CELEX: 31995M0550
Language: en
Date: 1995-03-13 00:00:00
Title: COMMISSION DECISION of 13/03/1995 declaring a concentration to be compatible with the common market (Case No IV/M.550 - Union Carbide / Enichem) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31995M0550

COMMISSION DECISION of 13/03/1995 declaring a concentration to be compatible with the common market (Case No IV/M.550 - Union Carbide / Enichem) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 123 , 19/05/1995 P. 0003

 COMMISSION  DECISION of 13/03/1995 declaring a concentration to be compatible with the common market (Case No IV/M.550  - Union  Carbide  /  Enichem) 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 Registered with advice of delivery To the notifying parties Dear Sirs, Subject :<ind> Case No IV/M.550  UNION CARBIDE/ENICHEM <ind>  <ind>  Notification of  10 February 1995 pursuant  to Article 4 of Council Regulation No 4064/89 1.<ind>  The  above  mentioned  notification  concerns   the creation   of   a   joint  venture  between  Union   Carbide Corporation  (UCC)  and Enichem S.p.A. (Enichem)  that  will produce,  market  and  sell  polyethylene  (PE)  resins   in Europe. 2.<ind>   After   examination  of  the   notification,   the Commission has concluded that the operation falls within the scope of application of Council Regulation (EEC) No. 4064/89 ("the  Merger Regulation") and does not raise serious doubts as  to its compatibility with the common market and with the functioning of the EEA Agreement.  I<tab> THE PARTIES 3.<ind>  Enichem  is  an  Italian  company  active  in   the development,  production, marketing  and  sale  of  chemical products.   Enichem is part of the Stateowned  holding  ENI, the subsidiaries of which are mainly active in the petroleum and chemical industries. 4.<ind>  UCC is a U.Sbased company active worldwide  in  the development,  production,  marketing  and  sale  of  various chemical products and plastics. II<tab> THE OPERATION 5.<ind>  Enichem and UCC intend to establish a new  company, called  POLIMERI  EUROPA Srl (POLIMERI  EUROPA)  which  will constitute  a  joint venture. Enichem will transfer  to  its whollyowned subsidiary, Brindisi Etilene Srl (BES),  all  of its  interests in the field of PE, excluding  the  wire  and cable  compounds  business. BES  will  be  renamed  POLIMERI EUROPA Srl. UCC will buy fifty percent of the equity of  the company  and Enichem will retain ownership of the  remaining fifty  percent.  Enichem will contribute to the venture  its PE resin technology, its  manufacturing facilities and sales activities  in this field. Two ethylene steam crackers  will be  transferred to the venture, one at Brindisi, Italy,  and the  other at Dunkirk, France. Within the framework  of  the operation, UCC will grant the venture a nonexclusive license of its Unipol technology. 6.<ind>  UCC  has recently established a joint venture  with the  French company Elf Atochem (ATO), called ASPEN.   On  2 December 1994, this operation was notified to the Commission under  article 85 of the Treaty of Rome, pursuant to article 4 of Regulation 17/62.  The ASPEN joint venture is therefore assessed  within  the  framework of a  different  procedure. Nevertheless, both operations affect the market position  of the  notifying  parties and cannot be viewed  in  isolation. Accordingly  this  decision  also  takes  into  account  the UCC/ATO transaction. 7.<ind> The ASPEN joint venture will produce PE resins to be used mostly for the manufacture of wire and cable compounds. UCC  will  sell  on  behalf  of ASPEN  the  wire  and  cable compounds production of the joint venture, and ATO will sell on  behalf of ASPEN the other PE resins production. ATO will remain as an independent PE producer outside ASPEN. 8.<ind>  Within   the framework of the ASPEN joint  venture, ATO  will  transfer  to ASPEN three PE production  lines  at Gonfreville (France), namely a slurry line, a high  pressure reactor,  and  a low pressure gas phase reactor.   ATO  will grant  ASPEN licences for its gas phase technology and  wire and cable technology, as well as for its slurry, compounding and   high  pressure  technologies.  UCC  will  grant  ASPEN licences of its wire and cable technology, its high pressure technology and of its Unipol technology. III<ind> CONCENTRATION <tab> Joint control 9.<ind>  According to the Shareholders' Agreement,  POLIMERI EUROPA  will be jointly controlled.  The Board of  Directors will  consist  ofat least six members, an  equal  number  of which  will be designated by Enichem and UCC.  For a  period of five years, the President of the Board will be designated among  the directors nominated by Enichem, and the  Managing Director will be designated among the directors nominated by UCC.   The  Managing Director will carry  out  the  daytoday management  of  the  company  under  the  instructions   and supervision of the Board of Directors, which will decide  by a   majority  of  its  members  on  matters  of  fundamental importance,  including in particular  the  approval  of  the annual  business plan or any strategic plan and the  capital budget of the company.  On this basis, POLIMERI EUROPA  will be jointly controlled by Enichem and UCC. <ind> Autonomous economic entity 10.<ind>  POLIMERI  EUROPA will be  of  unlimited  duration. [Contractual provision  deleted as business secret] 11.<ind>  POLIMERI EUROPA will be an undertaking  performing all the tasks of an autonomous economic entity since Enichem will contribute to the venture : <tab>  <ind>  its PE resin manufacturing business  with  the exception   of  its  PE  resin  facility  in  Porto   Torres (Sardinia, Italy); <tab>  <ind>  its 100 % of the capital stock of ECP  Enichem Polymères  France SA and its 100 % of the capital  stock  of Enichem Deutschland GmbH; <tab>  <ind> its ethylene steam cracker at Brindisi and  its interest in an ethylene plant at Dunkirk; <tab> <ind> its PE resin technology. <ind>  UCC will grant the venture a nonexclusive licence  of its UNIPOL technology. 12.<ind>  The  above  mentioned  crackers  at  Brindisi  and Dunkirk  will  supply the joint venture  with  approximately [between  40  %  and 60 %] % of its initial ethylene  needs. POLIMERI   EUROPA  will  enter  into  a  series  of   supply agreements with Enichem for the supply of ethylene mainly in Italy  through  its crackers at Priolo, Porto  Marghera  and Gela.  These  will  be  retained by  Enichem,  because  they produce ethylene used in certain of Enichem's other chemical businesses. 13.<ind>  According  to  the  ethylene  purchase  and   swap agreement,  Enichem will supply the venture for  an  initial period  of  [deleted  business secret] years, extendable  by either   party   for   an  additional   [deleted    business secret]year  period.   Thereafter, the  supply  arrangements will continue on annual basis. 14.<ind>  At  the request of POLIMERI EUROPA,  Enichem  will supply the venture within a range originally set at [deleted business  secret]  KT.   Enichem  shall  supply  a   further quantity,  up to a total of [deleted  business  secret]  KT, provided  that [contractual provision  deleted  as  business secret].  15.<ind>  These supply agreements do not call into  question the  functioning  of  the  joint venture  as  an  autonomous economic  entity. Given the significant added value  between the  raw  material, ethylene, and the product  manufactured, PE,  POLIMERI  EUROPA cannot be considered as  a  commercial agency of Enichem. 16.<ind> Enichem will also enter into longterm agreements to buy  from  POLIMERI EUROPA all the ethylene  byproducts  (C6 cut,  C7  steam,  crude  C4, pygas and propylene)  currently produced  by  the two ethylene steam crackers that  will  be contributed to the venture. [contractual provision   deleted as  business secret]. These purchases of ethylene byproducts do not call into question the autonomy of the joint venture, because these byproducts are of minor interest for the joint venture. 17.<ind>  In the light of the above factors, the  Commission has  concluded  that POLIMERI EUROPA will be  an  autonomous economic entity. <tab> Absence of coordination of competitive behaviour 18.<ind>  The venture will manufacture, market and  sell  PE resins  in  Western  and Eastern Europe, excluding  the  CIS countries.    Enichem  will  withdraw  from  this   business activity  except through its interest in the  joint  venture and  its  manufacturing plant in Porto Torres which produces only  HDPE.  The current capacity of the Porto Torres  plant amounts  to  some  11O  KT, a very small  proportion  of  W. European HDPE resin capacity.  [sentence deleted for reasons of  business secrecy stating that the Porto Torres plant  is likely to play a minor role on the market.]   19.<ind>  UCC  is active in the production and  sale  of  PE products  in  Europe only through its 50 % participation  in the  ASPEN.  ASPEN  will also have a HDPE  resin  production capacity.   However,  once its new  production  facility  is finished  (in  less  than  two years),  essentially  all  of ASPEN's  HDPE  production will be  used  captively  for  the manufacture  of  wire  and cable compounds.  ASPEN  will  be present on the HDPE market only to a residual extent.  20.<ind>  In  the light of the above factors,  there  is  no appreciable risk of coordination between the parents in  the market for PE resins. 21.<ind>  UCC  and  Enichem  will  remain  active   in   the downstream market for wire and cable compounds.  UCC through ASPEN  will produce wire and cable compounds and will market ASPEN's  production  as the agent of  ASPEN.   Enichem  will continue  to  produce  and  sell wire  and  cable  compounds outside  POLIMERI EUROPA.  Nonetheless, this is not expected to  lead  to  the  coordination  of  the  parent  companies' competitive behaviour on that market, since Enichem's  sales of wire and cable compounds in Western Europe represent less than  1  %  of Enichem's PE resins business. Wire and  cable compounds  are separate downstream products from  PE  resins distinct   technology,  different  applications,   different customers and high value added. 22.<ind>  The  parent  companies  have  both  developed   PE technology,  in  both  the high pressure  and  low  pressure fields  (for  the product market definition see below).  UCC will  remain  active on the low pressure market through  its UNIPOL  gasphase  technology.  It  has  never  marketed  its highpressure  technology and it has no significant  interest in  licensing it in the future since there is little  demand for this technology (see below). Enichem will contribute its PE  technologies (gasphase, slurry and high pressure) to the joint  venture but it will be granted a nonexclusive royalty free  licence  to  enable  it to continue  to  license  that technology (and maintain existing licences ) outside Europe. However, Enichem is present only on the market for its  high pressure  technology.  It  has  never  licensed  its  slurry technology,  which is outdated, and it abandoned development of  its gas phase technology before it reached the stage  of commercial viability. 23.<ind> In the light of the abovementioned factors,  it  is unlikely   that  the  joint  venture  will   lead   to   the coordination of the parent companies' competitive  behaviour in any of the aboveexamined markets.  IV<tab> COMMUNITY DIMENSION 24.<ind> The combined worldwide turnover of Enichem and  UCC exceeds ECU 5 billion and they have each ECwide turnovers in excess of ECU 250 million. Neither Enichem nor UCC have more than  twothirds of their respective EC turnovers in one  and the same Member State. V<tab>  PRODUCT MARKET DEFINITION <tab> ETHYLENE 25.<ind>  Ethylene is one of the base chemicals and  belongs to the olefins group which comprises ethylene, propylene and butadene.  In Western Europe ethylene is primarily  produced from  naptha  by  means of steam cracking. The  majority  of ethylene is used for the production of polyethylene  through polymerization, a process during which monomers are  reacted with  each other to produce long chains of a repeated series of monomers, called polymers. 26.<ind>  There are a number of byproducts of  the  ethylene production   process,  the  most  important  of   which   is propylene. For each ton of ethylene produced, about  half  a ton  of  propylene is obtained. Propylene is primarily  used for the production of polypropylene through polymerisation. <tab> PE PRODUCTION AND SALE 27.<ind>  POLIMERI EUROPA will be involved in the production and  sale of  polyethylene (PE) resins. Within  PE, one  can identify   three  main  families  of  resins,  Low   Density Polyethylene (LDPE), Linear Low Density Polyethylene (LLDPE) and High Density Polyethylene (HDPE).   28.<ind> PE resins are produced from ethylene. Ethylene as a gas  or  in solution or in a diluent is polymerised  in  the presence of a catalyst or initiator to produce PE. The final stage  is the downstream manufacture of consumer goods (e.g. film, moulded goods and other enduse applications).The types of  technology needed to produce PE resins from ethylene are discussed in the section on the PE technology market below. 29.<ind>  PE is a milky white, solid thermoplastic material. The  properties  of  PE  are influenced  by  the  degree  of crystallinitydetermined  by the total  degree  of  branching along  the  PE  molecule. PE density increases  with  higher degrees  of  crystallinity. As indicated  above,  there  are three  basic families of PE resins, LDPE, LLDPE   and  HDPE. Within  each  of these three families, there  are  different grades  produced by varying the conditions of polymerization or  by  using  different additives. The relative  ease  with which manufacturers can, as a result, switch production from one  grade  to another gives rise to a very high  degree  of supplyside substitutability.  30.<ind>  On  the  other hand, the question  arises  whether distinct  product markets can be identified correspnding  to the three main families (LDPE, LLDPE, HDPE) of PE resins. 31.<ind> LDPE is manufactured by high pressure processes. It has a molecular structure with both longchain and shortchain branching  which  results  in  low  crystallinity.   It   is primarily  used  in  film applications where  high  clarity, flexibility  and vapour barrier properties are required   in 1992,   more  than 70% of LDPE production was used  in  film applications. 32.<ind> HDPE is manufactured by low pressure processes.  It has  high crystallinity and it is stiffer than LDPE. It  has better  chemical resistance and lower permeability to  gases and vapours. It is mainly used for rigid bottles, large blow mouldings (drums, atutomotive fule tanks) and large diameter pipes.  In  1992,  40%  of  HDPE  production  was  used   in injectionmoulding applications. 33.<ind>  LLDPE was introduced as a hybrid between HDPE  and LDPE.  It is produced by the low pressure polymerisation  of ethylene  with alphaolefin comonomers which results  in  the formation  of  shortchain,  side  branches  on  the   linear backbone. It is more crystalline (linear) than LDPE, and  it is generally less flexible. In 1992, 70% of LLDPE production was used in the sector of film packaging. 34.<ind>  It  can  be  considered that  HDPE  constitutes  a separate   product   market  in  view   of   its   different characteristicts  in  terms  of  its  performance   in   the conversion  process  and/or  in the  properties  of  moulded parts.  As  far as LDPE and LLDPE are concerned, it  appears that  they are to a certain extent substitutable,  at  least for  commodity products. They are both mostly used for  film applications.  On the other hand, for specific  applications one may be more suitable than the other. For instance, LLDPE offers some significant advantages over LDPE, including  the ability to downgauge film and to improve tear, puncture  and heat  resistance and stiffness for injection moulded  parts. On  the other side, traditionally LLDPE grades have not been not  able to achieve the clarity and processability of LDPE, which  limited  considerably the penetration of  LLDPE  into certain sectors of the market, like flexible films for  food packaging and for consumer goods. With new technology it is, however,  expected  that there will be  more  potential  for substitution  between  the  different  PE  families  in  the future.  35.<ind> In any event, it is not necessary to conclude on  a precise  market  definition, since even on a  basis  of  the narrowest markets (LDPE, LLDPE, HDPE), the market  share  of POLIMERI EUROPA will not create or strengthen dominance. <tab> PE TECHNOLOGY 36.<ind>  In  the  Shell/Montecatini [OJ L332  of  22.12.94] decision the Commission identified a relevant product market for  the  licensing of polypropylene ("PP")  technology  and other associated services, distinct from the market for  the production and sale of PP. The PE sector displays  the  same basic  characteristics in this respect.  Most  PE  producers that have developed their own PE production technology offer it  for  license. There are a large number of  PE  producers operating under technology licence, either because  they  do not  have  their own proprietary technology or because  they require a mix of technologies to enable them to produce  the range  of  products needed to serve their  defined  consumer product   market.  Licensing  is  organised  as  a  distinct business  activity  and  forms at  least  in  some  cases  a significant  source of revenue for licensors. As  a  result, the  Commission has concluded that there is a PE  technology market distinct from the market for the production and  sale of PE. 37.<ind>  There  are basically four types of  PE  production technology being used: <ind> <ind> high pressure (examples of such technologies are those developed by ICI, Enichem) <ind>  <ind>  solution  (examples of such  technologies  are Sclairtech, Dowlex) <ind>  <ind>  slurry  (examples  of  such  technologies  are thosedeveloped by Phillips Petroleum, Mitsui) <ind>  <ind>  gas  phase (examples of such technologies  are those   developed   by   Union  Carbide   Corporation,   BP, Montedison). <ind>  38.<ind>  Highpressure  processes  produce  LDPE  resins  in highpressure autoclave or tubular reactors. The three  other kinds  of  technologies are lowpressure  processes  used  to produce LLDPE, HDPE or both LLDPE and HDPE. Slurry processes involve  the  suspension of the polymer in a diluent  during polymerisation.  The polymer is subsequently  separated  and recovered  from the diluent, dried and pelletised.  Solution processes involve the use of a solvent in which the  polymer is   dissolved   during  polymerisation.  The   solvent   is subsequently distilled and the polymer dried and pelletised. Gasphase  processes are fluid bed processes using  gas.  The polymer   is   removed  from  the  lower  section   of   the polymerisation chamber while the gas is removed overhead. As a  result,  unlike  slurry and solution processes,  gasphase processes  require no additional steps for the  recovery  of the polymer. 39.<ind>  PE  processes also have to  be  differentiated  as regards their use of catalysts. High pressure processes  use an initiator in the form of either peroxide or oxygen rather than  true  catalysts.  The other  types  of  processes  use Ziegler  or  other types of catalysts, the exact type  being specific  to each individual process. Processes are normally licensed  with a specific catalyst determining  the  process characteristics.  The  licensor's performance  guarantee  is related  to  the  use  of  the catalyst  licensed  with  the process. Although some licensees may over time use catalysts other  than the one originally licensed, they do so at their own risk. Consequently, it appears that for the purposes  of determining  the relevant product market, PE technology  can be defined as a processpluscatalyst combination. 40.<ind>  High pressure processes were the first to  produce PE in the form of LDPE. Technical developments in the 1950's led  to the production of HDPE by slurry processescommercial production of HDPE started in 1956, in the United States  by Phillips Petroleum, and in Germany by Hoechst. HDPE is still one  of  the world's most important commodity chemicals  and its  consumption is expected to increase in the future. Data indicate  that  a growth in world consumption  of  some  30% will take place between 1991 and 1996. In Western Europe the comparative figure is some 16%. In the 1960's HDPE was  also produced  by  gasphase (e.g. Unipol in use  since  1968)  or solution  processes  (e.g. Sclairtech  commercialised  since 1960).  41.<ind> In 1977, UCC announced that it had adapted its HDPE gasphase  process to make a new type of PE, LLDPE, resulting in  major  energy and cost savings and in an improvement  of product performance compared to the conventional LDPE.  This means of production was followed by BP and Himont. LLDPE can also be manufactured using solution processes (Dow, Novacor) or slurry processes (Phillips Petroleum). 42.<ind>  Demand  for  LLDPE in W.  Europe  is  expected  to increase. In North America LLDPE now accounts for  some  45% of   total   LDPE/LLDPE  demand;  in  Western   Europe   the comparative  figure is only some 20%. The breadth  of  LLDPE application is increasingly expanding into areas  that  were previously  held  by LDPE. This is certainly  true  for  the commodity  segment  of  the  market.  As  to  the  specialty products, while LDPE produced by highpressure processes  has better  characteristics than LLDPE produced  by  lowpressure processes   for  certain  specific  applications,   emerging lowpressure  technologies may increase the  substitutability of LDPE/LLDPE for at least some of those niche applications. As  a result, although LDPE products will for the time being remain   on  the  market,  especially  since  the   existing highpressure plants producing LDPE are in most  cases  fully depreciated,  future  demand  in  W.  Europe  will  tend  to concentrate  on  LLDPE, rather than LDPE,  except  for  some niche applications.  43.<ind>  The  expected concentration of  future  demand  on LLDPE  and HDPE, rather than LDPE, has consequences for  the technology licensing market. Already in the past  15  years, licensed  LDPE capacity represented only some 10%  of  total demand  for PE licences.  On the basis of the above,  it  is not   expected  that  there  will  be  a  great  demand  for highpressure  technology  in the future,  especially  in  W. Europe. 44.<ind>  According to the Commission's enquiries, the  most important   criterion,  on  the  basis  of  which  potential licensees   make  an  initial  determination   of   the   PE technologies  for  which  they  would  considerobtaining   a licence, is the possibility to produce the range of products required  by  their  manufacturing and  commercial  strategy naturally once, this initial determination has been made,  a potential  licensee  will make the final  selection  on  the basis of a number of other criteria, such as investment  and production  costs.  As stated above, highpressure  processes only  produce LDPE and do not allow other types of PE resins to  be  produced. As a result, taking also into account  the abovementioned future demand trends for PE products, it  can be  concluded that for the purposes of defining the relevant product  market, at least a distinction between highpressure and  lowpressure process should be drawn. The former segment is declining in importance, from a licensing perspective. 45.<ind>  As  far  as  the  HDPE/LLDPE  segment  of  the  PE technology  market  is concerned, the  following  should  be noted.  Depending  on  their  manufacturing  and  commercial strategy, potential licensees would either seek to obtain  a licence for HDPE or LLDPE only, or  a licence allowing  them to  produce  both HDPE and LLDPE, either at the  same  plant ("swing"  plant) or at different plants. It is not, however, necessary  to  decide  whether  this  segment  of   the   PE technology market should be further divided into a HDPE  and a LLDPE segment, because, irrespective of the precise market definition to be adopted in this respect, the assessment  of the notified concentration will not change. VI<ind> GEOGRAPHIC MARKET DEFINITION <tab> ETHYLENE 46.<ind>  Ethylene  is  difficult  to  transport  and  store because  of  its high flammability. Ethylene is  transported over long distances either in compressed form by pipeline or in  liquid  form  by dedicated refrigerated  ships,  and  it requires   significant  investment  in  logistic  facilities (pipelines,   sea  terminals)  [For  propylene,   which   is problematic  to a lesser extent, barges, rail and  road  are also  used.]. In Northern Europe, where there is  one  large pipeline  network  (ARG)  and associated  pipelines  linking various   production  sites  in  different  countries,   the geographic  area  for  the supply of ethylene  tends  to  be larger than national. 47.<ind>  However, in Italy, there is no national  pipeline. In  that  area  ethylene  is  generally  produced  near  sea terminals and polyethylene plants are normally located  near ethylene  crackers to reduce transport costs and  logistical difficulties.  Although it is possible to  use  refrigerated tanker  ships  to  form  an alternative  source  of  supply, imports  by  sea  require port facilities  and  the  related transport   and   storage  costs  are   prohibitive   unless significant ethylene amounts are involved. Such imports into the  Italian market are thus exceptional.  As a  result,  it can  be considered that in Italy the geographic markets  for the  supply  of ethylene are regional. However,  it  is  not necessary  to  decide  upon  the  exact  geographic   market definition, because this would not, in any event, change the Commission's assessment. <tab> PE PRODUCTION AND SALE 48.<ind> The relevant geographic market for PE resins is  at least   the  whole  of  W.  Europe.  PE  resins  are  easily transported  across Europe. Transport costs  are  relatively low (about 6%) when compared to the value of the products in question.  There  are no tariff or other barriers  to  trade between  Member  States. There are significant  trade  flows between  Member  States. For example, in 1993  imports  into Italy from other countries in W. Europe amounted to 49 %  of LDPE consumption, 56 % of LLDPE consumption and 45 % of HDPE consumption. 49.<ind>  From  all these elements it can be concluded  that the  relevant  geographic area is larger than  national  and that  it includes at least the whole of W. Europe. This area cannot for the moment be enlarged since : <tab>  a)  <ind>  For imports from countries outside  Europe there  is  a  custom duty of 11.9% (to be  reduced  to  6.5% within a period of four years). Imports from most developing countries  are subject to duties equivalent to 70%  of  this amount. <tab>  b) <ind> Actual imports of PE resins from nonEuropean countries do not exceed 10%. <tab> PE TECHNOLOGY 50.<ind> Competition in the PE technology market takes place in  a  wider  geographic market than that of the manufacture and  sale  of  PE resin itself. Historically technology  has been  developed in either North America, Western  Europe  or Japan   and  currently  these  areas  continue  to   provide licensing  knowhow  to the rest of the  world.Licensors  are active  worldwide  and  there appear  to  be  no  geographic constraints  on the licensees' choice of supplier.  In  fact during  the  last  15  years licensors have  licensed  their technology  in  37 different countries. It is also  apparent that  licensees often choose a licensor that is not  located within their own geographic area.  51.<ind> The Commission has therefore come to the conclusion that the PE technology market is worldwide. VII<ind> ASSESSMENT <tab> ETHYLENE 52.<ind>  Prior  to  the operation,  Enichem  was  the  only producer  of ethylene in Italy. Subsequent to the operation, Enichem will retain all its Italian ethylene crackers,  with the  exception of Brindisi which will be transferred to  the joint   venture.  UCC  will  not  contribute  any   ethylene facilities  to the joint venture. Consequently it  is  clear that  the establishment of the joint venture does not create or reinforce dominance relating to the supply of ethylene in Italy. 53.<ind>  The argument has been made to the Commission  that the creation of the joint venture would lead to an incentive for either Enichem or POLIMERI EUROPA to curtail their third party  ethylene supplies in the future. The Commission notes in this respect that even if this took place, this would, if anything,  constitute  an abuse of  a  preexisting  dominant position  to be examined under Article 86 of the  Treaty  of Rome.  By  contrast,  this would not  be  relevant  for  the present   analysis,  because  the  Merger  Regulation   only examines whether a concentration will create or reinforce  a dominant  position. As stated above, this is  not  the  case here.  54.<ind> As concerns the northern European plants, given the existence of an international pipeline network and a variety of  suppliers,  the creation of the joint venture  will  not have any effect on the supply of ethylene in this region. 55.<ind> Concern was also expressed to the Commission  about the   future   supply  of  one  of  ethylene's   byproducts, propylene.  The  Commission  notes  in  this  respect  that, similarly to ethylene, there is no addition of market shares as a result of the creation of the joint venture and that as a result, dominance is not created or reinforced with regard to  the  supply of propylene. Moreover, with regard  to  the crackers transferred to the joint venture, it must be  noted that  the  joint venture will not use any of  the  propylene produced,  because it is not a PP producer. It is  therefore provided that it will sell this propylene to third parties. <tab> PE PRODUCTION AND SALE 56.<ind> Both parent companies, UCC and Enichem, are  active on  the market for the production of PE resins. Prior to the concentration, Enichem was active in the production of  each of the three main types of PE resins (LDPE, LLDPE and HDPE). Although  UCC  had not been active as a PE  producer  in  W. Europe for a number of years, it became a producer following the  recent  establishment of its 50/50 Aspen joint  venture with ATO. ASPEN will produce PE resins, as well as wire  and cable compounds. 57.<ind>  Before the operation, Enichem had  an  approximate share  of 15% of LDPE production capacity, 20% of LLDPE,  7% of  HDPE,  and  around 13% of all PE resins (1994  figures). Through  the ASPEN joint venture, UCC's share of  production capacity  will  be  very  small (less  than  5%  in  any  PE segment).  Moreover, its production will be used  captively. As  a result, after the operation the market share will  not be  very  high  (less than 25%), even on the  basis  of  the narrowest product market definition. 58.<ind> On the other hand, subsequent to the concentration, POLIMERI   EUROPA   will   combine  Enichem's   polyethylene production facilities, UCC's Unipol technology and  some  of Enichem's  ethylene  production  facilities  (Brindisi   and Dunkirk).  As  a  result,  it can be  argued  that  POLIMERI EUROPA's  position  on  the  PE production  market  will  be stronger   than   what  the  abovementioned   shares   would indicate. 59.<ind>  However,  the Commission has concluded  that  this will  not, in any event, lead to the creation of a  dominant position   for   the   following  reasons.   Following   the concentration, other important players will remain active on the  market, some of which belong to big chemical vertically integrated   groups,  and  either  operate  under   advanced technology   licence   or  possess   their   own,   advanced proprietary  technologies. Such players include  inter  alia Borealis   (13% LDPE, 8% LLDPE, 14% HDPE), BP (7% LDPE,  18% LLDPE,  11%  HDPE),  BASF (8% LDPE,  7%  HDPE),  Cipen  (17% LLDPE), DOW (30% of LLDPE). 60.<ind>  With  regard to PE technology in  particular,  the Commission  has considered the operating costs  that  a  new entrant  or  existing  producer of  PE  resins  would  face. [deleted  as  business  secrets, data contained  in  private reports  provided by the parties], these costs would  appear to  be  broadly  comparable  for the  production  of  LLDPE, whether  by  a gas phase or a slurry process ($ [deleted  as business secrets, data contained in private reports provided by  the  parties]/t to $ [deleted as business secrets,  data contained  in  private reports provided by the  parties]/t); similarly  for  HDPE, whether using gas phase  or   solution method, the costs are in the range of $ [deleted as business secrets, data contained in private reports provided  by  the parties]/t to $ [deleted as business secrets, data contained in    private    reports   provided   by   the   parties]/t. Consequently, potential or existing producers are faced with a range of broadly competitive operating costs for LLDPE and HDPE.  As far as LDPE is concerned, as explained above, this is manufactured by high pressure processes, which consume  a large  amount  of  energy and are thus more  expensive  high pressure processes have operating costs of around $ [deleted as  business  secrets,  data contained  in  private  reports provided by the parties]/t.  61.<ind>  As  far  as  ethylene is  concerned,  it  must  be considered  whether Enichem's position as the sole  producer of  ethylene  in  Italy with the exception of  the  Brindisi cracker which will be transferred to POLIMERI will be likely to  produce a reinforcement of POLIMERI's position on the PE resins  market.  The Commission notes that  Italy  does  not account  for a sufficiently large proportion of W.  European ethylene  production (about 10%). As a result, the  regional strength   of  Enichem  will  not  significantly   reinforce POLIMERI's  position  with regard to  PE  resin  production. There  is  thus no possibility of a dominant position  being created. <tab> PE TECHNOLOGY MARKET <tab> UCC's market position 62.<ind>  As  far  as the highpressure  segment  of  the  PE technology  market  is  concerned, UCC  has  a  highpressure technology  which  it  developed in the  early  1970s.  This technology  has  never been licensed to third  parties.  UCC used  this technology to construct two bulk reactors at  its Seadrift,  Texas  plant  in 1977. Upon  the  development  of Unipol  (see  below), no additional highpressure  facilities were  constructed  by UCC, nor were any significant  R  &  D efforts  dedicated to further advance this  technology.  The two  bulk  reactors  at Seadrift were  modified  to  produce specialty products only. 63.<ind>  By  contrast, UCC's strength on the PE  technology market  lies  in  its  gasphase PE process   (Unipol).  This process  is  capable of producing a wide range of LLDPE/HDPE products  for  a variety of PE applications. The  production units  operating  under the Unipol technology  are  able  to produce   HDPE  and  LLDPE  interchangeably  (swing  units), although a change of catalyst is required to switch from one mode of production to the other. UCC's latest development in PE  process  technology,  known as  Unipol  II,  allows  the manufacture of LLDPE resins with properties much  closer  to LDPE in terms of processability and film strength.  64.<ind>  UCC  is  the  leading  worldwide  licensor  of  PE technology.   In terms of market shares (calculated  on  the basis  of  PE  plant  capacity  operating  under  thirdparty licence), Unipol accounts for about [between 40 and 60 %]  % of  worldwide plant capacity, excluding highpressure  plants (this  share has been calculated on the basis of the  number of lowpressure licences granted in the last 15 years). Other competitors on that market include BP (about [between 15 and 25  %]  %),  Novacor (Sclairtech) and Mitsui  (each  with  a market   share   of  about  [below  25  %]  %),   Montedison (Spherilene)  and Phillips (each with a market  share  below 10%). 65.<ind> UCC has long experience in gasphase technology, and its  Unipol process is recognised as the leading PE  process available for license. However, other competing technologies are  also  available. BP has a gasphase  LLDPE/HDPE  process which has been licensed since the 1980s. BP's process has  a "swing"  capability similar to Unipol, that is a  change  of catalyst  is required. Another important gasphase technology is  Montedison's Spherilene LLDPE/HDPE process.  Two  plants using  this  technology are currently in operation,  one  of them  operating under thirdparty licence. Spherilene  has  a wide  product  range  and real "swing" capability,  i.e.  it enables  production  switches without  the  need  to  change catalysts.  In  addition, thereare  a  number  of  potential entrants   in   gasphase   technology   including   Borealis (LLDPE/HDPE), and Exxon/Mitsui (LLDPE/HDPE using metallocene catalysts). Finally, there are also a number of non gasphase processes  available  for license,  for  instance  Novacor's Sclairtech  solution  process,  providing  a  range  of   PE products   over  the  full  density,  and  Phillips   slurry technology, initially developed for the production  of  HDPE an  area where Phillips has a wellestablished expertise  and subsequently adapted for commercial LLDPE production. 66.<ind>  The Commission considers that it is not  necessary to  examine  the  competitive strength of the abovementioned technologies, in order to decide whether or not UCC's strong position  on  the  technology market  amounts  to  dominance within the meaning of Article 2 of the Merger Regulation for the  following reason. Even assuming that UCC were dominant, this position existed before the proposed concentration.  As explained  below,  the  Commission has  concluded  that  the notified  operation  will  not significantly  enhance  UCC's position on the PE technology market in a manner leading  to the creation or strengthening of dominance on that market. <tab>  The ASPEN joint venture 67.<ind>  As  stated  above, UCC has entered  into  a  joint venture  with  ATO  to  produce PE  resins  as  well  as  PE compounds, inter alia for the wire and cable market. In  the context of this joint venture, UCC will grant ASPEN a Unipol licence  for  the manufacture and sale of PE  resins.  ASPEN will use this licence to convert its PE reactors contributed to  ASPEN  to the Unipol technology. At the same  time,  ATO will grant ASPEN a licence to use the PE gasphase technology that  ATO  has  been developing since the late 1970s.  ATO's technology  currently  produces only  a  limited  number  of commercial  HDPE  grades  for  injection  moulding.  Further substantial  investments and  R & D efforts are required  to improve  the  economic  and  technical  performance  of  the process  and to expand its product range to LLDPE, which  is offered  by all gasphase processes. In view of the different stage of development of Unipol and ATO's process, it is  not expected  that  UCC's  technological  capability   will   be significantly  enhanced through its  partnership  with  ATO, except possibly in some minor technical details. 68.<ind> It must be noted that apart from the abovementioned gasphase  technology,  ATO  also has  a  proprietary  slurry technology  for  the  manufacture of  HDPE,  as  well  as  a highpressure  technology  for the manufacture  of  LDPE  and LLDPE  (retrofit).  However,  these  technologies  are   not contributed to ASPEN. ATO will simply grant ASPEN a  licence to  use  them,  but will retain the right to continue  their independent development outside ASPEN and to license them to third parties. 69.<ind> The determination of the impact of the ASPEN  joint venture  on competition in the PE technology market will  be made  by  the  Commission  in  the  context  of  a  separate procedure  under  Reg.  17.  The  ASPEN  joint  venture  is, however,  taken  into  account for  the  assessment  of  the proposed   concentration.   Without   prejudice    to    the Commission's  assessment of ASPEN under Regulation  17,  the effects of the proposed concentration on competition will be thus analyzed on the assumption that the ASPEN joint venture goes ahead.  <tab> The technology arrangements under POLIMERI EUROPA Srl 70.<ind>  UCC  will  grant POLIMERI  EUROPA  a  nonexclusive licence  to use Unipol for the manufacture and sale  of  low density  and  high density PE. Enichem will assign  its  own proprietary  PE  technology to the joint venture  with  UCC. This  consists  of:  (i) a highpressure technology  used  to manufacture  LDPE at Enichem's plants at Dunkirk,  Brindisi, Gela, Ragusa and Ferrara, as well as some LLDPE at Enichem's plant  at  Dunkirk (highpressure retrofit [This retrofitting capability allows the conversion of existing LDPE plants  to the  production  of certain LLDPE grades  by  using  Ziegler catalysts.]); (iii) a slurry technology used to  manufacture HDPE  at  Enichem's plant at Brindisi [At the moment Enichem also  used  two other technologies under licence from  third parties,  namely Sclairtech technology to manufacture  LLDPE at  Priolo  and  Imhausen technology  at  a  LDPE  plant  at Oberhausen, which Enichem leases from Hoechst.].  71.<ind>  In  addition, Enichem has in the past experimented with  PE  gasphase technology in its pilot plant in Ferrara. However,  Enichem  has  not been able  to  develop  gasphase technology to a commercial level. In early 1992,  more  than two  years before discussions withUCC about the creation  of POLIMERI EUROPA Srl had started, Enichem decided to  abandon development of this technology because of the high costs and risks  involved, and began using its Ferrara pilot plant  to develop  resins based on its own catalysts. The pilot  plant will  be  transferred  to POLIMERI  EUROPA  along  with  all information developed therein.   72.<ind>  Subsequent to its decision to abandon  development of  its  own  experiments  in gasphase  technology,  Enichem obtained  a  licence from BP in May 1992 to manufacture  and sell  PE  resins using BP's gasphase process.  This  licence will  not  be  assigned to Polimeri Europe Srl. The  licence agreement between BP and Enichem contains secrecy provisions obliging  Enichem  to  treat  as  confidential  and  not  to disclose to UCC or the venture any information received from BP.  73.<ind>  To  allow  Enichem to continue operating  existing licenses for Enichem's PE technology outside Europe  and  to continue  licensing outside Europe, the venture  will  grant Enichem  an exclusive, royaltyfree license for this  purpose (Articles 2.3 and 2.4. of the Enichem Technology Agreement). By  contrast,  Enichem  will not continue  offering  its  PE technology  for license within W. Europe. However,  for  the reasons explained below, the Commission considers that  this will not lead to the creation or strengthening of a dominant position on the PE technology market. 74.<ind> Enichem has never been particularly active  on  the technology  licensing  market. Enichem  never  licensed  its slurry  technology.  Prior to the concentration,  it  had  a number  of  licensees of its high pressure technology  only, mostly  outside  W.  Europe. One of  the  main  reasons  for Enichem's participation in POLIMERI EUROPA was the  need  to manufacture HDPE and LLDPE more efficiently and at  a  lower cost  by  using  a  technology offering distinct  advantages compared  to  Enichem's own technology  [The  inadequacy  of Enichem's own technology for Enichem's PE production is also evidenced  by  the fact that Enichem sought and  obtained  a gasphase   licence   from   BP,  prior   to   the   proposed concentration.].  The parents' contributions  to  the  joint venture  will in fact be complementary: UCC will provide  an expertise in gasphase technology, and Enichem will provide a PE manufacturing basis in W. Europe.  75.<ind>   Enichem's  technologies  have  not  been   widely licensed and they are either distinct from Unipol   in  that they  are suited to the needs of licensees which are totally different   from   those  of  potential   Unipol   licensees (highpressure technology) or not comparable to  Unipol,  for instance  in  terms  of product range and  performance.  The proposed concentration will not significantly enhance  UCC's preexisting  technological  capability  and  position.   The specific characteristics of Enichem's technology are set out below. 76.<ind> As far as the highpressure segment of the market is concerned,  as  stated above, UCC's highpressure  technology has  never  been  licensed and has not been developed  since 1977.  Enichem's highpressure technology has been  licensed, mostly  outside  Europe.  As  a  result,  there  is  only  a potential overlap, which would not in any event lead to  the creation  or  strengthening  of  dominance  on  that  market segment,  because to the extent that there is will still  be demand for highpressure processes in the future, there  will be  other  comparable technologies available on  the  market including those by BASF, ICI/Simon Carves, DSM, Sumitomo and Exxon. 77.<ind>  Enichem, like some other LDPE producers,  has  the capability  to retrofit its existing LDPE plants to  produce LLDPE.  This  capability was used 17 years ago by  Orkem  to retrofit  the Dunkirk plant acquired by Enichem in the  late 1980's.  Since then Enichem has never used or licensed  this capability.  78.<ind> The argument has been made to the Commission that a current   LDPE  producer  who  wants  to  move  into   LLDPE production,  has two technology choices: either to  retrofit existing plants using LLDPE retrofit technology or to  build a  new  LLDPE  facility.  As a result,  competition  between retrofit highpressure and gasphase processes such as  Unipol may  occur at the time when the LDPE producer is considering how  he should switch from LDPE to LLDPE. According to  this line of argument, the proposed concentration will strengthen UCC's position on the PE technology market.  79.<ind>  As stated above, Enichem's retrofitting technology has  only  been  used once and its ability  successfully  to switch LDPE production to LLDPE at other plants has not been tested   in  practice.  In  any  case,  according   to   the Commission's  investigations,  highpressure  processes  with retrofit  capability,  including Enichem's  process,  cannot economically  make LLDPE and they are thus  not  competitive with  gasphase or other LLDPE processes.   Moreover,  future demand for Enichem's retrofitting capability in W. Europe is very  unlikely, because existing LDPE producers  have  their own proprietary LLDPE technology, or already operate a LLDPE plant  under licence. As to those W. European licensees  who may  need  a LLDPE licence in the future, according  to  the Commission's enquiries, if they moved into LLDPE production, they would probably seek a licence for a gasphase technology rather  than  retrofit their existing LDPE plants.  Finally, other   LDPE   producers  have  a  retrofitting  capability, including ATO ATO's highpressure technology remains  outside ASPEN and DOW. 80.<ind>  As far as lowpressure technologies are  concerned, Enichem   has  a  slurry  technology  and  has   made   some experiments  in  the area of gasphase technology.  Enichem's slurry  technology has not been updated over the  years.  It only  produces HDPE and, as a result, it has a more  limited product range compared with other slurry technologies,  such as Phillips, or gasphase technologies. After POLIMERI EUROPA is established, Enichem's existing slurry line which will be transferred  to  POLIMERI EUROPA will be  replaced  by  more advanced  gasphase technology. Finally, it is  not  expected that  there  will  be  scope for crossfertilisation  between Enichem's  slurry  technology and Unipol,  in  view  of  the fundamental technical differences between the two processes.  81.<ind>  As stated above, Enichem's experiments in gasphase technology  have  never  been  developed  to  the  level  of commercial  production. At its peak, Enichem's  pilot  plant had  an output of approximately 25 kg/hour, while an average PE  resin  facility  has an output of  approximately  25,000 kg/hour.  According to Enichem, the pilot plant was designed to   enable  the  effective  utilisation  of  the   gasphase technology for which Enichem anticipated obtaining a licence and  that a much more significant investment would have been required  in  order  to develop an own gasphase  technology. Enichem's  experiments were abandoned more  than  two  years before the joint venture discussions with UCC had started. 82.<ind>  In  view  of the above regarding Enichem's  slurry technology  and  its  experiment in gasphase,  the  proposed joint   venture   will  not  significantly   enhance   UCC's technological  position, on its own or taking  into  account the  ASPEN  joint  venture, so that  no  dominance  will  be created or strengthened on the PE technology market. <tab>  Impact  of  the concentration on the availability  of Unipol  83.<ind>  The argument has been made to the Commission  that following  the proposed concentration, the Unipol technology may  no longer be available for license to third parties  in W.  Europe. According to this line of argument, prior to the proposed operation and the creation of ASPEN, UCC was not  a PE  producer in W. Europe. As a result, its Unipol licensing policy   was   not  in  any  way  influenced  by   strategic considerations relating to UCC's position on the W. European PE  production market. Following the two joint ventures, UCC will  enter the W. European PE market and may, as a  result, decide  not  to  license Unipol to some or  all  of  its  W. European  PE  competitors  in the  future  .  Concerns  were expressed   in   particular  with  regard  to   the   future availability of Unipol II for license in W. Europe. 84.<ind> The Commission notes that there is nothing  in  the POLIMERI  joint  venture agreements that prevents  UCC  from licensing its Unipol I or Unipol II technology in W. Europe. In   any   case,   the   Commission   considers   that   the abovementioned  argument, irrespective of its  merits,  does not  amount to an assertion that UCC's position  on  the  PE technology  market will be strengthened as a result  of  the proposed joint ventures. It only claims that UCC's policy as a  PE  technology  licensor may change as a  result  of  its presence on the W. European PE market. This argument is  not relevant  in  the context of the Merger Regulation.  If  UCC refused  to  license  its technology in  W.  Europe  in  the future, this conduct would have to be examined under Article 86  of the Treaty of Rome, in order to assess whether and in what  circumstances it constituted an abuse  of  a  dominant position  on  the  PE technology market.  By  contrast,  the purpose  of  the Merger Regulation is to assess whether  the proposed operation will create or reinforce dominance in the common  market. In view of the above, UCC's position on  the PE  technology market will not be significantly strengthened by  the  proposed concentration. Moreover, as also explained above,   no  dominance  will be created  on  the  W.European market for the production and sale of PE either.  VIII<ind> STATE AID 85.<ind> During the course of the procedure, the concern was expressed  to the Commission that the joint venture's  plans might  conflict  with the Commission's  State  aid  decision concerning Enichem [OJ C  330 of 26.11.94]. The third  party concerned sought assurance that: <ind> <ind> no part of the capital injected into Enichem has been or will be used to subsidize the joint venture directly or indirectly; <ind>  <ind>  the  remainder of Enichem [outside  the  joint venture]  should  be viable and operate on fully  commercial principles; <ind>  <ind> Enichem will not provide unfair support to  the joint  venture by, for example, cheap supplies  of  ethylene feedstock or too low a charge to the joint venture  for  any shared facilities; 86.<ind>  In  this  respect  it should  be  noted  that  the Commission's State aid decision found the aid measures to be compatible  with the common market as the aid  was  used  to finance  restructuring operations. Should  Enichem  transfer restructured assets to the joint venture this does not  give rise  to a conflict with the decision because the underlying aid  has  been  found  compatible. As  regards  the  capital injections that do not form aid, Enichem is free  to  employ these funds as it wishes. 87.<ind>  The above comments were submitted to  Enichem  and the  Italian authorities. Enichem confirmed that none of the capital  increase will be transferred to the joint  venture, that   the  remainder  of  Enichem's  activities   will   be competitively viable and that the joint venture will not  be provided with any form of favourable treatment. 88.<ind>  In  conclusion therefore,  it  is  not  considered appropriate  to  pursue this point any  further  under  this investigation. IX<ind> ANCILLARY RESTRAINTS 89.<ind>  The notifying parties have requested that  several clauses  of the agreements should be considered as ancillary to the notified transaction. 90.<ind>  In  the  Shareholders' agreement (article  6)  the parties  have entered into a number of specific restrictions designed to avoid competition between each of them  and  the venture  in Europe. As long as one of the parents remains  a shareholder  in  the  joint venture, these  non  competition clauses  are of unlimited duration. To the extent that  they simply reflect the withdrawal of the parent companies, these restrictions   can  be  considered  as  ancillary   to   the concentration. 91.<ind>  The parties have also requested the Commission  to consider  as  ancillary agreements between the  venture  and Enichem concerning nonexclusive, royaltyfree license for use by  Enichem of its formerly owned PE resin technology. These agreements form part of the concentration and they are  thus covered  by the present decision in so far as they might  be considered restrictive. <tab> Supply agreements 92.<ind>  Enichem and the venture will enter into a longterm exclusive   ethylene   supply  agreement.   This   agreement stipulates  that in Italy in particular, Enichem shall  sell and  the  venture shall buy certain quantities  of  ethylene from  Enichem's  crackers in this area. In  particular,  for 1995  this  quantity is fixed at [deleted  business  secret] KT.  For the period thereafter, these quantities will  range from   a  minimum  of [deleted  business  secret]  KT  to  a maximum  of [deleted  business secret] KT/y. This limit  can be  further increased to [deleted  business secret] KT/y, at the  venture's  request,  provided that  [deleted   business secret].  The  agreement  has an initial  term  of  [deleted business  secret] years, and it is renewable at the  request of   either  party  for  an  additional  [deleted   business secret]year  period. After the expiration  of  the  [deleted business secret]year period, the agreement will continue  on an  annual basis until cancelled by either party on [deleted business  secret]  written notice. The Commission  has  been requested to consider this supply agreement as ancillary  to the creation of POLIMERI EUROPA. 93.<ind>  According to the Commission's practice,  exclusive supply  agreements  are  regarded  as  ancillary  restraints within   the  meaning  of   Article  8  (2)  of  the  Merger Regulation,  in cases where they are necessary in  order  to ensure continuity in the supply of products required for the activities  of  a  joint venture, for a transitional  period following  its  creation.  It  is  normally  accepted   that thistransitional period can be extended up to a maximum of 5 years. 94.<ind>  As stated above, Enichem is the only producer  and main  supplier  of ethylene in Italy. Prior to  the  present operation,  Enichem's PE plants in Italy which will  now  be transferred  to  the  joint  venture  relied  on   Enichem's crackers  and supply network for their ethylene.  The  joint venture  will  own only one cracker in Italy,  at  Brindisi, whose  capacity of [deleted  business secret] KT/y will  not be sufficient to meet POLIMERI EUROPA's ethylene needs. As a result, it appears to be necessary to maintain supply  links between POLIMERI EUROPA for a transitional period after  the establishment of the joint venture. 95.<ind>  In  addition  to Enichem's plants  transferred  to POLIMERI  EUROPA, the Shareholders' Agreement  provides  for the  construction of a new plant at Brindisi with a capacity of   [deleted    business  secret]  KT/y  utilizing   Unipol technology.  According  to  the  figures  provided  by   the parties,  the  joint  venture's  ethylene  needs  in  Italy, including  the new Brindisi plant, will not exceed  [between 600  and  800 KT] KT/y. [contractual provision   deleted  as business  secret]. Consequently, the parties have not  shown that  supply  agreements for quantities beyond [between  600 and  800 KT] KT/y are directly related to and necessary  for the implementation of the concentration. 96.<ind>  As  regards the duration of the supply  agreement, the  following  factors  should be  taken  into  account  in determining the length of time for which this agreement  can qualify  as ancillary to the concentration: (i) the  timelag in finding or creating other sources of ethylene supply; and (ii)  in  accordance with the principle of  proportionality, the  effect of the agreement on the ethylene needs of  third parties  (this factor is also relevant for the determination of the quantities to be supplied under the agreement).   97.<ind> With regard to (i) above, the Commission notes that certain  quantities of ethylene can be imported  into  Italy using  for  instance  the venture's  terminal  at  Brindisi. However,  if significant quantities of ethylene are  needed, additional  storage  facilities will be  necessary.   As  an alternative the venture could seek to purchase from a  third party  or  to  construct its own cracker.  Nevertheless,  as stated   above  the  only  producer  in  Italy  is  ENICHEM. Moreover,  if the venture had to build its own  cracker  and related  facilities,   it  would  have  no  outlet  for  the byproducts  of  the ethylene production, since  the  venture will only be active in the production of PE, and in any case it  is  estimated that it would take about 5 years  for  the cracker to be completely operational.  98.<ind>  With regard to (ii) above, the following  must  be noted.  Enichem  is the sole producer on the Italian  market and  the  total  capacity  of the crackers  it  will  retain amounts to about 1700 KT/y this figure does not include  the capacity  of  Priolo closed in accordance with a  State  aid procedure [OJ C 330 of 26.11.94]. According to the  parties, Enichem  could be able to debottleneck its existing ethylene crackers,  which  may  lead to an additional  10%  capacity. After  deduction of the ethylene needed for Enichem's  nonPE resin  activities and on the basis of a maximum quantity  of [between  600  and 800 KT] KT/y for the joint  venture,  the remaining capacity will allow third party customers' current needs to be fulfilled.99.<ind>  In the light of the abovementioned considerations, the  Commission  notes that in the present  case  there  are exceptional  reasons justifying a duration of  more  than  5 years  for  the ethylene supply agreement. It has  therefore come  to  the  conclusion that these  agreements  should  be regarded  as ancillary to the concentration for  an  initial period of seven  years and up to a maximum quantity of [same quantity as under footnote 22 above] KT/y. X<ind> CONCLUSION 100.<ind> 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,