CELEX: 31995M0574
Language: en
Date: 1995-05-23 00:00:00
Title: COMMISSION DECISION of 23/05/1995 declaring a concentration to be compatible with the common market (Case No IV/M.574 - Saudi Aramco / MOH) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

Avis juridique important

|

31995M0574

COMMISSION DECISION of 23/05/1995 declaring a concentration to be compatible with the common market (Case No IV/M.574 - Saudi Aramco / MOH) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 158 , 24/06/1995 P. 0004

  COMMISSION DECISION of 23/05/1995 declaring a concentration  to be compatible with the common market (Case No IV/M.574 -  Saudi Aramco / MOH) according to Council Regulation (EEC) No  4064/89   (Only the English text is authentic).   The paper version of the decision is available through the  sales offices of the Office of Official Publications of the  European Communities  PUBLIC VERSION  MERGER PROCEDURE  ARTICLE 6(1)(b) DECISION  To the notifying parties  Dear Sirs,  Subject:<tab> Case N  IV/M.574  Saudi Aramco/MOH  <tab> <tab> Notification of 18.04.1995 pursuant to Article 4  of Council  <tab> <tab> Regulation N  4064/89  1.<ind> The above mentioned notification concerns a 50:50  joint venture between the Saudi Arabian Oil Company ("Saudi  Aramco") and the Vardinoyannis brothers, by virtue of the  acquisition of Saudi Aramco of a 50% stake in two  preexisting Greek companies: Motor Oil Corinth Refineries SA  ("MOH"), an oil refining company, and Avinoil Industrial and  Maritime Oil Company SA ("Avin"), a wholesaler and retailer  of refined products. Before the operation, the Vardinoyannis  brothers indirectly held controlling stakes in both MOH and  Avinoil.  I. <ind> THE PARTIES  2.<ind> Saudi Aramco is a private company with limited  liability established by a Royal Decree of the Kingdom of  Saudi Arabia and is wholly owned by the Kingdom. It is  engaged in the exploration, production and marketing of  crude oil, and in the production and marketing of refined  products primarily outside Europe. It also has activities in  marine transportation.   <ind> Saudi Aramco owns and operates four refineries in  Saudi Arabia and holds significant interests in three other  refineries in that country. Furthermore, it holds major  stakes in three oil refining and marketing joint ventures in  the United States, Korea and the Philippines.   3.<ind> Mr. V.J. Vardinoyannis and Mr. T.J. Vardinoyannis  are Greek nationals with multiple business activities  including oil and petroleum products, shipping, banking,  real state, media, hotels, and leisure. The activities of  the group of companies controlled by the Vardinoyannis  brothers in connection to the oil sector generally are the  following: i)a shipping fleet comprising mostly crude oil  and product carriers; ii) minor exploration activities in  the US, Yemen and Egypt; iii) trading activities through  offices in Athens and London iv) refining of crude oil and  retailing of refined products through MOH and Avin, which  are the subject of the notified concentration.  II.<ind> THE OPERATION  4.<ind> Saudi Aramco will acquire, via its whollyowned  subsidiary Aramco Overseas Company ("AOC"), a 50% stake in  the capital of each of MOH and Avin. The shares are sold by  the Vardinoyannis brothers directly or through a whollyowned  holding, with the result that the capital stake of MOH will  be held as to 50% by Saudi Aramco through AOC and as to the  remaining 50% by a Luxembourg based holding (MOH Holdings  SA) controlled by the Vardinoyannis brothers. With respect  to Avin, the situation is similar, with Saudi Aramco holding  50% of the capital of Avin through AOC, and Avin Holdings  SA, a Luxembourg based holding whollyowned by the  Vardinoyannis brothers, holding the remaining 50% share. The  operation involves therefore the sale of shares of two  distinct companies, but between the same seller and  purchaser.   5.<ind> The parties have entered into a number of  agreements, including a shareholders agreement, regulating  interalia, the corporate governance and management of the  joint venture, and a crude oil supply agreement by which  Saudi Aramco will supply MOH with most of its crude  requirements.  III.<tab> CONCENTRATION  <tab> Joint control  6.<ind> The Board of Directors of each of MOH and Avin will  consist of not more than 14 individuals. Each of AOC and the  respective holding controlled by the Vardinoyannis brothers  will appoint one half of the Directors.   7.<ind> The Chairman and Vicechairman of the Board of  Directors of each of MOH and Avin will be designated by MOH  and Avin holdings respectively, whereas AOC will designate  the managing directors. All decisions of the Boards of  Directors of MOH and Avin, will require at least a simple  majority vote. Neither the Chairman nor Vice Chairman shall  have a deciding vote. The approval of the Board of Directors  of MOH and Avin is required for a number of issues relating  to the strategic commercial behaviour of these companies.  These matters include changes to the management structure of  the company concerned, the entry into new lines of business  or geographic markets, the adoption of the long range  business plan, adoption or modification of capital and  operating budgets, contracts with third parties above a  certain amount, all matters relating to contracts for the  supply of crude oil and other feedstocks, and a number of  other financial issues.  8.<ind> In view of the equality of stakes in the capital of  the joint venture, the equality of representation and voting  rights in the Board of Directors, and the matters that the  Board of Directors has to approve, it is concluded that MOH  and Avin will be jointly controlled by Saudi Aramco through  AOC, on the one hand and the Vardinoyannis brothers through  MOH Holdings and Avin holdings respectively on the other  hand.   <ind> Autonomous economic entity and absence of coordination  of competitive behaviour  9.<ind> Both MOH and Avin are preexisting full function  companies. According to the crude oil supply agreement,  Saudi Aramco will supply and the joint venture will purchase  [Deleted business secret more than 85%] of its sour crude  oil requirements, representing about [Deleted business  secret  between 60 and 90%] of the total feedstock  requirements of MOH. The contract is for a period of  [Deleted business secret  between 20 and 30 years] years.  The contract also stipulates that the price per barrel of  each grade of crude oil shall be Saudi Aramco's standard FOB  price for deliveries at a specific place (terminals at Saudi  Arabia or Egypt). Therefore, the terms of supply of crude  oil are established at armslength. These supply agreements  does not call into question the functioning of the joint  venture as an autonomous economic entity. Taking into  account the substantial industrial activity and significant  added value involved in refining crude oil and marketing  refined products, MOH and Avin cannot be considered as a  mere commercial agency of Saudi Aramco. The armslength terms  of the supply agreement further reinforce this conclusion.   10.<ind> Saudi Aramco on the one hand, and other companies  controlled by the Vardinoyannis brothers on the other hand,  are not simultaneously present to any significant extent in  any markets related to those of the joint venture. Saudi  Aramco has no refining capacity in Europe. It sells some  refined products at the wholesale level in certain countries  of the common market, with shares of national consumption  below 5% in 1994 with just two exceptions (LPG in Spain,  share of [Deleted business secret  between 15 and 25%] and  kerosene in Ireland, share of [Deleted business secret   between 5% and 10%]). At EU level, the shares are below 5%  in all cases. Save for the exceptions mentioned above, the  Vardinoyannis brothers do not retain any business in the oil  markets outside the joint venture.  IV.<tab> COMMUNITY DIMENSION  11.<ind> The combined aggregate worldwide turnover of the  parties exceeds 5 billion ECU. The aggregate Communitywide  turnover of each party exceeds 250 million Ecu. The parties  do not achieve more than twothirds of their turnover in one  and the same Member State. The operation has therefore a  Community dimension.  V. <ind> COMPATIBILITY WITH THE COMMON MARKET  12.<ind> The activities affected by the proposed  concentration are the refining and distribution of petroleum  products and the main effects of the concentration will take  place in the Greek market.  <ind> Production of refined products  13.<ind> MOH owns a refinery in Corinth with a refining  capacity of 5.5 million tons/year which represents about  [Deleted business secret  between 25% and 35%] of total  refining capacity installed in Greece. The refined petroleum  products produced by MOH which includes the so called "major  products" (gasoline, gasoil, fuel oil) and other products  such as kerosene, jet fuel, lubricants, base oil, asphalt  and sulphur are mainly distributed in the Greek market,  either for domestic consumption or as bunkering sales.  However, MOH also exports a small proportion of its output  to other EU countries, such as gasoline (Italy, Spain and  Austria), fuel oil (Italy, France and Austria), jet fuel  (Netherlands) and lubricants (Italy, UK and Spain), but all  these exports represent an insignificant share of the  consumption of the abovementioned products in all these  countries.  14.<ind> Saudi Aramco has no refining activities in Europe.  In 1994 it has exported four different types of refined  products to the EU, namely LPG, gasoline, fuel oil and  kerosene. However, except for its exports of LPG to Spain  which accounted for about [Deleted business secret  between  15 and 25%] of total Spanish consumption and those of  kerosene to Ireland with a [Deleted business secret  between  5 and 10%] market share, all other exports have not exceeded  a 5% market share in any country within the EU. For  instance, in Greece the only product supplied by Saudi  Aramco was fuel oil with a [Deleted business secret  less  than 5%] market share. As MOH's market share in Greece for  this product does not exceed [Deleted business secrets   between 5 and 10%], it can be considered that the proposed  concentration will not have a significant impact on the  supply of refined products to the Greek market or to the  EU.  <ind> Retail market for refined products in Greece  15.<ind> For the retail distribution of refined oil products  only the Greek market will be affected by the operation as  the scope of this market is at most national. However, in  this case there will be no addition of market shares since  Saudi Aramco is not active in Greece in these markets.  <ind> Avin has relatively low market shares in the Greek  market forthe so called "major products" such as gasoline  ([Deleted business secrets  between 5 and 10%]), gasoil  ([Deleted business secrets  between 5 and 10%]) and fuel oil  ([Deleted business secrets  between 5 and 10%]), as well as  other products such as lubricants ([...]) and LPG ([Deleted  business secret  between 1 and 5%]). The only product in  which Avin holds a significant market share is asphalt  ([Deleted business secret  between 35 and 45%]). Competition  in the Greek retail market is important with a number of  significant players among which some "majors" such as Shell,  Mobil, BP and Texaco, in addition to the stateowned company  EKO.  <ind> Vertical aspects  16.<ind> The oil industry traditionally has a pattern of  vertical integration that is unequalled by any other  industry. The main factor explaining this fact is a  historical one linked to tax benefits accorded to petroleum  producers in the USA in particular at the crude production  stage as oil companies had the right to deduct percentage  depletion and drilling costs as business expenses. The  downstream expansion then followed as a simple quest for an  assured source of supply in order to avoid dependence on  companies which were competitors in the sale of final  products. Therefore, most oil companies in particular the  "majors" have developed a complete pattern of integration  from the oil well to the retail distributor pump including  the intermediate stages of refining and transportation.  17.<ind> Saudi Aramco, which was primarily a crude oil  producer has already begun a downstream vertical integration  and is further pursuing this objective with the present  operation. The Vardinoyannis Group is also an integrated oil  producer with exploration, trading and transportation  activities in addition to those activities (refining and  retailing) which are part of the present operation.  18.<ind> Since MOH represents a negligible proportion of  refining capacity in Europe and worldwide, the shareholding  link with a major producer of crude oil is not likely to  create difficulties in access to raw materials for other  refiners. Furthermore, there are sufficient alternative  suppliers of crude oil.  19.<ind> The traditional advantages of vertical integration  between the refining stage and the retail distribution of  the petroleum products are further enhanced in Greece by the  Greek compulsory stock obligation. According to this  legislation, retail distributors of petroleum products must  keep inventories amounting to about 1/4 of its sales during  the previous year within the Greek territory. However,  companies that have supply contracts with Greek refineries  may pass this obligation to their suppliers. The compulsory  stock obligation has the effect of considerably restraining  the imports of refined petroleum products in Greece since  the retail distributors of petroleum products do not have  enough storage capacity to comply with this legal  requirement and, therefore, are obliged to buy most of their  requirements to the Greek refiners.  20.<ind> There are only two groups which have integrated  activities of refining and retail distribution in Greece:  the Greek state with DEP (refining) and EKO (distribution)  and the Vardinoyannis family with MOH and Avin. However, the  stateowned group has a much stronger presence in Greece as  it owns [Deleted business secret  between 40 and 55%] of  total refining capacities (MOH [Deleted business secret   between 25 and 35%]) and at retail distribution level has a  total turnover which represents more than the double of that  of the Vardinoyannis Group.  21.<ind> Although some competitors in the retail  distribution market may expect that the financial power of  Saudi Aramco will contribute to increase Avin's distribution  activities in Greece leading to substantial gains in market  share it is not likely that this will create a dominant  position on the Greek market for the retail distribution of  petroleum products. Indeed, for the time being Avin's market  share does not exceed 6% of total sales of refined petroleum  products at retail level and with about 550 distribution  outlets Avin has less than 10% of total distribution outlets  in Greece. Even if some cross subsidisation of retail  activities by profits made at the refining stage were  possible, the Vardinoyannis Group has already a stronger  integrated competitor, the stateowned group, which is also  vertically integrated.  VI.<ind> ANCILLARY RESTRAINTS  22.<ind> The parties also notified, as an integral part of  the concentration the crude oil supply and purchase  agreement betweenSaudi Aramco and MOH by which Saudi Aramco  will supply and MOH will purchase for a period of [Deleted  business secret  between 20 and 30] years a minimum of  [Deleted business secret  between 70 and 90] thousand  barrels of crude oil per day representing about [Deleted  business secret  between 60 and 70%] of the total current  capacity of the MOH Corinth refinery and approximately  [Deleted business secret  between 60 and 90%] of its total  crude oil intake in 1994.  <ind> According to the parties, this supply agreement is  clearly linked to the proposed concentration and meets the  long term objectives of both partners as it gives a  guaranteed outlet for Saudi crude exports and reinforces the  security of crude supply of the MOH refinery.  <ind> However, even if the terms of the supply are  established at an arm's length basis, this agreement  considerably restrains the possibility for MOH to choose its  sources of supply in the free market for a long period of  time. The supply contract is not a transitional arrangement  to make the concentration possible. Therefore, it cannot be  considered either an integral part or as ancillary to the  proposed concentration and should therefore be assessed  separately under the provisions of Art. 85 of the Treaty.  23.<ind> The shareholders' agreement contains a noncompete  clause pursuant to which both parents undertake, on behalf  of themselves and any companies they control, not to compete  with the refining and retail distribution of MOH and Avin in  the Greek Market.  <ind> As this clause means that both parents withdraw on a  lasting basis from the market of the joint venture, it can  be considered as ancillary since it reinforces the  concentrative nature of the refining and retailing joint  ventures established by Saudi Aramco and the Vardinoyannis  Group within the Greek territory.  VI.<ind> CONCLUSION  24.<ind> In view of the above, it is concluded that the  proposed concentration will not create or strengthen a  dominant position as a result of which effective competition  would be significantly impeded in the common market or in a  substantial part of it.  For the above reasons, the Commission has decided not to  oppose the notified operation and to declare it compatible  with the common market and with the functioning of the EEA  Agreement. This decision is adopted in application of  Article 6(1)(b) of Council Regulation No 4064/89.  For the Commission,