C(2000) 363 final - EN COMMISSION DECISION of 9 February 2000 declaring a concentration to be compatible with the common market (Case No COMP/M.1628 – TotalFina/Elf) Council Regulation (EEC) No 4064/89 (Only the French text is authentic) (Text with EEA relevance) THE COMMISSION OF THE EUROPEAN COMMUNITIES, Having regard to the Treaty establishing the European Community, Having regard to the Agreement on the European Economic Area, and in particular Article 57 thereof, Having regard to Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between undertakings1, as last amended by Regulation (EC) No 1310/97 of 30 June 19972, and in particular Article 8(2) thereof, Having regard to the Commission decision of 5 October 1999 to initiate proceedings in this case, Having given the undertakings concerned the opportunity to make known their views on the objections raised by the Commission, Having regard to the opinion of the Advisory Committee on Concentrations3, Whereas: 1. On 24 August 1999 the European Commission was notified, in accordance with Article 4 of Council Regulation (EEC) No 4064/89, of a planned merger whereby TotalFina would acquire full control, within the meaning of Article 3(1)(b) of Council Regulation (EEC) No 4064/89, of Elf Aquitaine by way of a public take-over bid announced on 5 July 1999. 1 OJ L 395, 30.12.1989, p. 1; corrected version: OJ L 257, 21.9.1990, p. 13. 2 OJ L 180, 9.7.1997, p. 1; corrected version: OJ L 40, 13.2.1998, p. 17. 3 OJ C I. THE PARTIES TO THE TRANSACTION 2. TotalFina is a public limited company formed under French law, in business in the production of petroleum and gas, refining, distribution of petroleum products, petrochemicals and speciality chemicals. Its business is worldwide. 3. Elf Aquitaine is a public limited company formed under French law, in business in the production of petroleum and gas, refining, distribution of petroleum products, petrochemicals, speciality chemicals and healthcare. Its business is worldwide. II. THE CONCENTRATION 4. The concentration consists of a public take-over bid by TotalFina for all the shares in Elf Aquitaine held by the public. The concentration is accordingly an acquisition of full control within the meaning of Article 3(1)(b) of the Regulation. III. COMMUNITY DIMENSION 5. The firms concerned have an aggregate worldwide turnover of more than EUR 5 000 million4 (Total: EUR 34 981 million; Elf: EUR 32 251 million). Each of them has a turnover in the Community of more than EUR 250 million [...]*, but neither of them generates more than two thirds of its turnover in a single Member State. The transaction accordingly has a Community dimension. IV. PROCEDURE 6. On 15 September 1999, TotalFina filed proposals for commitments during the first stage of the procedure under Article 6. The deadline for proceedings was accordingly extended as provided by the Regulation. These commitments were found to be neither adequate nor precise enough to allay all the serious doubts raised by the notified transaction. 7. On 18 October 1999 TotalFina filed proposals for commitments pursuant to Article 8(2). [...]*. 8. These commitments were found to be neither precise enough nor of such a nature as to allay all the serious doubts raised by the notified transaction. 9. On 17 September 1999 the French authorities filed a request for partial referral pursuant to Article 9 of the Merger Control Regulation. The request concerned certain markets considered to be local markets for finished petroleum products storage facilities, fuel sales via motorway networks and the supply of LPG in canisters to retailers. The Commission referred to the French authorities by decision of 26 November 1999 aspects of the case relating to the provision of hub depot services in the areas around the northern and southern Paris region, Lyon and Port-la-Nouvelle. It has not proven to be necessary to address the treatment 4 Turnover calculated in accordance with Article 5(1) of the Merger Control Regulation and the Commission notice on the calculation of turnover (OJ C 66, 2.3.1999, p. 25). Figures for turnover prior to 1 January 1999 are calculated on the basis of average exchange rates for the ecu and converted into euro at a one-to-one parity. * Parts of this text have been edited to ensure that confidential information is not disclosed; those parts are enclosed in square brackets and marked with an asterisk. 2 of the other concerns listed in the referral request as the Statement of Objections covered more precisely the storage of petroleum products in the regions of Nantes Saint Nazaire and Havre, motor fuel sales on the motorways and the sale of LPG. The French authorities have withdrawn their request for referral on 3 February 2000 regarding the elements on which the Commission had not yet taken position. 10. On 26 November 1999 a Statement of Objections was sent to TotalFina, which replied on 13 December 1999. TotalFina did not request the holding of a hearing. V. DEFINITION OF RELEVANT MARKETS AND COMPETITION ANALYSIS 1. INTRODUCTION: REFINING AND SALE OF REFINED PRODUCTS 1.1. Demand 11. French petroleum consumption (1997) is 48.5 Mm³ per annum for petrol and diesel and 19.5 Mm³ per annum for domestic heating oil (DHO) and is rising at the rate of approximately 4.1% for fuels, 3.5% for DHO and 5.8% for LPG products. 1.2. Supply channels and the logistical chain 12. There are currently 13 refineries in France, the most important of them being regrouped in two “refining centres”, one around Étang de Berre (Marseille) and the other in the Lower Seine (Normandy), where the largest refineries in France are concentrated. There are also a number of individual refineries in Dunkirk, Donges (Nantes region), Grandpuits (Paris region), Feyzin (Lyon region) and Reichstett (Alsace). Elf and TotalFina each own three refineries (Paris, Lyon and Nantes regions for Elf; Dunkirk, Seine valley and Étang de Berre for TotalFina). Shell, Esso and BP/Mobil have two each, in the Seine valley and Étang de Berre. There is also the refinery at Reichstett in Alsace, owned by Shell (65%), TotalFina (8%) and Elf (10%). 13. France is a petroleum products importer and has infrastructure capable of importing and storing greater volumes than are currently in stock. Imported products are generally purchased on the North Sea and Mediterranean cargo markets on the basis of quotations such as Platt's. France is a net importer of diesel and a net exporter of petrol. 14. Imported products are unloaded at import depots. Import depots and refineries are the sources of refined products. These are usually connected to bulk transport facilities (nearly always pipelines but sometimes trains and barges) which make it possible to supply refined products throughout France. Products are then sold from what are known as hub depots; these are smaller than import depots and products are transported from them by lorry to retail outlets (service stations). Import depots and refineries are also used for local supply purposes. 3 15. There are four pipeline systems in France. 16. The Trapil pipeline system (held by the company with the same name) is fed by the four Seine valley refineries and by the Le Havre import depot (controlled by Compagnie Industrielle et Maritime – CIM) and the Rouen import depot (controlled by Compagnie Parisienne des Asphaltes – CPA). Apart from the Basse Seine itself, it supplies the Paris, Orléans, Tours et Caen regions. Trapil also supplies refined products to the Donges-Melun-Metz (DMM) pipeline, which transports them to the East of France. 17. The SPMR pipeline is fed by the refineries in the Étang de Berre (Esso, BP/Mobil, Shell and TotalFina), the Feyzin refinery (Elf, Lyon region) and Depot Pétrolier de Fos (DP Fos, an import depot). It links these refineries to the Lyon region, the French Riviera and, through its alpine branch, Switzerland. 18. The DMM pipeline is fed by the Donges refinery (Elf), the Donges import depot owned by SFDM (itself controlled by Elf, see paragraph 134) and the Grandpuits refinery. DMM is connected to Trapil (Levesville and Champeaux), but this connection cannot be used to carry products to the Paris region (the flow of refined products is from West to East). Arrival points are the depots at Le Mans or Saint-Gervais, La Ferté Allais (SFDM), Grandpuits (Elf refinery) and the depots at Châlons-sur-Marne and Saint Baussant (connection with the Common Defence Organisation – ODC – pipeline). 19. The ODC pipeline belongs to NATO. It is managed by Trapil. The ODC pipelines are little used as their configuration is outdated. It is possible that the part of the pipeline which feeds Strasbourg may be modernised in the run-up to the closure of the Reichstett refinery. To optimise outlets of the Dunkirk and Normandy refineries, TotalFina has invested in upgrading the part linking Dunkirk to Cambrai (pump equipment). The new pumping station is in the TotalFina refinery at Dunkirk (exclusive user rights). 20. Refined products, after transport by pipeline, or occasionally by barge or train, are stored in what are known as hub depots, from which they are delivered to retailers or final consumers. 21. “Logistical chain” means the succession of distribution stages from refinery to retailer. 1.3. Sale of refined products by networks and by other channels 22. To contain shipping costs, most refined products sold in France are taken from French refineries. The rest is exported or imported by large-capacity bulk carriers. Fuels and other finished products produced by a refinery are either brought into the producer’s integrated retail network or sold wholesale (“wholesale sales”) to retailers, dealers or major final customers, or even swapped with other refiners. Wholesalers and retailers prefer to obtain supplies of refined products locally from a depot or a refinery. 4 23. In earlier decisions the Commission has defined various markets relating to the supply of refined products at the wholesale and retail stages. In particular it has defined a market for retail sales of fuels (petrol and diesel) in general and on motorways in particular and for retail sales of domestic heating oil. Apart from motorway fuel sales, the transaction would not directly change the competitive situation on the retail market on account of the pressure exerted by supermarkets. Over the years the supermarkets have accumulated a combined market share of around 50%. TotalFina/Elf have a combined market share of [20-30%]*. 24. However, a durable competitive presence on the retail market for refined products in general is heavily dependent on the availability of a logistical supply infrastructure. The supermarkets are thus important competitors for the retail sale of fuels and have sought to gain access to the three stages in the logistical chain (import depots, pipelines and hub depots). They are thus in a position to choose between two options: (1) obtain local deliveries from refiners (who, if necessary, then arrange transport of the product to the hub depots that are closest to their customers’ service stations; or (2) obtain the product on the international market (via an import depot) or from a French refinery. In the latter two cases, they arrange for their own transport, either by lorry (if the service stations to be supplied are close to the refinery or import depot), or through the pipelines and local storage in hub depots. If the supermarkets have been able to develop and maintain their presence on the retail fuels market, it is thanks to this choice and to competition between the refiners, in particular the two largest, TotalFina and Elf. 25. The notified transaction would not only end the rivalry between TotalFina and Elf but would also raise problems of competition at every stage of the logistical chain described above. 2. THE WHOLESALE MARKETS FOR PETROL, DIESEL AND DOMESTIC HEATING OIL 2.1. The reference markets 2.1.1. Product markets 26. The “wholesale market” means the market for the supply of fuels to retailers (e.g. supermarkets) who are not integrated upstream and to major final users (transport firms). Sellers on the wholesale market include refiners and dealers such as Louis Dreyfus and Cargill. In practice customers can buy the product ex-(hub) depot. All refiners have transit contracts with third parties in most of the depots they own themselves or in which they have holdings. Customers can also buy the product ex-refinery or ex-import depot, either to supply their networks of service stations near these sources (in which case the refinery and/or the import depot will be used as no more than a hub depot) or because they wish to negotiate bulk purchases (e.g. imports by ship) for storage in the import depot. In the latter case access to large-scale transport infrastructure from the import depot or refinery and access to hub depots is vital. What is at issue here is capacity rental or transit; the refiners hire their capacity out on an ordinary contract basis at some of their sites. 5 27. The wholesale sale of each of the refined products in question (leaded and unleaded petrol, diesel fuel and domestic heating oil) constitutes a separate relevant market, distinct from the wholesale market for other products. These products are not substitutable for each other in terms of demand. And there is no supply substitutability as that would depend on adjustments at the refineries which in turn depend on many other parameters. 28. There is no need to distinguish between the two categories of customers to define the relevant markets. If there was a price differential between major final users and customers at the retail and wholesale stages, the latter would take advantage of arbitrage possibilities to supply major final users. The price difference would not be profitable as regards the wholesale market. 29. Wholesale markets are of vital importance for the maintenance of competition on the retail market, as the competitive capacity of non-integrated retailers depends on their capacity to obtain supplies on the same terms as integrated retailers. 2.1.2. Geographic market 30. The geographic market for wholesale sales is heavily dependent on the physical geography of the logistical chain in France. Given the infrastructure constraints on the transport of refined products by pipeline, the wholesale market could appear as being regional. The volumes of final products bought ex-refinery or ex-import depot are commonly either consumed near to these refineries or depots or transported by the seller by pipeline or by other means of transport to hub depots, which supply nearby networks of service stations. Hub depots are thus mainly supply points for a product for which sales are negotiated as to 25% locally and 75% regionally or nationally. 31. The French logistical infrastructure is such that six distinct geographical zones must be distinguished for wholesale markets: (i) the southern zone (Provence, Midi-Pyrénées), where products are supplied as to 90% by the SPMR pipeline, itself supplied by the refineries at Berre and by maritime imports at Fos5; (ii) the eastern zone, supplied chiefly by the Reichstett refinery and the TotalFina refineries at Mardyck (Dunkirk) via the ODC pipeline and the Elf refinery at Donges via the DMM pipeline, or by barges navigating the Rhine6; (iii) the northern zone, supplied chiefly by the TotalFina refinery at Mardyck and the depot at Feluy (Belgium) connected by private pipeline to the TotalFina refinery at Antwerp, and by coastal import depots7; 5 The southern region consists of the following departments: 04/05/06/13/83/84/11/30/34/48/66/09/12/31/32/46/65/81/82/2A/2B. 6 The eastern region consists of the following departments: 08/10/51/52/54/55/57/88/67/68. 7 The northern region consists of the following departments: 02/60/80/59/62. 6 (iv) The Normandy zone and the Paris region, supplied chiefly by the Lower Seine refineries (TotalFina, Shell, Esso and BP) and different import depots via the Trapil/LHP pipeline, and by the Elf refinery at Grandpuits8; (v) the western and central zones, supplied by the Elf refinery at Donges via the DMM pipeline and maritime imports through Atlantic ports9; (vi) The Rhône-Burgundy zone supplied by the Elf refinery at Feyzin (Lyon) and by the SPMR pipeline from the Étang de Berre refineries10. 32. TotalFina considers the geographical dimension of the wholesale market to be national. It argues that, for one thing, there is a major flow of refined products from one region to another, and besides, there is no noticeable price difference from one zone to the next. 33. Each supply point, be it a refinery or a depot, is likely to supply a particular hinterland, the radius of which will depend on the cost of transporting the product to the final destination. Several hinterlands can overlap in terms of demand, with an impact on the uniformity of conditions of competition. The geographic markets to be considered for the purposes of competition analysis can cover several intersecting hinterlands. 34. TotalFina proceeds among other things on the basis of the existence of flows of products between specified regions to explain that the relevant markets cannot be regional. The Reichstett refinery, for example, adjusts its prices in the light of ex-refinery prices at Dunkirk, Donges, Feyzin or Fos, factoring in transport costsThese flows are due to the existence of pipelines that cross these regions. This does not make it possible to do business on the relevant market, as that presupposes the use of depots. The overlaps between the depots’ hinterlands are apparently geographically limited and do not suffice to ground a conclusion that a uniform price increase in a given regional zone would not be profitable on account of substitutable supplies from neighbouring regions. It can be seen from an examination of the geography of the logistics at each of the six regions identified above that there are bunches of depots grouped along the pipelines and concentrated around the major conurbations. The hinterlands of these bunches do not overlap. It appears that the place where supply and demand should be analysed will generally be confined to a regional territory according to the boundaries of the six regions previously defined. 35. TotalFina also explains that there are only marginal differences between the wholesale prices charged in each of the regions identified. But it must be emphasised that wholesale prices are a combination of Platt's prices (quotation for a cargo load) and costs of transport and storage. These costs are only a fraction of the Platt's price, which explains the low differences between regions. Yet there are two Platt's prices for refined products: a North Sea price and a Mediterranean price. Likewise, TotalFina itself charges internal prices 8 The Normandy-Paris region consists of the following departments: 14/50/61/27/76/75/77/78/91/92/93/94/95. 9 The West-Centre region consists of the following departments: 22/2324/29/40/47/35/64/19/23/87/56/16/17/79/86/18/28/36/37/41/45/44/49/53/72/85. 10 The Rhône-Burgundy region consists of the following departments: 21/58/71/89/25/39/70/90/01/07/26/38/42/69/73/74/03/15/43/63. 7 for wholesale sales based on four regions defined by reference to French refining centres. 36. There is therefore considerable evidence to support the view that the geographic market has a regional dimension. It is however not to be excluded that the geographical market could have a national scope. The data gathered by the Commission show that the bulk of sales on the wholesale market are supplied ex-refinery or ex-import depot (75%). The main players on this market have a national presence. The supermarkets issue national invitations to tender for volumes of refined products to be delivered to specified places. Refiners regularly submit daily tenders to the supermarkets on the basis of prices calculated by reference to Platt’s quotations (quotation for refined products on the international market) plus transport costs, depending on the place of delivery, and a margin for the refiner. 37. The definition of the relevant geographic market can none the less be left open as it does not modify the competitive analysis. 2.1.3. Substantial part of the common market 38. Each of the six zones identified above, given their geographical dimension and the nature of the relevant products, partly accounted for by imports, constitutes a substantial part of the common market. 2.2. Assessment 2.2.1. Current state of competition 39. As can be seen from the above description of the six regional zones, TotalFina and Elf occupy symmetrical, complementary positions on the French market. The equilibrium in this relationship has been conducive to rivalry between the two groups which has been the motive force behind competition on French fuels markets. 40. According to TotalFina, TotalFina and Elf together account for [45-55%]* of the quantities of petrol available on the wholesale market for petrol, a market which has traditionally been a net exporter. The combined entity accounts for [45-55%]* of the quantities of diesel available on the wholesale market, a market which has traditionally been a net importer. The table below gives estimated market shares calculated by the Commission on the basis of information gathered in its market survey. National market: TotalFina Elf Combined Refiner A Refiner B Refiner C Other Wholesale petrol [30-40%]* [25-35%]* [50-60%]* 10-20% 10-20% 10-20% < 5% Wholesale diesel [35-45%]* [15-25%]* [45-55%]* 10-20% 10-20% 10-20% < 5% Wholesale domestic [25-35%]* [15-25%]* [45-55%]* 10-20% 10-20% 10-20% < 5% heating oil Source: Form CO and replies to Commission questionnaires. 8 41. On the demand side, one of the features of the wholesale fuels markets is the emergence of the supermarkets in the past fifteen years. But the supermarkets state that they have only a small presence on the retail market for domestic heating oil and LPG. One of the reasons given to the Commission is that Elf and TotalFina have hitherto supplied the supermarkets with only very limited quantities of the two products. On the demand side other independent retailers should also be mentioned; they include Bolloré, Dyneff and Avia (Thévenin-Ducrot and Picoty). Bolloré is present on all the wholesale and retail markets for DHO. Dyneff has a network of service stations in southern France. Avia is a joint logo shared by a number of independent retailers in Europe. 2.2.2. Effects of the merger 42. TotalFina’s plan to acquire Elf threatens every one of the factors that would allow a competitive wholesale market (and therefore a competitive retail market). The merger would enable TotalFina/Elf to control each of the stages in the fuels distribution logistical chain. By eliminating rivalry between the two refiners, it would make the new entity into an unavoidable part of life for all other players on the wholesale market (competitors – refiners or customers – retailers). The combination of this refining position and the decisive presence in the distribution chain would generate bottlenecks that would make it more difficult or more expensive for non-integrated operators such as the supermarkets and the independents to gain access to the product. Supply analyses – Control of supply sources 43. Following the merger TotalFina/Elf would control [45-55%]* of French refining capacity. Refining capacities in France TotalFina Elf TotalFina/Elf Shell Esso BP/Mobil Aggregate 25-35% 15-25% 45-55% 10-20% 10-20 10-20% 100% % Source: TotalFina. 44. TotalFina/Elf would also control [50-60%]* (in capacity terms) of the import depots. This figure underestimates TotalFina's real control. It presupposes that the BP-controlled Frontignan depot (with considerable capacity on paper) is a depot exerting real competitive pressure on the market. The Commission’s market survey suggests that this depot might not be so viable. The French competition authority has established that Frontignan has a very low throughput rate and is not regarded as competitive. [...]*. If Frontignan is factored out, the total capacity controlled by TotalFina/Elf would rise to [55-65%]*. The calculation of these percentages includes the capacities of depots over which TotalFina/Elf would be able to exert total or joint control. 9 45. The figures below measure the capacities controlled by TotalFina/Elf in terms of supply sources (refineries and import depots) by region. The percentages indicated here represent TotalFina/Elf’s share in each of the supply sources and the total capacities of refineries are given for each region. North Normandy West East South Rhône Paris region Centre Burgundy Lower Seine [...]* [...]* [...]* [...]* [...]* [...]* Refineries Etang de Berre [...]* [...]* [...]* [...]* [...]* [...]* Refineries Donges [...]* [...]* [...]* [...]* [...]* [...]* Mardyck [...]* [...]* [...]* [...]* [...]* [...]* Reichstett [...]* [...]* [...]* [...]* [...]* [...]* Grandpuits [...]* [...]* [...]* [...]* [...]* [...]* Feyzin [...]* [...]* [...]* [...]* [...]* [...]* Refineries [...]* [...]* [...]* [...]* [...]* [...]* Import depots [...]* [...]* [...]* [...]* [...]* [...]* Source: Form CO. 46. Of the 20 import depots in France, only seven would be controlled by outsiders – CPA Dunkirk (North), CPA Rouen (Normandy-Paris region), CPA StockBrest (West-Centre), Picoty La Pallice (West-Centre), Shell Pauillac (West-Centre), EPG Ambès (West-Centre) and Mobil Frontignan (South). 47. It must be pointed out, however, that TotalFina/Elf would hold a blocking minority of 38% in CPA and rights of first refusal over storage capacities. Moreover, Shell Pauillac is a ship unloading and intermediate storage terminal without any lorry loading facilities. Products are sent to DPA Ambès (a depot controlled by TotalFina/Elf) where the lorry loading operations are carried out. EPG Ambès suffers from structural problems (the depot is too small to satisfy demand and badly located). In the Alsace region, the import depots basically perform the function of regional "coastal" or hub depots. Their reception capacity is confined to small barges that depend on the fluctuating Rhine trade. The Picoty La Pallice depot is the only one that could exert fully independent competitive pressure on imports of refined products. Recently, however, TotalFina concluded a rental agreement [...]* in this depot [...]*. 48. Because of environmental rules and regulations, and also of economic constraints, the construction of new import depots is virtually impossible. The extension of an import depot is possible in order to adapt its capacity to the needs of the area. But this does not remedy the problem of the saturation of import depots, the effective capacity of which is dependent on how much use is made of the unloading quay (an import depot is considered to be saturated when its unloading quay is used more than 50% of the time). Consequently, the current situation is likely to remain much the same for the future. 10