CELEX: 31994M0361
Language: en
Date: 1994-02-17 00:00:00
Title: COMMISSION DECISION of 17.02.1994 declaring a concentration to be compatible with the common market (Case No IV/M.361 - NESTE / STATOIL) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31994M0361

COMMISSION DECISION of 17.02.1994 declaring a concentration to be compatible with the common market (Case No IV/M.361 - NESTE / STATOIL) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 099 , 08/04/1994 P. 0000

 COMMISSION DECISION of 17.02.1994 declaring a concentration to  be compatible with the common market (Case No IV/M.361 - NESTE  / STATOIL) 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.361 - Neste/Statoil  <ind> Notification of  14.01.1994pursuant to Article 4 of  Council Regulation No 4064/89  1. <ind> On 14 January 1994 Neste Oy (Neste) and Den norske  stats oljeselskap as (Statoil) notified a proposed  concentration by which the two companies will merge their  petrochemicals business into the new 50/50 owned joint venture  Borealis.    <ind> After examination of the notification the Commission has  concluded that the proposed 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 the EEA  agreement.   <ind> I. The parties  2. <ind> Neste is an international oil and chemical company  owned by the Finnish state. Statoil, an integrated oil company  with activities in petrochemicals and plastics, is owned by the  Norwegian state.   <ind> II. <tab> The operation  3. <ind> The proposed concentration involves Neste and  Statoil's petrochemicals business, focusing in particular on  their olefins and polyolefins activities which the parties will  transfer to the new joint venture.  4. <ind> The parties' shareholdings in olefin- and polyolefin-  related joint ventures - Neste's 35% in FinaNeste (Petrofina)  and Statoil's 49% in Noretyl (Norsk Hydro) and 50% in North Sea  Petrochemicals (Himont) - will be transferred to Borealis.  [Deleted. Business secret.]  5. <ind> Neste has a 10% shareholding in each of two joint  ventures outside Europe: Ibn Zahr, located in Saudi Arabia, and  Malaysia Polypropylene (producing polypropylene with a capacity  of 80.000 tons). Malaysia Polypropylene will be transferred to  the joint venture.  Ibn Zahr - operating a MTBE plant (MTBE is  an octane booster used in motor gasoline)  and a polypropylene  plant - will not be transferred to Borealis because - according  to the parties - it has proved impossible to put the PP plant  into a separate company. Ibn Zahr has a nameplate capacity of  200.000 tons polypropylene and Neste has an off taking  agreement for [Deleted business secret] tons.  6. <ind> In addition, Neste Chemicals Trading (NCT), a trading  company, will not be contributed to Borealis. NCT is engaged in  the purchasing and selling of chemicals (from and to third  parties) including polyethylene, polypropylene, PVC and  polystyrene all over the world. NCT was purchased in 1986 to  operate at arms length from Neste in trading channels of  plastic raw materials, especially off-specification materials  that do not meet the specifications aimed at. The vast majority  of NCT's traded products are off-specification materials, whose  sales price, on average, is approximately 20% below the  corresponding price for on-specification grades. These off- specification items are not products that the joint venture has  an interest in selling on its own.  Such off-specification  products are typically sold by trading companies such as NCT  that are distinct from the producer, which cannot itself sell  them without harming its quality reputation. In view of NCT's  small turnover and the small proportion of its sales accounted  for by on-specification products, its presence on the market is  insignificant.   <ind> Pursuant to the  non-compete agreement (which is limited  in duration until, at the latest, the end of 2000) [Deleted  business secret. Read "limits will be imposed on NCT's rights  to make sale".] Although this agreement imposes a restriction  on sales, it is a necessary condition to ensure the successful  start-up of the joint venture.  [Deleted business secret]  according to the parties, NCT will not compete with Borealis,  whose business objective is to sell on-specification grades.      7. <ind> Neste and Statoil contribute all their shareholdings  in businesses downstream of polyolefins to Borealis (except for  Neste's shareholding in Uponor - a plastic pipe manufacturer),  including Neste's Sinex Oy and Statoil Europarts; both being  producers of certain automotive components mostly in different  non-competing product lines.  In 1992 EuroParts turnover  amounted to 125 million ecus (20% in EU) and Sinex's turnover  amounted to 1,6 million ecus.   <ind> III. Concentration   <ind> Joint control  8. <ind> Each party holds a 50% share and corresponding voting  rights. In addition, the joint venture agreement provides that  major decisions must be approved by both parties. These  include: business plan and budget; strategy plans; substantial  reductions or expansions of Borealis business; other matters of  large substance, such as strategy, alliances, major  reorganisation.    <ind> Joint venture performing on a lasting basis all the  functions of an autonomous economic entity  9. <ind> The joint venture will have all the assets and  resources necessary to enable it to perform all the functions  of an autonomous economic entity, including production,  marketing, and the necessary patents, know-how and trademarks.   <ind> Absence of coordination of competitive behaviour  10. <ind> The parties transfer all their olefins and  polyolefins activities to the joint venture except  - as  mentioned above - Neste's 10% share in the Ibn Zahr joint  venture (Saudi Arabia) and Neste Chemical Trading (NCT).  According to the parties, their shareholdings in olefin and  polyolefin related joint ventures will be transferred to  Borealis.  11. <ind> Conclusion: The operation is a concentration within  the meaning of Article 3 of the Merger Regulation, because the  joint venture between Neste and Statoil will perform on a  lasting basis all functions of an autonomous economic entity  and there is no scope for coordination of the competitive  behaviour of the parents between themselves and with the joint  venture.   <ind> IV. Community/EEA dimension  12. <ind> The concentration has a Community dimension. The  combined aggregate worldwide turnover of Neste and Statoil in  1992 exceeded 5.000 million ecus (Neste 9.035 and Statoil 9.469  million ecus respectively). The aggregate Community-wide  turnover of each was more than 250 million ecus (1.270 and  3.924 million ecus for Neste and Statoil, respectively). In  addition the parties did not achieve more than two-thirds of  their Community-wide turnover in one and the same Member  State.  13. <ind> The concentration is an EEA "cooperation" case. The  turnover of the undertakings in the EFTA States to which the  agreement applies is at least 25% of their total EEA turnover,  and Neste and Statoil have at least 250 million ecus turnover  each in EFTA.  V. <ind> Compatibility with the common market and the EEA  Agreement   <ind> A. Relevant product market   <ind> In the field of olefins  14. <ind> Olefins are base chemicals obtained through the  cracking of hydrocarbon feedstocks or the dehydrogenation of  propane or butanes. The main olefins are ethylene, propylene  and butylenes. The new joint venture will produce both ethylene  and propylene.   <ind> In Western Europe most ethylene crackers are naphtha  crackers, and in this process propylene is produced as a co- product. Propylene is also produced from propane by a  dehydrogenation process, which generates very few co-products,  and thus its yield is almost entirely propylene.   15. <ind> According to the parties, around 75% of the  production of ethylene is consumed captive. The parties  estimate that the 1992 total ethylene non-captive sales in  Western Europe amount to about 4.3 million tons. As to  propylene, approximately 60% of the production is consumed  captive, and non-captive sales are estimated to amount to about  4 million tons.    <ind> In the field of polyolefins  16. <ind> The olefins ethylene and propylene serve as feedstock  for the polyolefin sector. Polyolefins are thermoplastics  derived from olefins through polymerisation. Polyolefins  account for more than 47% (11,2 million tons) of Western  Europe's total consumption (24,1 million tons) of plastic each  year.   <ind> The most important polyolefins are polyethylene (57% of  ethylene use in Western Europe) and polypropylene (47% of  propylene use in Western Europe). Among polyethylenes a further  product distinction is made between low density polyethylene  (LDPE) and high density polyethylene (HDPE). Althrough there  are some applications for which both LDPE and HDPE can be used,  the caracteristics of these two types of polyethylene are  different, and as a result, their intended end uses are  different. Because of these differences it appears that LDPE's  and HDPE's should be considered to be separate relevant  markets.   17. <ind> In the late seventies, a new polymer was introduced,  called linear low density polyethylene (LLDPE). The basic  properties and end uses of LLDPE are similar to those of LDPE  and, due to this demand side substitutability between these  products, it appears that LDPE/LLDPE constitute a single  market.     <tab> Conclusion  18. <ind> Based on the above, it appears that the relevant  product markets are ethylene, propylene, HDPE, LDPE/LLDPE and  polypropylene. However, the definition of product markets can  be left open, because even on the narrowest markets, it appears  that the joint venture will not lead to dominance.     <tab> B. Geographic market   <ind> In the field of olefins  19. <ind> Largely dictated by the difficulty of transporting  olefins (particularly ethylene), which are highly flammable  reactive gases forming explosive mixtures with air, a large  part of the Western European olefin production is used captive  in integrated production complexes.   <ind> The principal means of transportation of ethylene is  pipelines and special ships for liquefied gases. For propylene,  which is slightly less problematic than ethylene, pipelines,  special ships, barges, rail and road are all used to varying  degrees.  20. <ind> There are three separate pipeline systems for  ethylene in Western Europe: the large pipeline network of ARG  (Aethylen-Rohrleitungs-Gesellschaft) and associated lines  covering Benelux countries and the Western parts of Germany,  and two smaller pipeline networks in Northern UK and Southern  France.   21. <ind> There are non-captive markets for ethylene  transported by the pipeline systems where some of the  undertakings linked to the pipelines are net suppliers and some  net customers. In addition there are coastal terminals linked  to the pipeline system. According to the parties the scope of  the activities of such terminals is limited; the spot market is  mainly used for export and import.   22. <ind> The only  pipeline system for propylene in Western  Europe, located in the Benelux area, is local in scope and  according to the parties  only used for captive use. The  propylene non-captive markets differs from that of ethylene due  to a larger percentage of inland transport by barges rather  than pipelines. Despite the relative ease of transport of  propylene, most propylene production is still used captive.   <ind> In the field of polyolefins  23. <ind> The parties consider the markets for LDPE/LLDPE, HDPE  and polypropylene as at least Western Europe. Based on figures  provided in the notification and  information given by   competitors it appears, that the main Western European  producers of polyolefins transport and sell their products on a  Western European scale. Furthermore many customers purchase  polyolefins from several sources located in different Member  States and EFTA States.  24. <ind> Imports of polyolefins amount to about 10% of total  volume for LDPE/LLDPE and HDPE and about 2% of total market  volume for polypropylene. Polyolefins imported into the EU  (excluding imports from the EFTA States and from developing  countries including the Gulf States)are subject to a customs  tariff of 12,5%.   <tab> Conclusion  25. <ind> Although the parties regard the markets for ethylene  and propylene as at least Western Europe, the market for free  sales of ethylene appears to be narrower than that, because the  vast majority of ethylene customers are located in geographic  areas served by existing pipelines. As to propylene the  geographic market may be considered to be Western Europe  because customers may be served more readily by transport modes  other than pipelines. Nonetheless, it is not necessary to  define the relevant geographic markets for these products  since, even on the narrowest markets, the joint venture will  not create or strengthen a dominant position in the markets  discussed.   <ind> For polyolefins the geographic market can be considered  to be Western Europe.   <ind> C. Assessment of the operation  26. <ind> To the extent that the market data discussed below  are based on year-end capacity shares of the firms, it should  be noted that capacity utilisation in the industry is generally  even and, consequently, the capacity shares fairly reflect the  market shares based on total sales of the firms.   <ind> In the field of olefins  27. <ind> As to ethylene the joint venture will have a Western  European capacity of 1,5 million tons representing  approximately 8% of total Western Europe capacity (about 18  million tons). In the EU, the joint venture's share of capacity  is approximately 4% (Statoil has no EU capacity). On the basis  of capacity the joint venture will have a Western European  share of approximately 8%, ranking number six for ethylene.  Enichem, BP and Shell have shares of approximately 12 to 9% of  capacity, respectively.    <ind> According to industry estimates the Western Europe free  market (non-captive) sales for ethylene amount to 4,3 million  tons, of which the joint venture's sales will account for [more  than 10 %].  28. <ind> While Neste is connected to one of the European  ethylene pipeline systems, with facilities located on  the  pipeline network of ARG, Statoil has no facilities served by  this or other pipeline systems. The ARG pipeline, with a  transport capacity of 2 million tons of ethylene annually  (approximately 11% of Western European capacity), is the  largest source for free sales of ethylene in Europe.  29. <ind> In the ARG pipeline, the net suppliers are Veba, RWE- DEA, DSM, Dow, Shell, Petrofina, Neste and Erdoelchemie; and the  net customers are Hoechst, Solvay, LVM and Ethyl. Of the total  capacity connected to this pipeline, Neste accounts for  approximately [less than 7 %].    <ind> Neste's non-captive sales connected to this pipeline  account for [between 75 000 and 125 000] tons, representing  [less than 10 %] of the non-captive ARG sales ([between 1.1 and  1.7] million tons of ethylene). In view of Neste's small share  of sales of products through this pipeline and the fact that  Statoil is not present on the ARG pipeline, it appears that the  competitive impact of this joint venture in ethylene will be  minimal.  30. <ind> As to propylene the parties have a Western European  capacity of about 960.000 tons representing about 8% of total  Western Europe capacity of approximately 12 million tons. Shell  and Enichem each have shares of about 9.5% while Elf Atochem  and BP have shares of approximately 8% of capacity - the same  as Borealis.  31. <ind> According to industry estimates, the Western Europe  free market (non-captive) sales for propylene amount to 4  million tons, of which the joint venture's sales will account  for [less than 8 %].  32. <ind> Propylene may be distributed by barges and rail in  addition to pipeline systems.  Consequently, it appears that it  is possible for propylene customers to be served by suppliers  located throughout Western Europe (rather than relying solely  on suppliers who are located on pipeline systems).   <ind> In the field of polyolefins  33. <ind> As to polyolefins (LLPE/LLDPE, HDPE and  polypropylene) the parties' combined market shares within  Western Europe will be below 15% in each of these markets, with  the total sales in these markets valued at [between 7-8 ]  billion ecus.   <ind> Although the markets for polyolefins are considered to  be Western European, it is noted that the transaction in  certain countries will result in relatively high market  shares.  34. <ind> In the various polyolefin products within the  individual EU Member States the joint venture will have the  following market shares: in  Denmark [more than 30%] and in  Portugal [more than 45%] (total market value 173 mio ecus and  133 mio ecus respectively). In the various polyolefin products  within the other Member States market shares are [less than  15%].   <ind> In addition, the combination of two major Nordic  producers will lead to substantial market shares [more than  40%] in the EFTA States (Norway, Finland and Sweden). Because  the market is Western European in scope, local high market  shares do not necessarily translate into market power.  35. <ind> Despite high market shares in certain States, there  are many producers of polyolefins in Western Europe including  large and financially strong companies. Customers reported in  questionnaires that they saw a number of alternative suppliers  to whom they could turn if necessary, and they did not raise  concerns regarding the likely competitive impact of this  transaction.   36. <ind> According to industry estimates, the most important  competitor on the market for LDPE/LLDPE is Enichem with a  market share (based on capacity) of [less than 20%] followed by  the new joint venture and three other companies, each with more  than 10% in terms of Western European capacity.  37. <ind> On the Western European market for HDPE, Hoechst is  the leader with approximately 15-20% of total European  capacity. Next comes Borealis and three other companies, each  with approximately 10-15%.  38. <ind> As to the polypropylene market Himont will -  according to industry estimates - be the leader with  approximately 15-20% of Western European capacity in 1993,  followed by Borealis, Shell and Hoechst, each  with shares  below 15%.   <ind> VI.  Conclusion  39. <ind> In view of the fact that the parties' market shares  on any of the affected markets will not exceed 15%, and taking  into account the fact that the parties will face competition  from several large producers of olefins and polyolefins, the  transaction does not raise doubts as to its compatibility with  the common market and the EEA Agreement.   <ind> VII. Ancillary restrictions  40. <ind> The parties have entered a non-compete agreement  that, until termination of the Shareholders Agreement  establishing the joint venture or December 2000 (whichever  occurs first), they will not compete with the joint venture to  produce or market the affected products. These provisions  appear to be reasonable and consistent with the provisions of  the joint venture agreement, and as such are ancillary to the  concentration.   For the above reasons, the Commission has decided not to oppose  the notified concentration and to declare it compatible with  the common market and the EEA Agreement. This decision is  adopted in application of Article 6(1)(b) of Council Regulation  No. 4064/89 and Article 57 of the EEA Agreement.  For the Commission,