DECISION DKK-178/2020: PJSC Gazprom; Uniper Gas Transportation & Finance B.V – Engie Energy Management Holding Switzerland AG – OMV Gas Marketing Trading & Finance B.V. – Shell Exploration and Production (LXXI) B.V. - Wintershall Dea Nederland Transport and Trading B.V.
The Polish Competition Authority (the PCA), after conducting the concentration proceedings involving the creation of a joint venture without the consent of the PCA, imposed fines on the following undertakings: PJSC Gazprom with its seat in Moscow, Russian Federation (PLN 29,075,726,808), Uniper Gas Transportation & Finance B.V. based in Rotterdam, the Netherlands (PLN 29,913,407), Engie Energy Management Holding Switzerland AG based in Zug, Switzerland (PLN 55,513,793), OMV Gas Marketing Trading & Finance B.V. based in Amstelveen, the Netherlands (PLN 87,748,906), Shell Exploration and Production (LXXI) B.V. based in The Hague, the Netherlands (PLN 30,220,135) and Wintershall Dea Nederland Transport and Trading B.V. with headquarters in Rijswijk, the Netherlands (PLN 30,785,804).
The fine on Gazprom was equal to approximately EUR 6.5 billion – probably a world record for “gun jumping” fines!
Moreover, the PCA obligated the above companies to terminate the agreements related to the financing of the construction of the Nord Stream 2 gas pipeline within 30 days of receiving the decision.
The PCA assessed that the companies had established a joint undertaking without first obtaining the consent of the President of the OCCP, by entering into financing agreements related to the construction of the Nord Stream 2 gas pipeline.
In the opinion of the PCA, the agreements were an attempt by the indicated undertakings to circumvent the obligation to obtain consent to establish a company financing the construction of NS2. According to the PCA, both the creation of the joint venture and the conclusion of the financing agreements were mainly aimed at financing the construction of NS2.
Despite the lack of formal participation of the five founders, i.e. Uniper, Engie, OMV, Shell and Wintershall, the PCA indicated that these undertakings de facto jointly established a new undertaking because their economic interests had merged. The parties had notified the creation of a joint venture as a concentration in December 2015, but the notification was withdrawn after the PCA had issued a statement of objections. The parties decided instead to enter into the financing agreements that were the subject of this decision, and which would finance half of the costs related to the construction of the gas pipeline by the above undertakings. The changed setup assumed de facto the same model of cooperation between undertakings as the joint venture that was initially notified to the PCA. The obvious element that brought the companies' interests together was the pursuit of income in the form of interest on the financing granted in the event of the completion of the project. The PCA emphasized that, in place of the originally assumed dividend paid to the formal shareholders of the joint venture, Uniper, Engie, OMV, Shell and Wintershall would receive income in the form of interest on borrowed capital.
In addition, the founders set out in advance the rules of conducting business by Nord Stream 2 in such a way that it was de facto deprived of the possibility of making key decisions without the consent of all founders. In the opinion of the PCA, also the ongoing supervision of the project by the parties, expressed a common economic goal. The parties also bore the economic risk related to the creation of Nord Stream 2, by ensuring financing of the appropriate part of the project. The fact that the financing of the joint venture was to be made by gas market participants, and not financial institutions, according to the PCA, proved the common economic interests between all undertakings.
The relevant thresholds for merger filing in Poland were both exceeded (total turnover of the parties exceeding EUR 1 billion in the world or EUR 50 million in Poland). Thus, the parties not only failed to comply with the obligation to notify the intention of concentration, but also implemented the concentration without waiting for the consent of the PCA.
In the opinion of the PCA, the creation of the joint venture in 2015 and the signing of the financing agreements of NS2 in 2017, involved the same threats to competition, and the PCA noted that , the financing agreements were entered into shortly after issuing the statement of objections regarding the parties’ originally notified joint venture. In these objections, the PCA indicated that Gazprom was not fully using the existing transmission capacity. The commissioning of NS2 would contribute to a further increase in the oversupply of gas transport capacity from Russia. In the opinion of the PCA, the existing excess transmission capacity could have led Gazprom to divert gas flows from other gas pipelines. The concentration was aimed at preferential treatment of NS2, which could have led to a reduction in the use of alternative gas pipelines to bring gas from Russia to the EEA.
The PCA also emphasized that after the construction of NS2, Gazprom could suspend or limit gas supplies through other gas pipelines connecting Russia with the EEA, including the Yamal pipeline (also due to the greater transmission capacity of the NS2 pipeline), which could have a huge impact on the functioning of the gas market in Poland. Following the concentration, Gazprom's dominant position for gas buyers in Poland would significantly strengthen, which would consequently lead to an increase in gas prices and inhibit the development of competition on domestic downstream markets.
According to the PCA, the potential resignation from gas transit to Germany via the territory of Poland (using the Yamal pipeline) would lead to a significant increase in gas prices on the Polish market. The fixed costs of maintaining this pipeline would have to be covered with less gas transported through it by the undertakings trading in gas on the Polish market.
The PCA also pointed to the increased negotiating position of Gazprom towards gas consumers in Poland, caused by the construction of the NS2 gas pipeline. The potential suspension of gas supplies to Germany via Poland would result in the lack of a virtual reverse at the Mallnow point (thanks to which it is currently possible to deliver gas to Poland from Germany) and would lead to a significant increase in gas prices on the Polish market. This would also strengthen Gazprom's position as the dominant gas supplier to the Polish market and the only supplier from east of Poland, and would force its only contractor, PGNiG, to buy gas from this supplier if it wanted to operate on a comparable scale to the current one. In the opinion of the PCA, the increased negotiating position of Gazprom would pose a risk of imposing unfavorable contractual conditions, including higher gas prices, by this undertaking.
Regarding the amount of financial penalties imposed on the parties, the PCA emphasized that they had not notified the intention of concentration, despite their statutory obligation, and that the parties intentionally carried out the concentration without obtaining the required consent despite objections to this concentration previously issued by the PCA.