Notice pursuant to Article 27(4) of Council Regulation (EC) No 1/2003 concerning Case COMP/B-1/38348 — Repsol CPP SA
Date: 2004-10-20
Institutions: European Commission
Subjects: Spain, control of restrictive practices, distributive trades, exclusive distribution agreement, oil industry

20.10.2004

EN

Official Journal of the European Union

C 258/7

Notice pursuant

to Article 27(4) of Council Regulation (EC) No 1/2003 (1) concerning

Case COMP/B-1/38348 — Repsol CPP SA

(2004/C 258/03)

1. Introduction

1. On 20 December 2001,

the Commission was notified
under Articles 2 and 4 of Council Regulation No 17 by
Repsol Comercial de Productos Petrolíferos SA (hereinafter
called Repsol CPP) of agreements and/or model contracts
laying down the conditions under which that undertaking
carries on or will carry on the business of distributing fuel
for motor vehicles through service stations in Spain.

2. On 19 March 2002, the Commission published in the
Official Journal a notice inviting interested third parties to
submit their comments on the notification (2). In response
to the invitation, 69 comments were received from inter-
ested third parties, some on behalf of several service
stations.

2. Parties

3. Repsol CPP is a company belonging to the Repsol-YPF oil
group. In Europe, this group is active mainly in Spain and
in Portugal. It possesses, among other things, substantial
refining capacity in Spain. Repsol CPP is active mainly in
similar
the distribution of
products for motor vehicles in Spain.

lubricants and other

fuel,

4. The contractual partners of Repsol CPP in the context of
the notified agreements are operators of Spanish service
stations. These operators are mostly family businesses
which seldom operate more than one service station.

3. The fuel market

5. Fuel sold in Spain comes, as a rule, from Spanish refineries.
The balance is imported by tanker. Spain is a net importer
of diesel and a net exporter of petrol. Diesel outsells petrol,
accounting for approximately two thirds of total consump-
tion of
the relevant products. Diesel sales are on the
increase whereas petrol sales are declining.

(1) OJ L 1, 4.1.2003, p. 1.
(2) OJ C 70, 19.3.2002, p. 29.

6. Domestically produced products are generally shipped
using bulk transport facilities (pipelines, trains or ships) to
local depots (primary logistics), whence they are trans-
ported by lorry to their final destination (secondary logis-
tics). Imported products are either unloaded in depots at
ports, which may or may not be connected to bulk trans-
port facilities, or unloaded in the refinery and then trans-
ported in the
same way as domestically produced
products.

(composed of

7. Fuel, whether produced by a refinery or imported, is either
the producer or
fed into the retail sales network of
company-owned or affiliated
importer
service stations) or sold wholesale (off-network) to: (i) inde-
integrated upstream
pendent
retailers who are not
(unbranded service stations or supermarkets);
(ii) traders
(including large oil companies not vertically integrated in
(industrial and
Spain); or
commercial users such as hospitals, car-hire companies,
transport undertakings,
factories, etc.). Products may,
moreover, be exchanged between refiners or operators at
all levels of the chain.

final customers

large

(iii)

8. Retail sales involve sales to motorists through service
stations (whether branded or not). There are broadly three
categories of service station: (i) service stations owned or
supplied by traditional, vertically integrated oil companies;
(ii) independent service stations; and (iii) supermarkets. The
types of fuel sold in Spanish service stations are: 98 octane
unleaded petrol; 95 octane unleaded petrol; 97 octane lead
replacement petrol,
‘A’ diesel (motor cars) and ‘B’ diesel
(agricultural vehicles).

9. Petrol is sold primarily to final consumers on a retail basis,
while a substantial proportion of diesel, and in particular
‘B’ diesel, sales are made off-network (3).

10. In earlier decisions (4), the Commission considered that the
off-network (or wholesale) selling of fuel and the retail
selling of fuel through service stations could constitute
different product markets.
In the case of off-network
selling,
it considered that there was a separate product
market for each type of fuel.

(3) See, generally, the reports of the Comisión Nacional de la Energía:
‘Información básica de los sectores de la energía’, accessible at
www.cne.es.

(4) Commission Decision of 29 September 1999 declaring a concentra-
tion to be compatible with the common market
(Case COMP/
M.1383 — Exxon/Mobil), paragraphs 428 to 439, and Commission
Decision of 9 February 2000 declaring a concentration to be
compatible with the common market (Case COMP/M.1628 Total-
Fina/Elf), paragraphs 22 to 29.

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Official Journal of the European Union

20.10.2004

4. The position of Repsol CPP

panied by a fuel distribution agreement. The operator
has the status of agent.

11. The relevant market here is that for the sale of fuel off-
network in Spain. Repsol CCP's market share is approxi-
mately … [35 to 50 %] for petrol, approximately … [35 to
50 %] for ‘A’ diesel and approximately … [30 to 45 %] for
‘B’ diesel.

12. In cases where the contract goods are final products, the
Commission considers as a rule that an analysis limited to
the market between supplier and buyer is insufficient since
vertical restraints may have negative effects of reduced
inter-brand competition on the resale market, that is, on
the market downstream of the buyer. These effects are
greater where the vertical
in non-
compete obligations agreed between a supplier and a
retailer. The concerned market here is that for the retailing
of fuel in Spain, in which Repsol CPP holds a market share
which also exceeds 30 % (approximately … [35 to 50 %]
for all products).

restraints consist

5. The notified agreements

13. The notified agreements are agreements for the exclusive
fuel by service station operators in Spain.
purchase of
There are eight different types of agreement depending, on
the one hand, on the type of tenure of the service station
and, on the other, on the nature of the commercial rela-
tionship between Repsol CPP and the service station
operator.

(a) The ‘CODO-agent’ agreement. Agreement

the
distribution of fuel through service stations owned by
Repsol CPP, the operator of which is a tenant. The
operator has the status of agent.

for

(b) The ‘CODO-retailer’ agreement. Agreement

for the
distribution of fuel through service stations owned by
Repsol CPP, the operator of which is a tenant. The
operator has the status of retailer.

(c) The ‘DODO-agent’ agreement. Agreement

the
distribution of fuel through service stations owned by
their operators. The operator has the status of agent.

for

(f) The ‘Usufruct-retailer’ agreement. Agreement between
Repsol CPP and the owner of a service station by
which the owner grants Repsol CPP a right in rem to
the usufruct. As usufructuary, Repsol CPP simulta-
neously leases the service station to the bare owner or
to a third party linked to the bare owner for the
purposes of its operation. Upon expiry of the agree-
ment,
full
the bare owner automatically recovers
ownership of the service station. The transfer is accom-
panied by a fuel distribution agreement. The operator
has the status of retailer.

(g) The ‘Tenancy-agent’ agreement. Agreement between
Repsol CPP and the owner of a plot of land by which
the owner grants a tenancy right to Repsol CPP, which
becomes owner of any existing or future buildings
while its contractual partner retains ownership of the
land. As owner of the buildings, Repsol CPP simulta-
neously leases the service station to the owner of the
land or to a third party linked to the owner of the land
for the purposes of its operation. Upon expiry of the
agreement, the owner of the land automatically takes
over ownership of the buildings. The transfer is accom-
panied by a fuel distribution agreement. The operator
has the status of agent.

(h) The ‘Tenancy-retailer’ agreement. Agreement between
Repsol CPP and the owner of a plot of land by which
the owner grants a tenancy right to Repsol CPP, which
becomes owner of any existing or future buildings
while its contractual partner retains ownership of the
land. As owner of the buildings, Repsol CPP simulta-
neously leases the service station to the owner of the
land or to a third party linked to the owner of the land
for the purposes of its operation. Upon expiry of the
agreement, the owner of the land automatically takes
over ownership of the buildings. The transfer is accom-
panied by a fuel distribution agreement. The operator
has the status of retailer.

14. In many cases, involving especially agreements of the types
referred to at (e), (f), (g) and (h), Repsol CPP assumes all or
part of
the cost of building or renovating the service
stations.

(d) The ‘DODO-retailer’ agreement. Agreement

for the
distribution of fuel through service stations owned by
their operators. The operator has the status of retailer.

(e) The ‘Usufruct-agent’ agreement. Agreement between
Repsol CPP and the owner of a service station by
which the owner grants Repsol CPP a right in rem to
the usufruct. As usufructuary, Repsol CPP simulta-
neously leases the service station to the bare owner or
to a third party linked to the bare owner for the
purposes of its operation. Upon expiry of the agree-
ment,
full
the bare owner automatically recovers
ownership of the service station. The transfer is accom-

6. Preliminary assessment

15. On 18 June 2004, the Commission informed Repsol CPP
of its preliminary assessment of this case as regards: 1. the
distinction between agent and retailer within the meaning
of Community competition law; 2. clauses relating to the
setting of a maximum fuel retail price; and 3. non-compete
clauses for fuel which might give rise to foreclosure of the
market.

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Official Journal of the European Union

C 258/9

6.1. The agency issue

6.3. The non-compete clauses

16. The Commission considers that,

in the case of genuine
agency agreements, the obligations imposed on the agent
as to the contracts he negotiates and/or concludes on
behalf of the principal in principle do not give rise to a
though
competition problem. However, an agreement,
described as an agency agreement by the parties, may have
features which justify a different assessment.

The determining factor in this respect is the commercial or
financial risk borne by the agent in relation to the activities
for which he has been appointed as an agent by the prin-
cipal.

17. However, whatever the agent's situation in the light of
these criteria, the non-compete clauses (see paragraph 22)
agreed with him may be problematic owing to their effects
on inter-brand competition. This is the case if such clauses
lead to foreclosure on the relevant market where the
contract goods or services are sold or purchased.

The Commission accordingly considers that the question
whether or not
the operators of Repsol CPP's service
stations are genuine agents is irrelevant as far as the non-
compete clauses are concerned. As regards maximum
prices, it would appear in any case at this stage that the
clauses concerned are acceptable, even if all the distribu-
tors linked to Repsol were to be considered, in law, to be
retailers (see below).

6.2. The maximum price clauses

18. Most of the notified agreements prohibit service station
operators from selling fuel at a price higher than the
maximum set by Repsol CPP, but operators,
including
those described as agents in the agreements, are free to
grant discounts.
the notified agreements,
Repsol CPP simply recommends a retail price, leaving it to
operators to set the actual price either above or below the
recommended price.

In a few of

19. The Commission considers at this stage that these arrange-
ments do not have an appreciable effect on competition
within the meaning of Article 81(1) of the Treaty. They
leave intact distributors' freedom to reduce prices below
the maximum indicated by Repsol CPP. Operators
described in the agreements as agents are entitled to
reduce the prices actually paid by the customer, with the
help of their commission, without reducing Repsol CPP's
revenue.

20. The Commission's investigation has not revealed the exis-
setting of
tence of any factors
maximum prices might create significant alignment effects.
In particular, there is nothing to suggest at this stage that
intra-brand competition might be affected.

indicating that

the

station operators

21. The distribution agreements between Repsol CPP and
service
contain on-compete clauses
which cover fuel intended for sale through service stations.
The clauses do not cover any other products sold through
service stations. They are to be found in 1 430 agreements
of the CODO type, 770 of the DODO type and 460 of the
usufruct or tenancy type. The duration of
the clauses
varies. In agreements of the CODO or DODO type, it is
currently, as a rule,
the
five years.
usufruct or tenancy type, it ranges from 25 to 40 years
depending on the type of agreement.

In agreements of

22. Such agreements may, depending on the circumstances,
give rise to a competition problem, notably where, by
virtue of such clauses, other suppliers in the market cannot
sell to the buyers concerned, which may foreclose the
market (exclusion of other suppliers by raising barriers to
entry) and weaken inter-brand competition. As indicated
above (see paragraph 17), whether service station opera-
tors are described in the agreements as agents or retailers
is immaterial in this respect.

23. In its preliminary assessment, the Commission considered
that the non-compete clauses in the agreements notified by
Repsol CPP, and in particular in the agreements of the
DODO, tenancy and usufruct type, might help significantly
to create a foreclosure effect on the fuel retail market in
Spain. Having regard to the economic and legal context of
the notified agreements, the market is accessible only with
difficulty by competitors wishing to enter it or increase
their market share there. This is due notably to the signifi-
cant vertical integration of operators, the cumulative effect
of the parallel networks of vertical restraints, difficulties in
setting up an alternative network and other competitive
conditions (principally the saturation of the market and
the nature of the product).

24. The notified agreements might contribute significantly to
the foreclosure effect produced by all such agreements in
their economic and legal context. This is a result of the
following factors: the extent of the non-compete obliga-
tions imposed by Repsol CPP (the tied market share of
Repsol CPP's sales is considerable, at around … [25 to
35 %]); the non-compete commitments entered into are of
substantial duration, especially in the case of agreements of
the usufruct or tenancy type, which are long-term agree-
ments (between 25 and 40 years); and service station
operators and final customers are in a weak, fragmented
position compared with suppliers,
in particular Repsol
CPP, which has a substantial market share.

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Official Journal of the European Union

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25. As regards the non-compete clauses in CODO-type agree-
ments, the Commission considers at this stage that the
duration of these clauses does not contribute, as such, to
the foreclosure effect. At the end of the contractual rela-
tionship,
it is invariably the supplier in his capacity as
owner of the service station, and not the tenant-operator,
who decides what products will be sold through the sales
outlet concerned.

Economic Affairs which will be made public via the
Ministry's website. It will be effected during the first
month of each quarter for the following quarter.

— A third party (independent auditor) will verify compli-
ance by Repsol CPP with the commitments entered
into. He will draw up annual reports to the Commis-
sion.

7. The commitments

7.1. The commitments offered

26. In response to this preliminary assessment, Repsol CPP has
proposed to the Commission the following commitments
designed to meet the Commission's concerns:

— Repsol CPP undertakes to offer to those service station
operators who have granted it a temporary right in
rem (in the form of a usufruct or tenancy)
in the
service station and have at
the same time become
temporary lessees (via an exchange of contracts) the
possibility of ‘buying back’ the right in rem before the
scheduled expiry of the agreement. This option may be
exercised at any time from 1 January 2005 onwards
provided the agreement has no more than 12 years left
the option will be
to run (exceptionally,
offered only in respect of agreements which have no
more than 10 years left to run). The exercise of the
option will involve paying Repsol CPP compensation
equal to the market value of the right in rem in ques-
tion. The market value will be calculated on the basis
of Repsol CPP's annual cash flow and the contract
period still to run. The market value does not corre-
spond to the residual value of the investment. In the
event of disagreement about
the
valuation criteria laid down in the Spanish law on
expropriation will apply.

the market value,

in 2004,

— Repsol CPP undertakes

five-year
maximum duration for new fuel distribution agree-
ments with the operators of service stations of which
Repsol CPP is not the owner.

to observe

a

27. The commitments entered into will remain valid until 31

May 2010.

7.2. Assessment of the commitments

28. Repsol CPP's proposed commitments provide a practical
response to the Commission's concerns about the foreclo-
sure effect on the Spanish market.

29. First of all, the offer makes it possible to increase consider-
ably the number of service stations currently supplied by
Repsol CPP which would be in a position to change
supplier. The average number of service stations supplied
by Repsol CPP in a position to change supplier would
exceed 400 a year in the years ahead. At present, only
between 140 and 160 service stations supplied by Repsol
CPP are in a position to change supplier each year. Lastly,
the offer of commitments makes it possible to shorten
considerably the duration of agreements which, in the first
few years of a liberalised oil market in Spain, have shielded
for the long term a large number of sales outlets against
competition.

30. Secondly, the commitments contain a temporary restraint
on the vertical integration of Repsol CPP, thereby ensuring
that the number of sales outlets currently capable of being
supplied by other operators stays the same.

31. Thirdly, the commitments concerning advertising should
make it easier for service station operators to enter into
negotiations with alternative suppliers before their agree-
ments with Repsol CPP come to an end.

— During a period ending on 31 December 2006, Repsol
CPP undertakes not to buy outright from their opera-
tors existing service stations (DODO-type stations)
which are not supplied exclusively by Repsol CPP, that
is, which are not tied to its network.

— Repsol CPP undertakes to advertise in advance the
fuel distribution agreements with service
expiry of
stations and the option to terminate in advance agree-
ments involving rights in rem. This advertising will
take the form of a communication to the Ministry for

32. These commitments have the effect of

alternative means of

increasing the
opportunities for potential competitors of Repsol CPP to
establish themselves in the fuel retail market or for existing
competitors to increase their market share. Moreover,
entering or
competitors have
expanding in the market: for instance, they can purchase
existing distribution networks belonging to other suppliers
or open new sales outlets. Together, these opportunities
should enable a new competitor to attain, within a reason-
able period, the minimum number of outlets necessary for
the economic operation of a distribution system in this
sector, or in other words to make an effective entry into
the relevant market.

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8. The Commission's intention at this stage

33. On the basis of the above, the Commission intends to
adopt a decision of the type provided for in Article 9 of
Regulation No 1/2003. Before doing so, however, it invites
interested third parties to submit any comments they
might have within one month of publication of this notice.

34. In doing so, interested third parties are also requested to
provide the Commission with a non-confidential version
of their submission, in which business secrets and confi-
dential passages are deleted and replaced by a non-confi-
dential summary, where possible, or marked ‘business
secrets’ or ‘confidential’ as the case may be. They must
state the reasons for their confidentiality claims.

35. Within the same period,

interested third parties may
request from the Commission, at the address given in the
following paragraph, a copy of the commitments proposed
by Repsol CPP with all confidential information removed.

36. Interested third parties

should send their comments,
quoting the reference ‘COMP/B-1/38348 — Repsol CPP’,
to the following address:

Commission of the European Communities
Directorate-General for Competition
Antitrust Registry
B-1049 Brussels
Fax (32-2) 295 01 28.