CADE´s General Superintendence applies preventive measure against Gemini Consortium

The General Superintendence of the Administrative Council of Economic Defense – CADE has adopted a preventive measure in the Administrative Proceeding no. 08012.011881/2007-41 to preventively determine the termination of a possible discriminatory treatment on the Petrobras gas supply to Gemini Consortium. The decision was published in the Official Gazette on 24 April 2015.

The Gemini Consortium is composed by Petrobras, White Martins Gases Industriais Ltda. and GNL Gemini Comercialização e Logística de Gás Ltda. – GásLocal. Its objective is the liquefaction and bulk distribution of natural gas in liquefied state (LNG). In the consortium, Petrobras supplies natural gas, while White Martins liquefies it and Gás Local performs its trading and distribution.

The preventive measure request was made by Comgás. The company is one of the distributors of piped gas in the state of São Paulo and claimed it was not being capable of expanding its pipelines networks to São Paulo state cities as Cosmópolis, Engenheiro Coelho, Mococa, and Rio das Pedras, because the major clients of these locations would already be receiving gas from GásLocal, and which prices were allegedly formed based on illicit anticompetitive advantages obtained by the company.

According to Comgás, this is possible because Petrobras supplies natural gas to the consortium – and consequently to GásLocal – on a much lower price than the one charged  to Comgás. The company also claims that the Gemini Consortium would be practicing a kind of cross-subsidy, in which the supply of inputs to GásLocal, in low costs, would be sustained by the discriminatory supply to Comgás and other concessionaires.

Moreover, the supply agreement with Comgás and other concessionaires would have a series of disadvantages compared to the agreement with GásLocal, such as minimal mandatory payment (take-or-pay and ship-or-pay), harsher and less predictable readjustment requirements, differences in currency for pricing, less flexible contract duration and volume to be contracted. As a result of this allegedly discriminatory strategy, Comgás is no longer capable of investing and supplying piped gas with lower cost to residences and companies on the municipalities not yet covered. 

The urgency in the adoption of the preventive measure to terminate the alleged practice is justified due to the current five-year proceeding for piped gas tariff review in the state of São Paulo, managed by the São Paulo State Sanitation and Energy Regulatory Agency – ARSESP. It is in this period that the piped gas concessionaries plan their investments and expansions of, following a regulatory determination.

The aim of the preventive measure is to avoid that the potential discrimination verified in the gas supply in favor of GásLocal, which harms Comgás, prevents the inclusion of some investments of the latter in the current tariff review process. This could hinder millions of residential, commercial and industrial customers if some municipalities are not included in the next Comgás’ investment cycle.

After consulting the market and preliminary reports of CADE´s Department of Economic Studies, the General Superintendence has considered plausible the allegations of discrimination, of municipal markets foreclosure, and the claims for urgency resulting from the imminent tariffs review. ARSESP has expressed it agrees with the request of the preventive measure, after submitting a report on the complaint, in which supports the discrimination thesis.

Given the evidences, the General Superintendence partially deferred the request of the preventive measure formulated by Comgás. The measure determines a 60 days deadline for the signature of an isonomic natural gas supply agreement of Petrobras in the scope of the Gemini Consortium. The agreement should offer the same conditions of supply contracts signed with Comgás and other concessionaries, as well as monitoring actions. These measures must be fulfilled until CADE’s final decision in the case.

The preventive measure can be appealed to CADE’s Tribunal within 5 days. The Administrative Proceeding will remain in progress in the General Superintendence until it issues a final opinion, which can either confirm the infringement or recommend the case to be closed. Subsequently the process will be sent to CADE’s Tribunal for final decision.