CELEX: 32020M9626
Language: en
Date: 2020-03-31 00:00:00
Title: Commission Decision of 31/03/2020 declaring a concentration to be compatible with the common market (Case No COMP/M.9626 - PKN ORLEN / ENERGA) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                Brussels, 31.03.2020
                                                                C(2020) 2091 final
                                                                                PUBLIC VERSION
                                                                In the published version of this decision,
                                                                some information has been omitted
                                                                pursuant to Article 17(2) of Council
                                                                Regulation (EC) No 139/2004 concerning
                                                                non-disclosure of business secrets and
                                                                other confidential information. The
                                                                omissions are shown thus […]. Where
                                                                possible the information omitted has been
                                                                replaced by ranges of figures or a general
                                                                description.
                                                               To the notifying party
Subject:            Case M.9626 – PKN Orlen/Energa
                    Commission decision pursuant to Article 6(1)(b) of Council Regulation
                    No 139/20041 and Article 57 of the Agreement on the European Economic
                    Area2
Dear Sir or Madam,
(1)       On 26 February 2020, the Commission received the notification of a proposed
          concentration pursuant to Article 4 of the Merger Regulation by which PKN Orlen
          S.A. (“Orlen”, Poland, also referred to as the “Notifying Party”) acquires within the
          meaning of Article 3(1)(b) of the Merger Regulation control of the whole of Energa
          S.A. (“Energa”, Poland). Orlen and Energa are designated hereinafter as the
          “Parties” to the proposed transaction.3 The concentration is accomplished by way of
          a public bid announced on 5 December 2019.
1    OJ L 24, 29.1.2004, p. 1 (the “Merger Regulation”). With effect from 1 December 2009, the Treaty on the
     Functioning of the European Union (“TFEU”) has introduced certain changes, such as the replacement of
     “Community” by “Union” and “common market” by “internal market”. The terminology of the TFEU will
     be used throughout this decision.
2    OJ L 1, 3.1.1994, p. 3 (the “EEA Agreement”).
3    Publication in the Official Journal of the European Union No C72, 5.3.2020, p. 9.
Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE
Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË
Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.
 ---pagebreak--- 1.      THE PARTIES
(2)     Orlen is an oil and gas company active on the wholesale and retail markets for
        refined oil products in Poland, Austria, Czechia, Estonia, Latvia, Lithuania,
        Germany and Slovakia. It is also active in the generation and wholesale supply of
        electricity in Poland.
(3)     Energa is an energy company active in the generation and wholesale supply,
        distribution, and retail supply of electricity and other energy-related activities in
        Poland.
(4)     Energa is currently majority-owned by the Polish State, which holds 51.52% of the
        share capital, representing 64.09% of the number of votes at the general meeting of
        shareholders. The Notifying Party claims that the Polish State Treasury has direct
        and sole control over Energa.4 Even though the State Treasury holds a stake of
        32,42% in Orlen,5 for the reasons explained below, both Parties constitute different
        economic units having an independent power of decision.
(5)     The Notifying Party submits that Orlen and Energa have separate management
        boards, which do not coordinate their commercial strategy and day-to-day business
        conduct.6 Moreover, the Parties are mainly active on different markets. The
        Notifying Party further submits that there has not been, in the last 10 years, anyone
        who has belonged to the management or supervisory boards of both Orlen and
        Energa at the same time.7 Finally, the Notifying Party submits that Orlen and Energa
        respect rules on access to sensitive information, and are bound by general provisions
        of law regarding the disclosure and protection of confidential information, including
        competition law.8
(6)     Moreover, both Parties are publicly listed companies and the Transaction is being
        carried out under Polish rules on public offerings. Orlen has launched a public
        takeover bid, to which Energa shareholders may choose to subscribe.
(7)     The Commission therefore considers that Orlen and Energa form part of different
        economic units having an independent power of decision and the Transaction leads
        to a concentration in the meaning of Article 3 of the Merger Regulation.
2.      THE OPERATION AND THE CONCENTRATION
(8)     The concentration involves the acquisition of sole control (via an acquisition of
        majority of the shares representing the majority of the total number of votes at the
        general meeting of shareholders, up to the maximum of all of the shares) of Energa
        directly by Orlen (the “Transaction”).
4   Form CO, paragraph 91.
5   The State Treasury directly holds 27.52% of Orlen shares and a further 4.9% are indirectly held by the
    State Treasury through PERN Spółka Akcyjna ("PERN"), which is 100% owned by the State Treasury.
6   Form CO, paragraphs 83-84.
7   Form CO, paragraphs 85-87.
8   Form CO, paragraphs 88-90.
                                                       2
 ---pagebreak--- (9)     On 5 December 2019, Orlen made a tender offer for all issued shares in Energa,
        under Polish rules on public takeovers. The Notifying Party expects that the State
        Treasury, which is the majority shareholder in Energa, will subscribe for the sale of
        its shares under the tender offer, along with several minority shareholders. Orlen
        will therefore acquire sole control of Energa regardless of the volume of
        subscriptions for shares made by the other shareholders of Energa pursuant to the
        tender offer. After the clearance of the tender offer Orlen will own shares
        representing at least 66% of the total number of votes at the general meeting of
        shareholders of Energa.
(10)    Therefore, the Transaction constitutes a concentration pursuant to Article 3(1)(b) of
        the Merger Regulation.
3.      EU DIMENSION
(11)    The undertakings concerned have a combined aggregate world-wide turnover of
        more than EUR 5 000 million9. Each of them has an EU-wide turnover in excess of
        EUR 250 million, but they do not achieve more than two-thirds of their aggregate
        EU-wide turnover within one and the same Member State. The notified operation
        therefore has an EU dimension.
4.      MARKET DEFINITION
(12)    The Transaction would give rise to a horizontally affected market in balancing and
        ancillary services in Poland.
(13)    The Transaction would also give rise to a number of vertically affected markets
        between:
        (a)      at the upstream level, a number of inputs for which Orlen* has market shares
                 in excess of 30%: (i) the wholesale supply of heavy fuel oil (“HFO”) for
                 industrial processes in Poland ([80-90]%), (ii) the wholesale supply of light
                 heating oil (“LHO”) in Poland ([70-80]%), and (iii) the supply of industrial
                 lubricants in Poland ([40-50]%); and
        (b)      at the downstream level (i) the generation and wholesale supply of electricity
                 in Poland (on which the Parties have a combined [5-10]% market share) and
                 (ii) the generation, transmission, distribution and supply of heat (on which
                 such a district heating network constitutes a natural monopoly).
4.1.    Generation and wholesale supply of electricity
(14)    In previous decisions, the Commission has considered that electricity generation and
        wholesale supply constitutes a distinct product market from transmission and
        distribution and retail supply of electricity.10
9   Turnover calculated in accordance with Article 5 of the Merger Regulation.
*   Should read “Orlen (combined with Grupa Lotos)”.
10 M.6984 – EPH/Stredoslovenska; M.5978 – GDF Suez/International Power.
                                                          3
 ---pagebreak--- (15)   In one decision, the Commission considered a possible segmentation of the
       generation and wholesale supply market based on off-peak, peak and super-peak
       transactions, but ultimately left the precise market definition open.11 In one decision
       concerning the Polish market, the Commission judged such a distinction not to be
       relevant to the Polish market, on the basis that available capacity during peak and
       off-peak hours was similar.12
(16)   The Notifying Party does not contest the above market definitions.
(17)   Therefore, the Commission considers the relevant product market to be generation
       and wholesale supply of electricity.
(18)   The Commission has previously considered the market for generation and wholesale
       supply of electricity to be national in scope.13 The Polish Competition Authority has
       also concluded in its decisions that the market for generation and wholesale supply
       of electricity is national in scope in Poland.14
(19)   The Notifying Party does not contest the above market definitions.
(20)   The Commission therefore considers the relevant geographic market for generation
       and wholesale supply of electricity to be national in scope.
4.2.   Balancing and ancillary services
(21)   Balancing and ancillary services can be defined as the services consisting in
       maintaining the voltage in the grid within a very narrow bandwidth. 15 Transmission
       System Operators (“TSOs”) purchase electricity, on a balancing exchange or
       bilaterally, in order to cover deviations between production and consumption within
       their control areas. In previous decisions, the Commission has treated balancing and
       ancillary services as a separate product market from that for the generation and
       wholesale supply of electricity.16
(22)   The Commission has identified different categories of balancing and ancillary
       services, namely primary (frequency containment reserve), secondary (automatic
       frequency restoration reserve) and tertiary (manual frequency restoration reserve,
       fast active disturbance reserve and peak load reserve), on the basis of the order of
       activation and the magnitude of frequency deviation. The Commission has however
       left open whether the market for these different categories of balancing and ancillary
       services could correspond to distinct product markets.
(23)   The approach of the Polish Competition Authority has also been to define balancing
       and ancillary services as a distinct product market, which it examined as one overall
       market, while mentioning that a further distinction could be drawn between
11  M.5467 – RWE/Essent.
12  M.5979 – KGHM/Tauron Wytwarzanie, paragraphs 19-20.
13  M.5467 – RWE/ESSENT; M.5978 – GDF Suez/International Power.
14  UOKiK decision of 6 September 2018 in case DKK-159/2018 – PGE/Polenergia, p. 7.
15  M.7927, EPH/Enel/SE, paras. 24-27.
16  M.8660 Fortum/Uniper ; M.5979 KGHM/Tauron Wytwarzanie ; M.5827 - Gaz de France/Suez.
                                                    4
 ---pagebreak---          operational reserve, primary and secondary regulation as well as automatic power
         and voltage regulation. 17
(24)     The Notifying Party does not contest the above market definitions though it has also
         provided separate market shares for balancing and for ancillary services.18 The
         Notifying Party was unable to provide market shares for further sub-segments of
         ancillary services on which the Parties’ activities overlap, namely operational
         reserve, primary and secondary regulation, and automatic power and voltage
         regulation.19
(25)     For the purposes of the present decision, the precise product market definition can be
         left open as the Transaction does not lead to serious doubts as to its compatibility
         with the internal market under any plausible market definition.
(26)     In previous decisions, the Commission has considered that the market for balancing
         and ancillary services is at most national in scope. Balancing and ancillary services
         can be provided only by the entities which are connected to the national power
         system, and can only be provided to PSE, the sole TSO in Poland.
(27)     The Notifying Party does not contest the above market definitions.
(28)     The Commission considers the relevant geographic market for the provision of
         balancing and ancillary services to be national in scope.
4.3.     Generation, transmission, distribution and supply of heat on a district heating
         network
(29)     In previous decisions, the Commission has concluded that district heating constitutes
         a separate product market, which includes the distribution of thermal energy in the
         form of steam and/or hot water from central or decentralised sources of production
         (heating plants) through a network to multiple buildings or sites for use of space or
         process heating.20
(30)     The Notifying Party does not contest the above market definitions.
(31)     Therefore, the Commission considers the relevant product market to be generation,
         transmission, distribution and supply of heat on a district heating network.
(32)     In previous decisions, the Commission has considered the geographic scope of the
         district heating market to be limited to the specific district heating network to which
17  Decision of 22 December 2006, (DOK-163/2006) PGE and others, decision of 13 January 2011 (DKK-
    1/2011), PGE/ENERGA; decision of 6 September 2018 (DKK-159/2018), PGE/Polenergia.
18 The Parties estimate that their combined market shares in the possible markets for balancing services and
    ancillary services would be [20-30]% and [10-20]%, respectively. In the market comprising both
    balancing and ancillary services their combined market share would be [20-30]% according to the Parties
    and below 20% according to the TSO.
19 The Notifying Party submits that it cannot provide reliable market share data relating to these possible
    sub-segments. It claims that in any event, the Parties’ shares in these markets do not exceed their share in
    the overall balancing and ancillary services market. The TSO submitted that the Parties' combined market
    shares in the possible sub-segments for primary and secondary regulation would be lower than 20%, and
    that these shares are representative of the Parties’ competitive position on the ancillary services market.
20 M.7745 – Fortum/Lietuvos Energija ; M.4238 – E.ON/Prazka Plynarenska.
                                                            5
 ---pagebreak---         the plant is linked, as different networks usually cover different geographical areas
        and are not connected to each other.21
(33)    The Notifying Party does not contest the above market definitions.
(34)    The Commission therefore considers the relevant geographic market for generation,
        transmission, distribution and supply of heat on a district heating network to be
        limited to each specific district heating network.
4.4.    Wholesale supply of HFO for industrial processes
(35)    HFO is a fuel product which results from the process of refining crude oil. Each
        refinery produces a fixed proportion of different fuel products (e.g. diesel, gasoline,
        HFO, LHO) out of a given volume of crude oil. HFO is a fuel with particularly high
        viscosity and density. It is used to generate motion and/or heat and is mainly used to
        fuel ships and power generation facilities and as feedstock for further processing.
        Because HFO is considered a by-product of crude oil refining it is relatively
        inexpensive and sold at negative margin compared to crude oil.
(36)    In previous decisions, the Commission has defined relevant product markets for the
        wholesale supply of fuels as separate from the retail supply of fuels.22 The
        Commission has further divided the market for the wholesale supply of fuels by fuel
        type, i.e. (i) supply of gasoline, (ii) supply of diesel, (iii) supply of liquefied
        petroleum gas (LPG), (iv) supply of LHO and (v) supply of HFO due to their
        different characteristics, use and purchasers.23
(37)    With respect to HFO, a distinction should be made between on the one hand, HFO
        used as a motor fuel for large marine engines, and one the other hand, HFO used as
        an energy source/fuel for inland industrial processes (e.g. power plants, horticulture,
        industrial laundry, etc.).24
(38)    The Commission has previously distinguished two different levels of wholesale
        distribution of refined fuel products: (i) ex-refinery sales (primary level of
        distribution) and (ii) non-retail sales (secondary level of distribution).25 It has
        previously doubted whether this distinction would also apply to wholesale sales of
        fuel in Poland, but decided to leave the precise market definition open.26
(39)    The Notifying Party does not contest the above market definitions, though it did not
        identify a possible distinction between HFO for marine engines and HFO for
        industrial uses. The Notifying Party does not believe that any non-retail sales of
        HFO take place in Poland, and has therefore only provided data for sales made on an
        ex-refinery basis. The Notifying Party also believes that the demand for HFO in
        Poland is solely from industrial customers.
21  M.7745 – Fortum/Lietuvos Energija/JV; M.4238 – E.ON/Prazka Plynarenska.
22  M.4545 – Statoil/Hydro; M.4348 – PKN Orlen/Mazeikiu.
23  M.7318 – Rosneft/Morgan Stanley Global Oil Merchanting Unit; M.6801 – Rosneft/TNK-BP; M.4348 –
    PKN Orlen/Mazeikiu; M.6261 – North Sea Group/Argos Groep/JV.
24  M.7603 – Statoil Fuel and Retail/Dansk Fuel, paragraphs 18-19; M.5689 – Bominflot/SBI Holding,
    paragraphs 9-13.
25  M.7311 - MOL/Eni Ceska/Eni Romania/Eni Slovensko.
26  M.4348 – PKN Orlen/Mazeikiu.
                                                     6
 ---pagebreak--- (40)     For the purposes of this decision, the precise product market definition between ex-
         refinery and non-retail sales can be left open, as the Transaction does not lead to
         serious doubts as to its compatibility with the internal market under any plausible
         market definition.27
(41)     The Commission has previously concluded that a possible market for non-retail sales
         of HFO would be national in scope,28 and that a possible ex-refinery market for this
         product could be broader (Western Europe-wide, EU-wide or EEA-wide).29
(42)     The Notifying Party does not contest the above market definitions.
(43)     For the purposes of this decision, the precise geographic market definition can be left
         open, as the Transaction does not lead to serious doubts as to its compatibility with
         the internal market under any plausible market definition.30
4.5.     Wholesale supply of LHO
(44)     LHO is a low viscosity, liquid petroleum product which can be used as fuel oil for
         furnaces or boilers in buildings is usually burned for the purpose of heating. As
         mentioned above in relation to HFO, the Commission has previously divided the
         market for the wholesale supply of fuels by fuel type, including LHO. It has also
         previously distinguished between ex-refinery and non-retail sales of LHO.
(45)     On the non-retail level, previous decisions considered that LHO may consist of two
         segments: (i) heating oil light (“HOL”) and (ii) heating oil extra light (“HOEL”). 31
(46)     The Notifying Party does not contest the above market definitions. Orlen only
         produces and sells HOEL, and it is not aware of any sales of HOL in Poland.
(47)     For the purposes of this decision, the precise market definition can be left open, as
         the Transaction does not lead to serious doubts as to its compatibility with the
         internal market under any plausible market definition.32
(48)     The Commission has previously concluded that the possible geographic market for
         non-retail sales of fuel products would be national in scope while that for ex-refinery
         sales would be potentially EEA-wide.
(49)     The Notifying Party does not contest the above market definitions.
(50)     For the purposes of this decision, the precise geographic market definition can be left
         open, as the Transaction does not lead to serious doubts as to its compatibility with
         the internal market under any plausible market definition.33
27  Below, the Commission will examine the impact of the Transaction on the narrowest plausible market,
    that is the market for ex-refinery sales of HFO for industrial uses.
28  M.4348 – PKN Orlen/Mazeikiu.
29  M.7318 – Rosneft/Morgan Stanley Global Oil Merchanting Unit.
30  Below, the Commission will examine the impact of the Transaction on the narrowest plausible market, i.e.
    on a national basis.
31  M.1819 – Rheinbraun/OMG/Cokowi.
32  Below, the Commission will examine the impact of the Transaction on the narrowest plausible market, i.e.
    the market for the non-retail supply of HOEL.
                                                           7
 ---pagebreak--- 4.6.    Supply of industrial lubricants in Poland
(51)    In previous decisions, the Commission has concluded that lubricants constitute a
        separate market different from base oils and chemical additives.34
(52)    The Commission has also defined separate markets for lubricants based on their
        application, i.e. (i) automotive lubricants, (ii) industrial lubricants, (iii) marine
        lubricants and (iv) aviation lubricants.35 The Parties are only active in industrial
        lubricants.
(53)    Previous decisions have also considered a possible further distinction based on the
        base stock employed, i.e. between (i) mineral and (ii) synthetic lubricants, leaving
        the market definition open .36
(54)    The Notifying Party submits that there is no need for the purposes of the present
        decision to distinguish between mineral and synthetic lubricants, as, among other
        reasons, the Notifying Party submits that it only sells mineral lubricants.
(55)    For the purposes of this decision, the Commission considers that the precise product
        market definition can be left open, as the Transaction does not lead to serious doubts
        as to its compatibility with the internal market under any plausible market
        definition.37
(56)    The Commission has previously considered the geographic scope of the market for
        industrial lubricants to be at least national and possibly EEA-wide in scope, although
        it has ultimately left the exact geographic market definition open.38
(57)    The Notifying Party does not contest the above market definitions.
(58)    For the purposes of this decision, the Commission considers that the precise
        geographic market definition between EEA-wide or national can be left open, as the
        Transaction does not lead to serious doubts as to its compatibility with the internal
        market under any plausible market definition.39
5.      COMPETITIVE ASSESSMENT
5.1.    Horizontal effects - balancing and ancillary services
(59)    The Transaction gives rise to a horizontally affected market due to the Parties’
        activities in the supply of balancing and ancillary services in Poland.
33  Below; the Commission will examine the impact of the Transaction on the narrowest plausible market, i.e.
    on a national basis.
34  M.8261 – Lanxess/Chemtura.
35  M.1383 – Exxon/Mobil.
36  M.8261 – Lanxess/Chemtura; M.5927 – BASF/Cognis.
37  Below, the Commission will examine the impact of the Transaction on the narrowest plausible market, i.e.
    the market for mineral industrial lubricants.
38  M.8261 – Lanxess/Chemtura.
39  Below, the Commission will examine the impact of the Transaction on the narrowest plausible market, i.e.
    on a national basis.
                                                       8
 ---pagebreak--- (60)    In Poland, the rules governing: 1) the balancing mechanism, 2) the provision of
        ancillary services and 3) sales of energy for balancing purposes, are determined by
        the national TSO – Polskie Sieci Elektroenergetyczne (“PSE”) – in the national
        transmission network code. This provides instructions for network participants
        specifying the conditions for the use, operation, operation and planning of network
        development as well as the principles of system balancing and management and
        system restrictions.
(61)    PSE is the sole buyer of balancing and ancillary services in Poland. In order to sell
        electricity on the wholesale or retail markets, the Parties need to conclude
        transmission contracts with PSE which entitle PSE to physical supply or collection
        of energy by the balancing mechanism participants. Ancillary services are contracted
        by PSE by means of public tenders, where providers are remunerated separately for
        activation of the services and for energy exchanged.
(62)    The Parties provide their combined market share on this market based on their
        volumes of sales of balancing services. The Parties estimate that they had a
        combined market share of [20-30]% (with an increment of [0-5]%) in 2018, the last
        year for which data was available.
(63)    Given the nature of ancillary services, the Parties are not able to provide reliable data
        in this regard. However, the Notifying Party submits that their shares in possible
        markets for these services would not exceed their shares on an overall balancing and
        ancillary services market. Moreover, the Notifying Party understands that following
        the introduction of a new capacity mechanism in Poland, ancillary services will be
        replaced by the new capacity mechanism. Based on contracted capacity under
        auctions for the new capacity mechanism, the Notifying Party estimates that the
        Parties’ combined shares will amount to 7.66% in 2021, 7.67% in 2022, and 11.44%
        in 2023.40
(64)    In response to the Commission’s market investigation, PSE expressed the view that
        an assessment of the Parties’ potential market power should be based on the
        technical capabilities of their centrally dispatched generating units, compared to the
        total technical capabilities of all centrally dispatched generating units in Poland. On
        this basis, PSE estimated the Parties’ combined market share to be significantly
        lower than 20%, regardless of the precise product market definition. PSE did not
        believe that the Transaction would have a significant impact on effective
        competition.
(65)    Transactions such as the present one, where the market share of the undertakings
        concerned does not exceed 25%, may generally be presumed to be compatible with
        the internal market. 41 The fact that the terms on which prices and volumes are set in
        this market are largely determined by a single buyer, PSE, in line with the national
        transmission network code, is a further indication that the Transaction is unlikely to
        lead to the creation of market power.
40 Therefore, even on a narrower plausible market definition for ancillary services, there would be no
   affected market.
41 C f. Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of
   concentrations between undertakings, OJ [2004] C 31, pages 5-18, paragraph 18.
                                                       9
 ---pagebreak--- (66)     Therefore, the Commission concludes that the Transaction does not raise serious
         doubts as to its compatibility with the internal market in relation to the market for
         balancing and ancillary services in Poland and its possible sub-segments.
5.2.     Vertical effects
(67)     According to the Non-Horizontal Merger Guidelines, input foreclosure occurs when
         actual or potential rivals' access to supplies or markets is hampered, thereby reducing
         those companies' ability and/or incentive to compete. Such foreclosure may
         discourage entry or expansion of rivals or encourage their exit.42
(68)     In addition, the Non-Horizontal Guidelines identify customer foreclosure as
         occurring where the merger is likely to foreclose upstream rivals by restricting their
         access to a sufficient customer base.43
(69)     In order for foreclosure to be a concern, three conditions need to be met post-merger:
         (i) the merged entity needs to have the ability to foreclose its rivals; (ii) the merged
         entity needs to have the incentive to foreclose its rivals; and (iii) the foreclosure
         strategy needs to have a negative impact on effective competition leading to an
         increase in downstream prices charged to consumers. In practice, these factors are
         often examined together since they are closely intertwined.
(70)     The Transaction gives rise to a vertical relationship between the Parties’ activities.
         At the downstream level, the Parties are active in the generation and wholesale
         supply of electricity in Poland (on which the Parties have a combined [5-10]%
         market share) and the generation, transmission, distribution and supply of heat (on
         which district heating networks constitute a natural monopoly). At the upstream
         level, the Parties also provide a number of inputs for these downstream processes,
         and have market shares in excess of 30% on the following markets:
         (a)      the wholesale supply of Heavy Fuel Oil (HFO) for industrial processes in
                  Poland ([80-90]% market share),44
         (b)      the wholesale supply of Light Heating Oil (LHO) in Poland ([70-80]%
                  market share),45 and
         (c)      the supply of industrial lubricants in Poland (below [40-50]% market
                  share).46
42  See Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control
    of concentrations between undertakings, OJ [2008] C 265, pages 6-25 (“Non-Horizontal Merger
    Guidelines”), paragraphs 29-30.
43  See Non-Horizontal Merger Guidelines, paragraph 30.
44  As mentioned in section 4.4 above, the Notifying Party only provides market shares for ex-refinery sales
    of HFO, as it does not make non-retail sales of HFO in Poland.
45  As mentioned in section 4.5 above, the Notifying Party only provides market shares for non-retail sales of
    HOEL.
46  As mentioned in section 4.6 above, the Notifying Party only provides market shares for sales of mineral
    lubricants, as it does not sell synthetic lubricants.
                                                          10
 ---pagebreak--- 5.2.1. Vertical relationship regarding HFO as an input for the generation of electricity and
       heat
The Notifying Party’s views
(71)   The Notifying Party submits that the Transaction does not raise any competition
       concerns, and that there is no risk of input and/or customer foreclosure.
(72)   Energa produces electricity at its power plants located in Poland, and it is also active
       in the market for generation of heat. The fuels used for both these activities are
       primarily hard coal and hydropower (ca. 90% of fuel used) and Energa does not
       operate any HFO-fuelled power plant. Energa does however use HFO for firing up
       the boilers utilised by Energa Elektrownie Ostrołęka in its coal-fired plant. This
       activity takes place approximately […] times per year.
(73)   The Notifying Party explains that Energa could theoretically replace HFO as an
       input for its boilers in its Ostrołęka power plant. It would be technically possible to
       modify current installations to use LHO as an input, instead of HFO. However,
       Energa assesses that such a modification is currently not financially reasonable, as it
       would require an investment of approximately EUR […]. There are currently no
       such ongoing investments in Energa’s power plants.
(74)   The Notifying Party submits that Energa’s demand for HFO is too low for there to
       be a risk of customer foreclosure. Energa’s purchases of HFO account for
       approximately [0-5]% of Polish demand. Moreover, prior to the Transaction, Energa
       sourced [a great proportion] of its HFO needs from Orlen. Therefore, the Transaction
       would not deprive competitors of a significant customer, and they would continue to
       have access to sufficient alternative customers.
(75)   The Notifying Party further argues that there is no risk of input foreclosure. The
       Notifying Party argues that HFO is not an important input for the downstream
       electricity and heat generation activities. Energa’s limited reliance on HFO for these
       activities is illustrative. HFO accounts for approximately [0-5]% of the costs of
       Energa’s power and heat generation activities (and [0-5]% of energy generated).
       Energa’s consumption of HFO amounted to […] t in 2018, or [0-5]% of total Polish
       demand.
The Commission’s assessment
(76)   No respondent to the market investigation expressed concerns that the Transaction
       could result in in input or customer foreclosure on these markets.
(77)   There does not appear to be a risk of customer foreclosure. In particular, the
       Commission considers that the merged entity would not have the ability to foreclose
       its competitors in the market for supply of HFO. Energa buys only very limited
       volumes ([0-5]% of total Polish demand). Moreover, Energa currently sources [a
       great proportion] of its HFO needs from Orlen, and so the Transaction will not
       change the situation for competing suppliers of HFO.
(78)   Nor does there appear to be a risk of input foreclosure. Orlen would not have the
       ability to foreclose downstream competitors. Input foreclosure may raise competition
                                                  11
 ---pagebreak---         problems only if it concerns an important input for the downstream product.47 This is
        the case, for example, when the input concerned represents a significant cost factor
        relative to the price of the downstream product. Irrespective of its cost, an input may
        also be sufficiently important for other reasons. For instance, the input may be a
        critical component without which the downstream product could not be
        manufactured or effectively sold on the market, or it may represent a significant
        source of product differentiation for the downstream product. It may also be that the
        cost of switching to alternative inputs is relatively high.
(79)    HFO is not an important input for the downstream electricity and heat generation
        businesses. It does not represent a significant cost factor in electricity and heat
        generation. Nor would the cost of switching away from it be so high as to make HFO
        a critical component: although Energa estimates the cost as being currently
        unreasonable, competitors would be likely to take a different view were the price of
        HFO to increase such as to put them at a disadvantage in the downstream markets.
        Therefore, Orlen would not have the ability to foreclose competition on the
        downstream markets by withholding supplies of HFO. Moreover, post-transaction,
        other sources of HFO would remain available in the Polish market.
(80)    Any attempt at input foreclosure by the Parties would be unlikely to lead to
        increased prices in the downstream markets. Companies acting in the downstream
        markets account for a small proportion of overall demand for HFO for industrial
        uses and could continue to source from other providers. Moreover, HFO accounts for
        a very small proportion of costs in the downstream market, and can be replaced by
        other fuels following limited investments. Therefore, any attempt at foreclosure by
        the Parties would not have an impact on competition.
(81)    Therefore, the Commission considers that the Transaction will not result in input or
        customer foreclosure with regards to supplies of HFO for industrial uses.
5.2.2. Vertical relationship regarding LHO as an input for the generation of electricity and
        heat
The Notifying Party’s views
(82)    The Notifying Party submits that the Transaction does not raise any competition
        concerns, and that there is no risk of input and/or customer foreclosure.
(83)    The Notifying Party submits that Energa’s demand for LHO is too low for there to
        be a risk of customer foreclosure. In 2018, Energa sourced […] t of LHO, accounting
        for approximately [0-5]% of total demand in Poland. Therefore, the Transaction
        would not deprive competitors of a significant customer, and they would continue to
        have access to sufficient alternative customers.
(84)    The Notifying Party submits that there is no risk of input foreclosure, as LHO is not
        an important input for electricity and heat generation. Similarly to HFO, LHO is not
        regarded by Energa as a primary fuel used in generation of energy or heat. LHO is
        used by Energa in its power plants to start the boilers. After these boilers are
        launched and they have met their optimal conditions, LHO is no longer used, and the
47  Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control of
    concentrations between undertakings, OJ [2008] C 265, pages 6-25, paragraph 34.
                                                       12
 ---pagebreak---       burners which feed LHO to these boilers are turned off. After the start-up only the
      primary fuel is put into the boiler.
(85)  With regard to heat generation, LHO is used only by back-up heat generating boilers
      in its Ostrołęka plant. These boilers are used by Energa in case of downtime of all
      blocks used in Ostrołęka plant
(86)  Although it would be difficult for Energa to substitute LHO for other fuels, the
      Notifying Party submits that it is an insignificant input in Energa’s plants. LHO
      accounts for approximately [0-5]% of the costs of Energa’s power and heat
      generation activities. It accounts for approximately [0-5]% of heat generated by
      Energa.
(87)  The Notifying Party believes that Energa’s competitors in electricity and heating
      markets could continue to source LHO from other sources, and that their combined
      demand does not account for a significant part of LHO sales in Poland.
The Commission’s assessment
(88)  No respondent to the market investigation expressed concerns that the Transaction
      could result in in input or customer foreclosure on these markets.
(89)  There does not appear to be a risk of customer foreclosure. In particular, the
      Commission considers that the merged entity would not have the ability to foreclose
      its competitors in the market for supply of LHO. Energa buys only very limited
      volumes of LHO ([0-5]% of total Polish demand). Post Transaction, competing
      suppliers of LHO in Poland will still have access to sufficient alternative customers
      to remain competitive.
(90)  Nor does there appear to be a risk of input foreclosure. LHO is not an important
      input (as defined at paragraph (78) above) for the downstream electricity and heat
      generation businesses. It does not represent a significant cost factor in electricity and
      heat generation. Therefore, Orlen would not have the ability to foreclose competition
      on the downstream markets by withholding supplies of LHO, or worsening the terms
      on which it is supplied. Moreover, post-transaction, other sources of LHO would
      remain available in the Polish market.
(91)  Any attempt at input foreclosure by the Parties would be unlikely to lead to
      increased prices in the downstream markets. Companies acting in the downstream
      markets account for a small proportion of overall demand for LHO and could
      continue to source from other providers. Moreover, LHO accounts for a very small
      proportion of costs in the downstream market. Therefore, any attempt at foreclosure
      by the Parties would not have an impact on competition.
(92)  Therefore, the Commission considers that the Transaction will not result in input or
      customer foreclosure with regards to supplies of LHO.
                                                13
 ---pagebreak--- 5.2.3. Vertical relationship regarding industrial lubricants as an input for the generation
       of electricity and heat
The Notifying Party’s views
(93)   The Notifying Party submits that the Transaction does not raise any competition
       concerns, and that there is no risk of input and/or customer foreclosure.
(94)   The Notifying Party submits that there is no risk of input foreclosure, as industrial
       lubricants are not an important input for electricity and heat generation. Energa uses
       industrial lubricants only to a limited extent in its electricity and heat generation
       activities. Energa uses industrial lubricants for the same purposes as any other
       industrial or production plants. They are used for such purposes as isolation, cooling,
       caulking, lubricating etc. Industrial lubricants serve to ensure the proper functioning
       of different types of installations or devices in accordance with their application and
       producers’ recommendations.
(95)   The Notifying Party claims that their role in activities related to generation of heat
       and generation of electricity is purely supportive. Industrial lubricants account for
       approximately [0-5]% of the costs of Energa’s power and heat generation activities.
(96)   The Notifying Party submits that Energa’s demand for industrial lubricants is too
       low for there to be a risk of customer foreclosure. In 2018, Energa sourced […] t of
       industrial lubricants, accounting for approximately [0-5]% of total demand in
       Poland. Therefore, the Transaction would not deprive competitors of a significant
       customer, and they would continue to have access to sufficient alternative customers.
The Commission’s assessment
(97)   No respondent to the market investigation expressed concerns that the Transaction
       could result in in input or customer foreclosure on these markets.
(98)   There does not appear to be a risk of customer foreclosure. In particular, the
       Commission considers that the merged entity would not have the ability to foreclose
       its competitors in the market for supply of industrial lubricants. Energa buys only
       very limited volumes of industrial lubricants ([0-5]% of total Polish demand). Post
       Transaction, competing suppliers of industrial lubricants in Poland will still have
       access to sufficient alternative customers to remain competitive.
(99)   Nor does there appear to be a risk of input foreclosure. Industrial lubricants are not
       an important input (as defined in paragraph (78) above) for the downstream
       electricity and heat generation businesses. It does not represent a significant cost
       factor in electricity and heat generation. Therefore, Orlen would not have the ability
       to foreclose competition on the downstream markets by withholding supplies of
       industrial lubricants, or worsening the terms on which they are supplied. Moreover,
       post-transaction, other sources of industrial lubricants would remain available in the
       Polish market.
(100) Any attempt at input foreclosure by the Parties would be unlikely to lead to
       increased prices in the downstream markets. Companies acting in the downstream
       markets account for a small proportion of overall demand for industrial lubricants
       and could continue to source from other providers. Moreover, industrial lubricants
                                                  14
 ---pagebreak---        account for a very small proportion of costs in the downstream market. Therefore,
       any attempt at foreclosure by the Parties would not have an impact on competition.
(101) Therefore, the Commission considers that regardless of the precise product market
       definition, the Transaction will not result in input or customer foreclosure with
       regards to supplies of industrial lubricants.
5.2.4. Conclusion on vertical effects
(102) Based on the above, the Commission concludes that the proposed transaction does
       not give rise to serious doubts as to its compatibility with the internal market on
       these vertically affected markets.
6.     CONCLUSION
(103) For the above reasons, the European Commission has decided not to oppose the
       notified operation and to declare it compatible with the internal market and with the
       EEA Agreement. This decision is adopted in application of Article 6(1)(b) of the
       Merger Regulation and Article 57 of the EEA Agreement.
                                                     For the Commission
                                                     (Signed)
                                                     Margrethe VESTAGER
                                                     Executive Vice-President
                                                  15