SUMMARY OF COMMISSION DECISION

of 14 July 2020

declaring a concentration compatible with the internal market and the functioning of the EEA Agreement

(Case M.9014 - PKN Orlen/Grupa Lotos)

(notified under document C(2020) 4651)

(Only the English version is authentic)

(2021/C 196/05)

On 14 July 2020 the Commission adopted a Decision in a merger case under Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (1) , and in particular Article 8(2) of that Regulation. A non-confidential version of the full Decision, as the case may be in the form of a provisional version, can be found in the authentic language of the case on the website of the Directorate-General for Competition, at the following address: http://ec.europa.eu/competition/elojade/isef/index.cfm?clear=1&policy_area_id=2

I. THE PARTIES

(1) PKN Orlen S.A. (Poland, hereinafter ‘Orlen’ or the ‘Notifying Party’) is a vertically integrated undertaking, mainly active in the refining and marketing of fuel and related products in Poland, as well as in Austria, Czechia, Estonia, Latvia, Lithuania, Germany and Slovakia. Orlen’s activities cover all fuel products typically processed at an oil refinery, including diesel, gasoline, light heating oil (’LHO’), liquid petroleum gas (’LPG’), heavy fuel oil (’HFO’), jet fuel, marine fuel, bitumen and naphta, as well as base oils and lubricants. Orlen is also active in the provision on bunkering services in Poland, mandatory storage services of gasoline in Poland for third Parties (referred to in this decision as compulsory storage obligations, ’CSOs’). Orlen also has a network of retail service stations across Poland selling motor fuels. Orlen is also active to a limited extent in upstream exploration, development and production of crude oil and natural gas. Finally, Orlen is also active on the petrochemicals market, producing a range of petrochemical products at its refineries in Poland and Czech Republic.

(2) Grupa Lotos S.A. (Poland, hereinafter ‘Lotos’) is a vertically integrated undertaking mainly active in the refining and marketing (including retail sales) of fuel and related products mostly in Poland but also in Czechia and Estonia. Lotos’ activities also cover all fuel products typically processed at an oil refinery and it operates a network of retail services stations across the country. Lotos is also active in the provision of bunkering services and CSOs. Lotos also has activities in the upstream exploration, development and production of crude oil and natural gas. According to the Notifying Party, Lotos’ activities are mostly focused in Poland, although it also carries out exports of some of its products.

II. THE PROCEDURE

(3) On 3 July 2019, the Commission received a formal notification pursuant to Article 4 of Council Regulation (EC) No 139/2004 (the ‘Merger Regulation’) by which Orlen will acquire sole control of Lotos (the ‘Concentration’). Orlen and Lotos are collectively referred to as the ‘Parties’.

(4) The Commission raised serious doubts as to the compatibility of the Concentration with the internal market and adopted a Decision to initiate proceedings pursuant to Article 6(1)(c) of the Merger Regulation on 7 August 2019. Orlen submitted its written comments on the Article 6(1)(c) Decision on 21 August 2019.

(5) On 23 and 30 September and 22 November 2019, the Commission adopted four decisions pursuant to Article 11(3) of the Merger Regulation requiring the Parties to supply the complete information that had been required by the Commission in different requests for information sent to the Parties.

(6) These decisions suspended the time limit referred to in Article 10(3) of the Merger Regulation pursuant to Article 9(1) of Commission Regulation No. 802/2004 from 20 September 2019. By letter of 2 March 2020, the Commission informed Orlen that the suspension of the time limit had expired on 28 February 2020 following the Parties’ submission of the required information on that date.

(7) On 7 April 2020, the Commission issued a Statement of Objections. On 4 May 2020, the Parties replied to the Statement of Objections. In addition, four third parties submitted comments on the Statement of Objections.

(8) During the Phase II investigation, Orlen informally presented various options for proposed remedies. On 4 May 2020, Orlen formally submitted commitments. On 6 May, the Commission launched a market test on the commitments submitted on 4 May 2020.

(9) The formal oral hearing took place on 11 May 2020. Due to the Covid-19 pandemic, the oral hearing was held remotely by secure encrypted videoconference.

(10) On 25 May, revised commitments were submitted by Orlen. On 26 May, the Commission launched a market test of these revised commitments.

(11) On 18 June, Orlen submitted final commitments (‘Final Commitments’).

III. RELEVANT MARKETS

(12) The Parties’ activities overlap in several countries but the main overlaps take place in Poland and Czechia. Within these countries, significant horizontal overlaps are present regarding some of the Parties’ activities.

1. Wholesale supply of diesel, gasoline, LHO, HFO in Poland

(13) The Commission has previously considered a possible segmentation between ex-refinery and non-retail sales of fuels, leaving open whether this distinction reflects competitive conditions on the Polish market. For the purposes of this Decision, the Commission considers that there is a single wholesale market for fuels in Poland. As in previous decisions, the Commission considers that the wholesale markets for the supply of fuels should be segmented on the basis of the fuels sold.

(14) The Commission has previously defined the markets for ex-refinery supply of fuels as regional or broader in scope and the markets for the non-retail supply of fuels as national in scope. For the purposes of the present Decision, based on its finding that there is a single market for the wholesale supply of fuels in Poland, and based on its analysis of the patterns of supply and demand in Poland, the Commission concludes that the geographic scope of these markets is national.

2. Retail supply of motor fuels in Poland

(15) The Commission has previously defined the market for the retail supply of motor fuels as sales of motor fuels at service stations, both branded and unbranded, in- and outside an integrated network. The relevant product market was defined as encompassing all types of motor fuels available at service stations, including gasoline, diesel, and automotive LPG. Moreover, the Commission has in the past considered a number of possible segmentations by types of petrol stations, sometimes leaving the question open and sometimes reaching a conclusion that such a segmentation was or was not justified on the basis of the specific characteristics of the market in question. In particular, the Commission has considered the possibility of segmenting the market of retail supply of motor fuels between sales at on-motorway and off-motorway stations; between sales from regular stations and from dedicated truck stops; between sales from marine and non-marine stations; or between sales from manned and unmanned stations. Finally, the Commission has also considered the possibility of segmenting the market of retail supply of motor fuels between sales to B2B customers (via a fuel card) and sales to B2C customers.

(16) For the purposes of the present decision, the Commission considers that the relevant product market should be defined as encompassing all types of motor fuels available at service stations. The Commission further considers that the market for the retail supply of motor fuels can be sub-divided into the retail supply of fuels to B2B customers via fuel cards and the retail supply of motor fuels to other customers (B2C). Furthermore, the Commission considers that on-motorway petrol stations constitute a separate market segment.

(17) For the purposes of the present Decision, and in line with previous decisions, the Commission considers that the markets for the retail supply of motor fuels to B2B customers via fuels cards as well as the market for the retail supply of motor fuels to B2C customers are national with local elements.

3. Ex-refinery supply of jet fuel in Poland and Czechia, and into-plane supply of jet fuel in Poland

(18) The Commission has previously considered that aviation fuels constitute a separate product market distinct from other fuels. In previous cases, the Commission has considered distinct product markets for each of ex-refinery sales of aviation fuels on the one hand, and into-plane sales of aviation fuels on the other. For the purposes of the present decision, the Commission has followed the same approach.

(19) The Commission has in the past considered that the geographic scope of the market for the ex-refinery sales of jet fuel could comprise the EEA or Western Europe. However, the Commission has also considered narrower markets. However, for the purposes of the present Decision, the Commission considers that the relevant geographic scope of the market for ex-refinery sales of jet fuel to customers in Poland is national, while the relevant geographic scope of the market for ex-refinery sales of jet fuel to customers in Czechia is either national in scope or consists of an area comprising at most Czechia, Poland, Slovakia, Hungary and East-Germany. For into-plane supplies of fuel, the Commission considers that the geographic scope of the market is limited to each specific airport where such services are provided.

4. Supply of the different types of bitumen in Poland

(20) In past decisions, the Commission has considered that bitumen should be distinguished from other refined oil products based on its characteristics and its specific end-use. In previous decisions, the Commission has considered whether a distinction between the different types of bitumen could be appropriate. For the purposes of the present Decision, the Commission considers that it is appropriate to distinguish separate markets for the supply of standard bitumen, modified bitumen and industrial bitumen.

(21) In its past practice, the Commission has assessed markets for the supply of bitumen from a national perspective. The Commission has also considered whether the geographical scope of bitumen supply could be narrower (and in two cases whether it could be wider) than national, without ever concluding on the market definition. For the purposes of the present Decision, the Commission considers that the relevant geographic market for each of the three bitumen types is national in scope.

5. Other relevant markets

(22) In addition to the aforementioned markets, the Concentration also concerns other relevant markets on which the Parties’ activities overlap, including the supply of base oils, industrial lubricants, HFO, and bunkering services.

(23) The Concentration also concerned markets in relation to which the Parties’ activities overlap or are vertically linked. These include the provision of mandatory storage services, the provision of rail transport services, slack wax, and the exploration, production and development of crude oil, among others.

(24) The Commission concluded that the Concentration would not give rise to a significant impediment to effective competition on these other affected markets.

IV. COMPETITIVE ASSESSMENT

1. Assessment

(25) The Commission assessed the affected markets as described in section III and reached the conclusion that the Concentration will lead to a significant impediment to effective competition in the following markets:

(26) In the markets for the wholesale supply of diesel, gasoline, and LHO in Poland, the Commission came to this conclusion because of the Parties’ high market shares, of the fact that the Parties are close competitors, of the limited competitive constraint being exerted by the threat of customer switching, and of the high barriers to entry in this market.

(27) In the markets for the retail supply of motor fuels in Poland, the Commission came to this conclusion because of the Parties’ high market shares, of the fact that the Parties are close competitors, and of the limited competitive constraint being exerted by other players on these markets.

(28) In the markets for the ex-refinery supply of jet fuel in Poland and Czechia, and into-plane supply of jet fuel in Poland, the Commission came to this conclusion because of the Parties’ high market shares, of the fact that they are each other’s only competitors on the ex-refinery market in Poland and each other’s closest competitors in Czechia, of the limited competitive constraint being exerted by other players on the into-plane market, and of the barriers to entry on the into-plane market.

(29) In the markets for the supply of the different types of bitumen in Poland, the Commission came to this conclusion because of the Parties’ high market shares, the fact that the Parties are close competitors and that they together operate three fourth of the available supply points for the different types of bitumen, and the limited competitive constraint being exerted by other players on these markets.

(30) In short, the Commission has reached the conclusion that the Concentration would lead to a significant impediment to effective competition in the following markets: (a) Wholesale supply of diesel (Poland) (b) Wholesale supply of gasoline (Poland) (c) Wholesale supply of LHO (Poland) (d) Retail supply of motor fuels (overall, B2B, B2C and on-motorways) (Poland) (e) Ex-refinery supply of jet fuel (Poland and Czechia); into-plane supply of jet fuel at all airports in Poland (f) Supply of standard bitumen in Poland; supply of modified bitumen in Poland; supply of industrial bitumen in Poland

2. Commitments submitted by the Parties

(31) As part of the Final Commitments, in order to address the competition concerns in the markets identified above, the Parties have submitted the undertakings described below.

(32) For the wholesale supply of diesel, gasoline and LHO in Poland: the remedies consist of the divestiture of a 30 % stake in Lotos’ refinery which, combined with an offtake agreement, gives the remedy taker access to volumes of diesel and gasoline equivalent to approximately half of the refinery’s production. To enable imports equivalent to roughly another half of the refinery’s production, the remedies also consist in the divestiture of 5 terminals owned by Lotos and 4 owned by Orlen to an independent logistics operator (the ‘ILO’), and in a commitment by the merged entity to release fuel storage capacities booked with other storage providers in Poland;

(33) For the retail supply of motor fuels in Poland: the remedies consist in the divestiture of 389 retail stations, in response to the concerns raised by the Commission at national and local levels. The buyer of the retail network will purchase fuels from the merged entity under a supply agreement.

(34) For the ex-refinery supply of jet fuel in Poland and Czechia, and into-plane supply of jet fuel in Poland: the remedies consist in the divestiture of Lotos’s stake in a joint venture with BP, a commitment to continue supplying that joint venture with jet fuel, and a commitment to offer the joint venture and other jet fuel suppliers access to storage services. Orlen also commits to the construction of a new terminal to allow the import of jet fuel, which would be transferred to the ILO. The buyer of the 30 % stake in Lotos’ refinery will also have access to a share of that refinery’s output of jet fuel. In Czechia, Orlen will make volumes of jet fuel equivalent to Lotos’ sales pre-Transaction available via tender.

(35) For the supply of the different types of bitumen in Poland: the remedies consist in the divestiture of two bitumen production and distribution plants in Southern Poland, along with a supply agreement.

(36) In the Commission’s view, the Final Commitments are sufficient to address the identified competition concerns. In its decision, the Commission has, therefore, reached the conclusion that, on the basis of the undertakings submitted by the Parties, the Concentration will not lead to a significant impediment to effective competition in the internal market or in a substantial part of it.

V. CONCLUSION

(37) For the reasons mentioned above, the decision concludes that the Concentration will not significantly impede effective competition in the Internal Market or in a substantial part of it. Consequently the Concentration should be declared compatible with the Internal Market and the functioning of the EEA Agreement, in accordance with Article 2(2) and Article 8(2) of the Merger Regulation and Article 57 of the EEA Agreement.

(1) OJ L 24, 29.1.2004, p. 1.