, due to Ipiranga’s increased market power and to the high possibility of coordinated actions between the companies within the sector. That is why the transaction was contested by the General Superintendence and submitted to the analysis of CADE’s Tribunal, which is responsible for the final decision and the approval, rejection or adoption of remedies to remove identified competition concerns. The Tribunal's decision may be applied unilaterally or by means of a settlement negotiated with the parties.
The merger was notified on 19 September 2016. CADE has 240 days, extendable for more 90 days, to review and to decide on the case.