Communication made pursuant to Article 19(3) of Council Regulation No 17 concerning request for negative clearance or for exemption pursuant to Article 81(3) of the EC Treaty (Case No IV/E-2/36.732 - Solvay-Sisecam)

(1999/C 272/10)

(Text with EEA relevance)

A. Summary

1. On 28 October 1997, the Commission received from the groups Solvay (Belgium) and Sisecam (Turkey) a request for negativ clearance on the application of Article 81(1) or of Article 82 or, failing this, exemption under Article 81(3) of the EC Treaty for a number of agreements (the Agreements) creating a joint venture for soda production in the form of the Bulgarian company SODI SPJCo., Devnya.

2. The creation of the joint venture consisted of the acquisition by Sisecam of a minority shareholding in the holding company controlling SODI, whose majority is held by Solvay. The latter acquired 60 % of SODI in April 1997, when it was privatised by the Bulgarian Government, and corresponding shares were transferred to a wholly owned holding company under Austrian law. As a consequence of the abovementioned operation, the holding company is now designated "Solvay-Sisecam Holding AG". The present notification only concerns the agreements concerning on the one hand the acquisition of an indirect shareholding by Sisecam in SODI and on the other hand the management methods of the thus created joint venture.

3. The preliminary acquisition of SODI by Solvay was not notified to the Commission because the concentration did not fall within the scope of Regulation (EEC) No 4064/89. The operation was however notified to the Belgian, French, Spanish, Greek, Austrian and Italian national competition authorities. These have all given their approval to the acquisition, although the agreement of the Italian authority was conditional on Solvay giving certain undertakings aimed at preserving effective competition on the Italian market.

4. The EBRD, as a financial partner, acquired 24 % of Solvay-Sisecam Holding AG, of which Solvay and Sisecam hold 57 % and 19 % respectively. The removal of the Bank is guaranteed by a system for the repurchasing of its shares by the two industrial shareholders. In December 1997, Solvay-Sisecam Holding AG increased its participation in SODI from 60 to 67 % by capital increase. The rights between the notifying parties have remained unchanged as a result.

5. For the use of the joint venture, the two industrial shareholders concluded an "off-take agreement" organising the distribution of production in proportion to their relative participation in the capital of the company. The quantities of soda distributed between the notifying parties have to be marketed via their own distribution network and in a perfectly autonomous manner. The Agreements therefore create a joint venture for production of a cooperative nature, Sisecam having a right of veto concerning the principal decisions.

B. The Parties

6. Solvay SA is the largest Belgian chemical group. It is active in the fields of chemicals, plastics, plastics processing and pharmacy. Its world turnover amounted in 1996 to BEF 286000 million. In the operation which is the subject of the notification, Solvay SA acts via its German subsidiary companies Solvay Deutschland, H& C Verwaltung, in addition to via an Austrian company: "Sovlay-SODI Holding AG". SODI, now controlled by Solvay, is one of the largest units of soda production in the world (1,2 million tonnes).

7. Türkiye Sise ve Cam Fabrikalari AS (Sisecam) is a Turkish group active in the fields of glass, chemistry, packing, machines and industrial minerals. Its world-wide turnover amounted in 1996 to TRL 89201000 million. The private joint stock company, Sisecam AS is controlled by the Turkish bank Türkiye Is Bankasi AS (TIBAS). For this operation, Sisecam acts in particular via its subsidiary company Soda Sanayii AS.

C. The products and the relevant markets

8. Sodium carbonats (soda) is an alkaline chemical mainly used in the production of glass, of which it represents an important share of the cost of raw materials. It is also used in the chemical industry for a number of applications (mainly the manufacture of detergents), as well as in metallurgy.

9. Soda can be of synthetic or natural origin. Synthetic soda is primarily produced in Europe (East and West) and in Asia (China, India), via the method called soda-ammonia, while so-called natural soda is produced from trona ore which is present in certain third countries, in particular in the United States. Soda can be light or dense but both forms of the product are chemically identical and substitutable.

10. Though several products (e.g. recycled glass, caustic soda) could serve as substitutes for soda, substitutability is however real only for specific uses and concerns particular sectors of industry. The product market in question for this business is therefore that of soda.

11. The delimination of the geographical market in question is particulary complex. The importance of the role played by soda in the manufacture of glass forces manufacturers to ensure almost daily supplies in major quantities. Moreover, transportation costs are relatively high compared to the commercial value of the product. Lastly, a great cost difference between maritime transport and the inland transport, which is far more expensive, must be noted.

12. The conjunction of these characteristics illustrates a contrasting situation. Client companies, at least the glass producers, prefer in general to be supplied by plants located near their production sites. On the other hand, in view of the transport cost differential, the sites of soda produciton allowing the routing by boat are, being of a similar distance, in a superior competitive position in relation to a site located inland.

The homogeneous competition areas are therefore difficult to delimit and depart largely in any event from national borders. The production sites located inland delimit areas of homogeneous competition to a specific radius, while the sites accessible by sea are open to intensive competition. The competitive position of the companies in relation to a given area largely depends therefore on their geographical situation.

13. The tariff barriers at the entry on the European market are either non-existent, or reduced with regard to the United States, following the Uruguay Round and especially the lifting, on 13 October 1997, of the antidumping duties in force since 1995. That should enable the American exporters to enter easily the European market if the economic conditions are favourable. Soda is moreover a world-wide product the specifications of which are almost non-existent and satisfied by all the producers. It must be noted, however, that the rather mediocre quality of the soda produced in certain countries weakens the competitiveness of the producers concerned.

14. The precise scope of the geographical market can be left open in this case. Although the division in national markets has obviously been eroded, several contingent markets result from the comparison of economic factors. The geographical market is characterised by a strong presence of the traditional domestic suppliers present on the spot and by potential access to the large market on the part of companies located near seaports. For any demand exceeding the supply immediately available on the spot, it becomes necessary to be supplied by sea, which can, moreover, constitute an alternative in the event of a local price rise.

D. The agreement

15. The object of the joint venture is the production of dense and light soda. Such production is expected to increase as a result of investments agreed by Solvay, Sisecam and EBRD. This production is not new since SODI already primarily produces soda. Moreover, Solvay and Sisecam are already producing soda themselves in their respective factories.

16. The two industrial shareholders concluded an off-take agreement which defines the methods of distribution of soda production. Solvay and Sisecam have a right and an off-take obligation on all production by SODI, in proportion to their level of capital contribution to the company (outside of the contribution of the EBRD). The scale of reference for the production of the factory is therefore currently the following: 75 % for Solvay and 25 % for Sisecam (hereafter: "reference percentage(s)").

17. The off-take agreement sets up a mechanism aiming to penalise the party whose volume of orders is short of its reference percentage. The system functions as follows:

The production targets of the factory are regularly laid down by cooperation between SODI and the parties. Before the beginning of each quarter, each party communicates to SODI the volumes of soda required for this period. Monthly, each party provides the joint venture with an updated forecast of the needs for the next three months.

For a finally produced overall Q quantity, the reference percentages are calculated and fictitious distribution is compared with real distribution, which has resulted from the production orders passed through each party.

Having ordered a percentage of the overall quantity Q higher than its reference percentage, the party ("excess buyer") benefits from a rebate (off-balance premium) for the quantity corresponding to this difference (so called off-balance quantity). The amount of this rebate on the other hand is invoiced by SODI to the party which has ordered a volume lower than that corresponding to its reference percentage (shortfall buyer).

When one of the parties wishes to take a quantity of soda higher than its reference percentage of the maximum level of production of SODI, negotiations take place between the two parties and the transaction price is fixed freely by the two parties.

18. SODI's transfer of soda to both shareholders gives rise to a commercial transaction. In order to establish the price, the agreement initially foresaw that the price invoiced by SODI, calculated quarterly, corresponds to the weighted average price (ex works) of the total of sales of Sodi soda from Solvay and Sisecam to third parties, reduced by a commercial rebate. For a given quarter "t", the amount of the transfer price was to be calculated by an independent auditor on the basis of the statistical data concerning the sales provided by each party. During the quarter t, transactions were to be based on the transfer price defined for the t-1 quarter and an adjustment was to be carried out at the end of each quarter.

19. The parties envisaged in their agreement that Solvay would not actively market soda produced by SODI on the Italian market, except in the event of shortage or technical difficulties affecting the level of soda production by Solvay's Rosignano factory.

E. Comments of the Commission

20. The joint venture is only aimed at soda production. As the marketing of the product is being carried out in an autonomous way by Solvay and Sisecam, the creation of the joint venture as such should not restrict competition. Moreover, it must be emphasised that by the agreement in question, Sisecam gains access to a market on which hitherto it was scarcely present and on which Solvay has a very strong position. Finally, the mechanism of off-balance quantity creates a strong incentive to maximise the respectively taken quantities. Both the creation of the joint venture and the mechanism in question must be deemed to have a pro-competitive effect.

21. The clause providing not to actively market soda produced in Bulgaria on the Italian market (see point 19) constituted on the other hand an appreciable restriction of competition. However, after discussion with the Commission, the parties agreed to suppress the clause. This restriction of competition was therefore eliminated.

22. The abovementioned price mechanism raised concern with the Commission, as the fixing of the transfer price would have led to having the purchase price of the product of SODI mechanically connected with its resale weighted average price on the market by both competitors during the previous quarter. Consequently, a variation on sale by one of the competitors would result in varying mechanically the transfer price in a similar manner. After discussion with the Commission, the parties agreed to modify the way in which the price of SODI's products will be established. The reference price will instead be linked to an index based on export statistics, notably the prices invoiced by US exporter of soda ash to Europe, as calculated by an independent expert. The commercial rebate applied to the reference price will remain unchanged.

23. The Commission proposes consequently to adopt a favourable attitude with regard to the agreements the basis of which are outlined above. Before doing so, it however invites the interested parties to submit their comments within a month as from the publication of this communication, by forwarding them under the reference "IV/E-2/36.732 - Solvay-Sisecam", to the following address: European Commission

Directorate-General for Competition

(DG IV (E/2))

Rue de la Loi/Wetstraat 200 B - 1049 Brussels Fax: (32-2) 299 24 64