CELEX: 31995M0612
Language: en
Date: 1995-07-27 00:00:00
Title: COMMISSION DECISION of 27/07/1995 declaring a concentration to be compatible with the common market (Case No IV/M.612 - RWE-DEA / ENICHEM AUGUSTA ) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31995M0612

COMMISSION DECISION of 27/07/1995 declaring a concentration to be compatible with the common market (Case No IV/M.612 - RWE-DEA / ENICHEM AUGUSTA ) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 207 , 12/08/1995 P. 0011

  COMMISSION DECISION of 27/07/1995 declaring a concentration  to be compatible with the common market (Case No IV/M.612 -  RWE-DEA / Enichem AUGUSTA (II)) according to Council  Regulation (EEC) No 4064/89   (Only the English text is authentic).   The paper version of the decision is available through the  sales offices of the Office of Official Publications of the  European Communities  PUBLIC VERSION  MERGER PROCEDURE  ARTICLE 6(1)(b) DECISION  To the notifying party  Dear Sirs,  Subject :<ind> Case No IV/M.612  RWEDEA/Enichem Augusta.  <ind> <ind> Notification of a concentration pursuant to  Article 4 of Council Regulation No 4064/89  1.<ind> On 23.06.1995, the German undertaking RWEDEA  Aktiengesellschaft fuer Mineraloel und Chemie (controlled by  RWE AG), submitted to the Commission, on the renotification  of a proposed concentration pursuant to Article 4 of a  Council Regulation (EC) No 4064/89 [OJ No L 395 of  30.12.1989; Corrigendum: OJ No L 257 of 21.09.1990, p. 13.]  by which it acquires within the meaning of Article 3(1)b of  the Council Regulation control of the whole of  EnichemAugusta by way of purchase of shares, which had  originally been notified on 19.05.1995 and subsequently  withdrawn.  2.<ind> This case concerns the acquisition of a controlling  interest in Enichem Augusta S.p.A ("Augusta") by RWEDEA,  belonging to the German RWE energy and technology group.  Enichem Augusta S.p.A is an Italian company listed on the  Italian electronic trade system, controlled by Enichem,  which is part of the stateowned Eni group. Enichem publicly  offered its shareholding in Augusta as part of its  reorganization and restructuring program. Pursuant to the  share purchase agreement, RWEDEA will, on the closing day,  purchase 70% of the capital of Augusta. The 14.25% of  Augusta's share capital which will remain in the hands of  Enichem after the closing date is the object of a call  option in favour of RWEDEA( which may be exercised within  seven years of the closing date). RWEDEA will launch a  tender offer in respect of the floating portion of Augusta's  share capital as required by Italian law No. 149/92.  3.<ind> After examination of the notification, the  Commission has concluded that the notified operation falls  within the scope of Council Regulation No 4064/89 and does  not raise serious doubts as to its compatibility with the  common market and with the functioning of the EEA  Agreement.  I. COMMUNITY DIMENSION.  4.<ind> The combined worldwide turnover of the two  undertakings exceeds 5000 million Ecu and the aggregate  Communitywide turnover of at least two of the undertakings  exceeds 250 million Ecu. Consequently, the proposed  concentration has a Community dimension within the meaning  of Article 1 of the Merger Regulation.   II. CONCENTRATION  5.<ind> The acquisition of 70% of the share capital of  Augusta will give RWE  DEA sole control of it. The minority  shareholders will not retain any particular rights which  will allow them to veto decisions which are essential for  the strategic commercial behaviour of Augusta, such a the  budget, the business plan, major investments or the  appointment of senior management. The operation constitutes  a concentration within the meaning of article 3(1) (b) of  the merger regulation.  III. COMPATIBILITY WITH THE COMMON MARKET  <tab>product market definition  6.<ind> <ind> Products manufactured by Augusta and RWEDEA  <ind> AUGUSTA <ind> <ind> <ind> <ind> RWEDEA   nparaffins in the range C10C13 (light paraffins) and  nparaffins in the range C14C20 (heavy paraffins) in Augusta  (Sicily) and in Sarroch (Sardinia <tab>   nolefins in Augusta; <tab>   linear alkybenzenes (LAB) in Augusta, Porto Torres  (Sardinia) and Mantova; <tab>  linear alkybenzenes (LAB)  exclusively in the United States, through its subsidiary  Vista;   LAB sulfonic acid (LAS) in Dubai; <tab>   <tab> <tab>  linear fatty alcohols in the C4 to C22 range  (in Europe directly by itself and in the United States by  its subsidiary Vista);   oxoalcohols in the C11C15 range in Augusta; <tab>    oxoalcohols ethoxilates in Gela (Sicily) and Novaky (Slovak  Republic) <tab>  ethoxilation of both linear fatty alcohols  and oxoalcohols.   internal polyolefins (PIO) in Sarroch; <tab>    heavy monoalkylates (HMA) in Porto Torres; <tab>    detergent builders (zeolites) in Crotone (Calabria) and  Oostende (Belgium). <tab>    <tab> nparaffins  7.<ind> Nparaffins are derived from the deparaffination of  kerosene and for this reason are generally manufactured in  plants located in, and integrated with, crude oil refineries  in which kerosene is produced. Augusta's deparaffination  plants in Augusta and Sarroch are located near, and  integrated with, Agip Petroli's and other local refineries.  Light paraffins in the range C10C13 are the key raw material  for the production of LAB and heavy paraffins in the range  C14C20 via conversion to nolefins are the key raw material  for the production of oxoalcohols. About 85% of Augusta's  production of light paraffins and 70% of its total  production of nparaffins are used for its own production of  LAB and oxoalcohols. Heavy paraffins are sold to third  parties for different applications. It is not necessary to  decide upon a precise product market definition for  nparaffins because RWEDEA does not manufacture this  product.  <tab> Linear alkybenzenes (LAB) and LAB sulphonic acid  (LAS)  8.<ind> LAB is a surfactant raw material, i.e. a component  of detergents for household and industrial applications. LAB  is produced from a key raw material which is light  nparaffins in the range C10C13. About 85% of Augusta's  production of light nparaffins is used for its own  production of LAB. The LAB manufactured by RWEDEA, through  its subsidiary Vista in the United States and imported into  Europe, has essentially the same characteristics as that  manufactured by Augusta.   <ind> For use in detergents, LAB has to be transformed into  LAS. This transformation, through the process of sulfonation  (cf under § 10iii), is normally carried out by detergent  producers/big soapers, independent transformers exist as  well.   9.<ind> Although there exists a close interrelation between  LAB and LAS, notwithstanding the fact that nearly the entire  worldwide production of LAB is converted into LAS for use in  the manufacture of household and industrial detergents and  that the final consumers of LAB and LAS are mostly the same  (soapers), the Commission considers that LAB and LAS do, in  fact, constitute two separate product markets.   10.<ind> This is due to the following reasons:  <ind> i) the producers of the LAB and LAS markets are not  the same. In fact the transformation of LAB into LAS is  carried out by LAB producers only in a limited way, and  there are many independent transformers (who can be mere  transformers or soapers), with a large sulphonation  overcapacity. Furthermore, all big soapers, who constitute a  large part of these transformers, have their own capacity to  transform LAB into LAS. In particular, in 1994, according to  the notifying party, 50% of the total European LAB  consumption was transformed into LAS directly by the soapers  (Procter&Gamble, Lever, Henkel, Benckiser etc);  <ind> ii) the manufacture of LAB is very capital intensive  and requires huge investments (approximately ten times the  size of those needed for the production of LAS) : a standard  LAB plant of a capacity of 72,000 metric tons a year,  including nparaffin extraction requires investments of  approximately US$ 225275 million, while for a plant for the  transformation of the same quantity of LAB into LAS an  investment of only US$ 25 million is needed;  <ind> iii) the transformation of LAB into LAS is a very  simple and low cost process. It involves only the addition  of sulphur trioxide produced by sulphonators and the total  transformation cost is approximately 0.1 ECU/Kilo compared  to a market price of LAS of 0.6 ECU/Kilo during the 19921994  period. Additionally, it appears that if LAS production  costs depend on LAB prices, nonetheless LAS prices are not  automatically correlated with those of LAB, due to  overcapacity in sulfonation and to fluctuation in exchange  rates.  <ind> iv) LAS is less easily transported by sea than LAB and  therefore European soapers do not purchase LAS from  suppliersoutside Europe.  11.<ind> For the above reasons, the Commission considers  that LAB and LAS constitute two separate product markets.  <ind> oxoalcohols   12.<ind> Oxoalcohols are intermediates for the production of  household and industrial detergents. For use in detergents  they have to be transformed into derivatives with surface  active properties which are mainly ethoxilates. The  transformation of oxoalcohols into ethoxilates is carried  out firstly by the producers of alcohols, secondly by the  producers of the finished products (soapers) via tolling  agreements and lastly by independent transformers. Augusta  sells its oxoalcohols primarily to soapers and in more  limited quantities to independent transformers. It also  transforms part of its oxoalcohols into ethoxilates in its  Gela plant.  <tab> Linear fatty alcohols  13.<ind> Amongst linear fatty alcohols in the range C4 to  C22, manufactured by RWEDEA, only the ones in the C12C18  range could be used for surfactant applications; in practice  they are largely used for a variety of different  nondetergent applications. According to the notifying party,  the alcohols which could be used for surfactant applications  manufactured by RWEDEA have different chemical structures  from the oxoalcohols produced by Augusta. The two types of  alcohols have different price levels (in 1994 approximately  ECU 1.04/kg for RWEDEA's and ECU 0.83 kg for Augusta's).  Moreover, RWEDEA's linear fatty alcohols are used largely  for higher value added applications (e.g. care products,  antioxidants for plastics, lube oil additives); Augusta's  oxoalcohols are used mainly for surfactant in household and  industrial detergents.  <tab> ethoxilates derivatives  14.<ind> The process of ethoxilation consists in the  transformation of both linear fatty alcohols and oxoalcohols  into derivatives with surface active properties. RWEDEA and  Augusta are both involved in the processing of ethoxilation.  However, the notifying party argues that the ethoxilates  derivatives produced by RWEDEA and those produced by Augusta  are not interchangeable, because they are derived from  different starting materials, the former from linear fatty  alcohols and the latter from oxoalcohols. Therefore, they  have different properties and applications in line with the  situation described with regard to the linear fatty alcohols  (§ 9).   15.<ind> On the other hand, according to the notifying  party, ethoxilates belong to the same market as that of the  alcohols from which they are derived because, in economic  terms, from the perspective of the customers, the alcohols  and their ethoxilates derivatives are largely  interchangeable. The transformation of alcohols into  ethoxilates is a low value transformation and capacity for  ethoxilation is freely available for alcohol producers and  for soapers (presently there exists idle capacity for  ethoxilation in Europe amounting to about 70% of demand).   16.<ind> However as regards the three above products (i.e.  oxoalcohols, linear fatty alcohols, and ethoxilates  derivatives), it is not necessary to decide on a precise  market definition since, whatever the definition (separate  product markets or a single market), the future entity will  not hold a dominant position.  <tab> Internal polyolefins and heavy monoalkylates  17.<ind> These are used in lubricants. Zeolites are organic  detergent builders reducing water hardness which are  unrelated to the active surfactant ingredients (i.e. LAS and  oxoalcohols derivatives).  <ind> Geographical reference market  <tab>i) LAB   18.<ind> According to the notifying party, the market for  LAB is a worldwide market. This opinion is generally  confirmed by competitors' and consumers' replies to the  article 11 questionnaire sent by the Commission. The  geographical market for LAB is characterised by the  following elements :  On the supply side  19.<ind> In 1994, LAB imports into WestEurope represented  about 27% of the total sales, while the exports outside  WestEurope were 42% of the total WestEuropean production.  <ind> Excluding Vista's imports from USA (RWEDEA's  subsidiary), which represented [Deleted business secret.  Between 5 and 10%.] of the imports into WestEurope, the 20%  remaining imports came mainlyfrom five different producers :  Reliance and TPL from India, ISU from S.Korea, Deten from  Brazil.  <ind> Exports outside WestEurope were achieved by Augusta  towards every part of the world (i.e. East Europe, Africa,  Middle East, North America and Mexico, India and China) and  by Petresa (Africa, Middle East).  <ind> There are no quotas on the import of LAB into EEA.  From January, 1, 1995, LAB is subject to an approximately  4.4% import duty and there are no applicable nontariff  barriers.  <ind> <ind> LAB is easily transported by sea, its  transportation costs are low : between EC locations  0.0300.040 ECU/kg, Northern America to EC and Brazil to EC  0.0400.050 ECU/kg (i.e. 6% of the average price of LAB in  the Community)  On the demand side  20.<ind> LAB customers are global soaper companies (Procter  & Gamble, Unilever) or big regional companies (Huels,  Allbright & Wilson, Hencker).  <ind> There are no long term supply contracts with users,  purchases are made worldwide on the basis of tender systems,  quarterly negotiations and spot contracts.  <ind> On the basis of the above characteristics, the  Commission considers that the relevant geographic market for  LAB is worldwide.  <tab>ii) LAS  21.<ind> The notifying party, competitors and consumers, all  argue that LAS is an EU market. LAS is less easily  transported by sea than LAB. Both the excess in the  sulfonation capacity (sulfonation is the process of  transformation of LAB into LAS) in Europe (where all  endusers are integrated as regards sulphonation plants) and  the worldwide availability of LAB capacity lead soapers to  buy LAB to transform it locally into LAS. There are no  imports to EU and exports outside EU are relatively  marginal. For these reasons, the Commission considers that  the geographical reference market for LAS is Communitywide.  <ind> iii) nparaffins, oxoalcohols, ethoxilates derivatives,  Internal polyolefins and heavy monoalkylates  22.<ind> The relevant geographic market for each of these  products is at least the whole of EEA. They are easily  transported across Europe and transport costs are relatively  low. There are no quotas or customs duties or nontariff  barriers on the import of these products. All competitors  and customers contacted by the Commission stated that the  geographical reference market for these products is at least  Community wide. However, it is not necessary to decide upon  the exact geographic market definition because, even with  the narrowest product market, the future entity will not  hold a dominant position .  IV<ind> COMPETITIVE ASSESSMENT   A.<ind> Horizontal effects  23.<ind> It appears that the only product markets in which  both RWEDEA and Augusta are undoubtedly manufacturers are  LAB and LAS.  <ind> As regards light nparaffins, because RWEDEA is not  active in this market, there is no overlap.  <ind> Concerning oxoalcohols, linear fatty alcohols and  alcohols derivatives, depending on these products are  considered as one single product market or separate product  markets, in the first case the market will be an affected  market, in the second case there is no overlap.  <tab>i) LAB   <ind> LAB MARKET SHARES (sales volume (Ktons), 1994, World  wide)  <tab> World wide %  RWEDEA <tab>   [Deleted business secret. Between 10 and  15%]  AUGUSTA <tab>   [Deleted business secret. Between 10 and  15%]  RWEDEA+AUGUSTA <tab>  [Deleted business secret. Between 20  and 30%]  HUNTSMAN (USA) <tab>    [Deleted business secret. Between 5  and 10%]  PETRESA <tab>    [Deleted business secret.]   ISU (S.KOREA) <tab>    [Deleted business secret. Between 5  and 10%]  DETEN (BRAZIL) <tab>    [Deleted business secret. Between 5  and 10%]  RELIANCE (INDIA) <tab>    [Deleted business secret. Between  5 and 10%]  24.<ind> The above table shows that the future entity will  hold the leading global position in the LAB product market  with a marketshare of about [Deleted business secret.  Between 20 and 30%.]. Petresa, a Spanish company which has  recently established a new production plant in Canada, which  has a current capacity of 45 Ktons and a ultimate capacity  of 75 Ktons, consequently will held the second global  position with [] of share.   25.<ind> In 1994, the LAB worldwide capacity was 2384 Ktons.  Augusta's capacity amounted to 250 Ktons and that of RWEDEA  was 200 Ktons. The future entity will have the first global  capacity with 450Ktons (but of which [Deleted business  secret. Between 20 and 30%.] Kt are reserved for Huels), it  will be followed by Petresa (275 Ktons), the American  company Huntsman (150Ktons), the Brazilian company Deten  (140 Ktons). The LAB global market is characterised by a  relative high overcapacity, in 1994 the production was about  1935 Ktons for 2384 Ktons of capacity.   26.<ind> The market for LAB is extremely price sensitive,  the current main purchasers of both Augusta and RWEDEA are  the following : Procter & Gamble, Henkel, Unilever, Ungert  Fabrikker A.S., S.A. Camp, Albright and Wilson, Benckiser.  They enjoy large purchasing power since there are no long  term contracts, purchases are made on the basis of tender  systems, quarterly negotiations and spots contracts.  Moreover the investigation has shown that customers  diversify their purchases.  27.<ind> However, even if, after the operation, the future  entity will hold the first position in the global LAB market  and will intend to exploit it by increasing prices, the  Commission considers that viable competitive alternatives  exist with significant capacities in the world, and thus,  for these reasons, the proposed operation does not lead to  the creation or the strengthening of a dominant position.   <ind> ii) LAS  28.<ind> There are four types of operators in the LAS market  : integrated operators (such as RWEDEA, Petresa), indirectly  integrated operators (such as Augusta who transforms LAB  into LAS by tolling through Italian converters, DAC and SISA  in 1994) independent transformers (such as Huels), and  soapers who have their own sulfonation capacity to transform  LAB into LAS (such as Procter & Gamble, LEVER, Henckel,  Benckiser, Albright & Wilson).  LAS MARKET SHARES (sales volume, 1994, EEA and EC)  <tab> EU (Ktons)%  RWEDEA <tab>  [Deleted business secret. Between 20 and  30%.]  AUGUSTA <tab>  [Deleted business secret. Between 20 and  30%.]  RWEDEA+AUGUSTA <tab>   [Deleted business secret. Between 20  and 30%.]  HUELS <tab>    [Deleted business secret.]  ALBRIGHT & WILSON <tab>   [Deleted business secret. Between  20 and 30%]  PETRESA <tab>   [Deleted business secret.]  other producers <tab>    [Deleted business secret. Between  30 and 40%]  29.<ind> After the proposed operation the future entity will  be the third largest competitor in the EU LAS market with a  market share of about [Deleted business secret. Between 10  and 20%.]. The first operator, in this market, is the German  company Huels with [...] of share. This LAS competitor  stopped, for technical reasons, its production of LAB in  1994 and, since then, it is supplied by Augusta for its  needs in LAB under a "supply agreement", which provides that  Augusta undertakes to sell [Deleted business secret.]  Ktons/year to Huels, at a price established on a quarterly  basis and correlated to the [Deleted business secret.]. This  agreement is taken for five years [Deleted business  secret.], subsequently it will be automatically extended for  periods of one year, unless one or other party wants to  terminate it. Because of this agreement, Huels is to a  certain extent dependent on Augusta, and thus for the  future, on RWEDEA. Nonetheless its competitive pressure does  not seem to be affected. Huels itself, contacted by the  Commission, taking into account the content of its supply  agreement with Augusta, judges that its position in the LAS  market will not be out of balance because of the proposed  operation.   30.<ind> Western Europe LAS producers are relatively  numerous and the sulfonation capacity is significant, i.e.  202.8 t/h, i.e. 1622 Kton/year of LAS, of which 784  Kton/year operated by soapers, while the LAS sales in 1994  amounted about 218.7 Kton.  31.<ind> Considering the future entity's relative low market  share and the above reasons, the Commission considers that  the proposedoperation does not lead to the creation or the  strengthening of a dominant position in the LAS market.  <tab>iii)<ind> oxoalcohols, linear fatty alcohols and  alcohols derivatives  32. <ind> As regards the demand side, the customers, who  were questioned by the Commission answered that oxoalcohols,  linear fatty alcohols and alcohols derivatives constitute  separate product markets. If it is considered that, owing to  the absence of overlap between the activities of both RWEDEA  and Augusta, the proposed operation does not lead to the  creation or strengthening of a dominant position.  33.<ind> Were these products considered as a single product  market, the future entity would hold an EC market share of  about [Deleted business secret. Between 20 and 30%.]. In  this market, supply side and demand side are wellbalanced;  the competitors are numerous and wellestablished (Shell,  Exxon, BASF, Henkel, Huels); the customers are big companies,  such as Hoescht, CibaGeigy, L'Oréal, Procter & Gamble.  <ind> As regards linear fatty alcohols, there are three  major manufacturers from South East Asia, i.e. Salim  (Indonesia), Kao (Malaysia) and the alliance between Procter  and Gamble and Huels essentially based on Malaysian fatty  oils. In 1994 imports into EU represented about 12% of the  EU market.  <ind> As regards oxoalcohols imports in 1994 amounted to  about 8% of the EU market.  34.<ind> Through the proposed merger, the future entity  would be the only player in this market with a full range of  products covering both petrochemical (Augusta) and  oleochemical based alcohols (RWEDEA) and at the same time  would be a significant player in alcohol derivatives.   <ind> However, for the above reasons, the Commission does  not consider that the likely further strengthening of the  future entity's competitive position will lead to the  creation of a dominant position   B<ind> Vertical effects  35.<ind> Augusta manufactures nparaffins in the range C10C14  (so called light paraffins); nparaffins in the range C10C13  are the key raw material for the production of LAB and  nparaffins in the range C10C14, via conversion to nolefins  are the key raw material for the production of oxoalcohols.  About 85% of Augusta's production of light paraffins and 70%  of its total production of nparaffins is used for its own  production of LAB and oxoalcohols. Excluding its internal  consumption, Augusta had in 1994 a EU light nparaffins  market share of [Deleted business secret. Between 10 and  20%.]. RWEDEA does not manufacture this product. Taking into  account such a market share, the Commission considers that,  as regards light nparaffins and LAB, the operation does not  result in vertical relationships.  V.<ind> ANCILLARY RESTRAINTS  36.<ind> The notifying party has requested that several  clauses of the agreements be considered as ancillary to the  notified transaction.  37.<ind> In the shareholders' agreement (article11.05),  Enichem undertakes (for five years) not to compete with the  future entity in respect of the products manufactured by  Augusta and its subsidiaries. This clause reflects the  purchaser's protection from a decision of Enichem to  continue the activity of Augusta, thereby decreasing the  value of the purchased company and consequently guarantees  the transfer to the buyer of the full value of the assets  transferred. The Commission therefore considers it as  ancillary to the concentration.  38.<ind> Augusta will enter into a sevenyear kerosene supply  agreement with Agip Petroli s.p.a. (a member of the ENI  group) and its subsidiary Praoil. Agip Petroli undertakes to  supply to Augusta its entire production of the kerosene  manufactured by it from Agip s.p.a.'s 50% share of the crude  oil from the BuAttifel Libyan oil concession, up to a  maximum of [Deleted business secret.] tons per year of  kerosene (with a guaranteed minimum of [Deleted business  secret.] tons per year for the first three years) and up to  a maximum of [Deleted business secret.] tons per year of  paraffinic gasoil type GAL. A. In addition this clause gives  to Augusta a right to request the extension for a further  three years upon one year's notice.   <ind> The party's arguments to justify this clause are  thefollowing:  <ind> <ind> This kerosene is specific (high paraffin  content, approximately [Deleted business secret.] and,  therefore, it is the ideal raw material for the production  of nparaffins;  <ind> <ind> Augusta's deparaffination plants in Augusta  (Sicily) and in Sarroch (Sardinia) are contiguous and  connected, through pipelines, to the plants where Agip  Petroli produces kerosene from the Buattifel crude;    <ind> <ind> Augusta's nparaffin production is currently  400,000 tons per year in Augusta and 200,000 in Sarroch. To  obtain these quantities by using Agip petroli's kerosene  Augusta needs to process respectively [Deleted business  secret.] and [Deleted business secret.] tons of kerosene per  year. Were Augusta to cease to have the availability of  kerosene from the Buattifel crude, it would have to process  much larger quantities of kerosene to obtain the same  quantity of nparaffin. It is argued that Augusta's plants in  Augusta and Sarroch do not have the capacity to process the  amounts of kerosene that would be involved if it were to  switch to the use of another type of kerosene with a lower  content in nparaffin.  39.<ind> The contract also foresees the resale of the  deparaffined kerosene and gasoil by Augusta to Agip for the  same period as the kerosene supply agreement (i.e. seven  years). After the deparaffination, this clause is justified  by the fact that Augusta has up to now been vertically  integrated within the Eni group (cf § 41) and it would take  some time for an other outlet to be found for this product.  The kerosene deparraffined can only be used in normal  kerosene application, i.e. jet fuel, and Augusta is not  active in the trading of it.   40.<ind> According to the Commission's practice, 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 the continuity  in the supply of products required for the activities taken  over, for a transitional period following the acquisition.   41.<ind> As stated above the BuAttifel kerosene supplied by  Agip is necessary for the requirement of Augusta which could  not replace that kerosene with other available crudes, at  least in the short term, due to the high paraffin content of  it. Furthermore all nparaffin production of Augusta is  integrated with Agip Petroli's refineries producing  kerosene, since the deparaffinated kerosene (raffinate) is  returned to the refinery system.  42.<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 kerosene supply; and  (ii) the effect of the agreement on the kerosene needs of  third parties.   43.<ind> With regard to (i) above it is noted that, were  Augusta to have to use a different type of kerosene which is  available on the market, due to the larger quantities of  kerosene to be processed, it would have to construct a new  plant and new infrastructure. This would require a long time  for the new plant to become operative i.e. approximately  five years and a huge investment of the same order of  magnitude as the purchase price to be paid by RWEDEA .  44.<ind> With regard to (ii) above, it has to be considered  that the other European nparaffin producer Petresa, which is  vertically integrated, uses other sources of supply and for  that reason it is not likely that it will become a customer  for Agip's kerosene in the short term. It is also unlikely  that any other undertaking would be ready to incur the  investments necessary to create the deparaffination capacity  needed to absorb Agip's production of kerosene.    45.<ind> In the light of the abovementioned considerations,  the Commission considers that in the present case there are  exceptional reasons justifying a duration of more than five  years for the kerosene supply and the resale of deparaffined  kerosene agreement. It has therefore come to the conclusion  that this agreement should be considered as ancillary to the  concentration for the initial period of 7 years and up to a  maximum of [Deleted business secret.] tons per year of  kerosene and up to a maximum of [Deleted business secret.]  tons per year of paraffinic gasoil. On the other hand  because of the reasons mentioned above, the Commission  considersthat the right of Augusta to request the extension  of a further three years upon the seven year period is not  ancillary.  46.<ind> Enichem undertakes to continue to supply to Augusta  an annual quantity between 57,000 and 63,000 of benzene, a  raw material for the production of LAB, for a five year  period. Augusta is free to buy from other sources. The  contract provides for an obligation on Enichem to supply at  market prices the major part (around 75%) of the quantities  of benzene that Augusta requires yearly for its LAB  production in the Augusta, Porto Torres and Mantova plants.  The abovementioned quantity of the supply of Enichem is  allocated approximately as follows: around [Deleted business  secret.] for the Porto Torres plant, around [Deleted  business secret.] for the Mantova plant, around [Deleted  business secret.] for the Augusta plant. The advantages for  Augusta are particularly for the benzene supplied to  Augusta's plants in Mantova and Porto Torres, due to the  integration of these plants with Enichem's local benzene  production plants. This allows reductions in transport costs  and avoids the need for Augusta to create its own  infrastructure for the transport and stocking of benzene,  which would have to be built with considerable costs and  with the risk of not granting the authorizations in the case  in which the benzene supplied by Enichem were to become  unavailable. Moreover Augusta remains free to be supplied of  benzene from outside sources.   <ind> This contract can be considered as ancillary for the  period of five years because it ensures Augusta a secure  source of supply of raw materials for a transitional period.    47.<ind> Enichem undertakes to continue to supply to Augusta  chlorine and caustic soda through a five yearcontract. and  to repurchase the hydrochloric acid manufactured by Augusta.  These raw materials are required by Augusta to manufacture  LAB. The Share Purchase Agreement provides that in the event  of failure by Enichem to renew the contract for a further  five years, Enichem will pay to Augusta a penalty of Lit.  [Deleted business secret.] per year.  <ind> The notifying party argues that the manufacture of  chlorine, caustic soda and hydrochloric acid are very  interdependent, that the plants of Augusta and Enichem are  contiguous, that these products, mainly chlorine and  hydrochloric, are highly dangerous and corrosive substances  which cannot be transported by sea. Therefore Enichem is the  only source of supply for Augusta and in the absence of this  supply Augusta would be forced either to shut down or to  convert its plants to use a different raw material, at the  cost of a high investment. In view of the abovementioned  factors, the Commission concludes that this agreement can be  considered as ancillary for the initial period of five years  because it ensures Augusta for a transitional period a  secure source of supply of raw materials which are essential  for its activity. On the other hand, the Commission  considers that the penalty clause mentioned above is not  ancillary.  48.<ind> Enichem undertakes to supply to Augusta ethylene  oxide, a raw material for the production of ethoxilates, for  a five year period and at a price level [Deleted business  secret.] charged by Enichem to its customers or, failing  such a price, the price paid by RWEDEA for purchases of  comparable amounts in Italy. The contract does not oblige  Augusta to buy exclusively from Enichem. With regard to the  necessity, it has to be considered that Enichem is in any  case at least in the medium term the sole source of supply  of ethylene oxide for the Gela plant because Augusta has no  storage facilities for this substance. In fact Enichem's  ethylene oxide plant is integrated with Augusta's only  ethoxilates plant for which Enichem also provides storage  facilities for the ethylene oxide. Furthermore the  construction of new storage capacity is restricted due to  safety reasons and would require in any case considerable  investments.  <ind> For the abovementioned reasons the Commission  considers that this agreement can be considered as ancillary  for a five year period because it ensures Augusta, for a  transitional period, a secure source of supply of raw  materials which are essential for its activity.   49.<ind> A fiveyear toll manufacturing agreement pursuant to  which Enichem undertakes to produce ethoxilates on behalf of  Augusta in a plant in Gela which is owned by Augusta but  which, being a small plant integrated into a larger  production facility of Enichem, can be more efficiently  operated by Enichem and has therefore been given in  commodatum to the latter. To the extent that this agreement  constitutes a restriction of competition, the Commission  considersit as ancillary to the concentration.  50. <ind> An undertaking by Enichem to continue to supply to  Augusta and to its subsidiaries certain services and  utilities (e.g. electricity, steam, water, security,  cafeterias, waste water treatment, pipelines, streets and  yards) in the industrial sites of Porto Torres and Sarroch  (in Sardinia) and Mantova where Augusta's plants are within  larger production facilities of Enichem. Augusta retains the  right to withdraw form the contract at the end of each year  giving to Enichem a notice. To the extent that this  agreement constitutes a restriction of competition, the  Commission considers it as ancillary to the concentration.  VI<ind> CONCLUSION  51.<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 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,