Authority fines PGNiG for abuse of dominant market position - International Law Office

Facts
Decision
Comment

In July 2012 the Competition Authority announced its decision to fine Polskie Górnictwo Naftowe i Gazownictwo SA (PGNiG) - Poland's largest domestic gas producer and supplier - PLN60 million (approximately €14.4 million) for alleged abuse of its dominant position. The authority stated that PGNiG had restricted entry to the gas market by refusing to enter into a gas supply agreement with NowyGaz Sp z oo.

Facts

PGNiG is a state-controlled company, which has a greater than 90% share of the retail and wholesale markets for natural gas in Poland. PGNiG also controls six gas distribution system operators active in Poland, including subsidiary company Mazowiecka Spółka Gazownictwa Sp z oo (MSG), which supplies gas to approximately 1.5 million customers located in central Poland.

In early 2010 NowyGaz approached PGNiG with a request to enter into a comprehensive agreement for supply and sale of gas, pursuant to which NowyGaz would acquire gas from PGNiG and subsequently resell it to its customers via MSG's distribution network.

During the negotiations, which continued throughout 2010, PGNiG referred to a number of technical and formal obstacles that prevented an immediate conclusion of the agreement. As a result, execution of the agreement was substantially postponed. This prompted NowyGaz to seek intervention from the Competition Authority. Anti-monopoly proceedings were launched in December 2010, based on a suspicion that PGNiG had intentionally delayed execution of the agreement in order to protect its position on the market.

The agreement between PGNiG and NowyGaz was ultimately signed in May 2011.

Decision

Throughout the proceedings, PGNiG has consistently denied allegations of anti-competitive conduct, highlighting that the delay in starting cooperation with NowyGaz was attributed to several objective reasons. Among other things, PGNiG referred to:

• the requirement to amend MSG's internal regulations governing gas settlements and to have the pertinent amendments approved by the energy regulator;
• the precedential character of the case (NowyGaz was the first entity ever to apply to PGNiG with a request to enter into a comprehensive supply agreement); and
• the need to develop internal policies to govern sales to entities that intended to resell gas to end customers.

Furthermore, PGNiG pointed out that alternative sources of gas supply were available to NowyGaz at the time it applied for the agreement with PGNiG.

The Competition Authority rejected this argument. The authority stated that the delay in concluding the agreement lacked any objective justification. In this respect, the authority took into account the opinion of the Energy Regulatory Office, which argued that MSG's internal regulations in place at the time were sufficient for the purposes of gas settlements. Thus, according to the authority, there were no objective technical or formal obstacles for PGNiG to entering into a comprehensive agreement following NowyGaz's application.

The authority concluded that PGNiG in fact wanted to prevent NowyGaz from entering the retail market for natural gas, as it would challenge PGNiG's near-monopolistic position. Failure to secure agreement with PGNiG made it impossible for NowyGaz enter the market. According to the authority:

"refusal to sign the contract was to reduce or at least delay the development of competition in the retail sale of natural gas…and indirectly influence the behavior of other parties potentially interested in taking up activities in this field."

In addition, the authority highlighted that PGNiG's practices had had adverse consequences for final customers, depriving them of the ability to change gas supplier despite the existence of conditions allowing such change. Nonetheless, the authority mitigated the fine amount, acknowledging that PGNiG had ultimately entered into a comprehensive agreement with NowyGaz.

PGNiG plans to appeal to the Competition Court.

Comment

This is the second Competition Authority decision addressed to PGNiG in a relatively short time. In April 2012 PGNiG escaped anti-monopoly fines by accepting a commitment to substantially shorten notice periods in its contracts with consumers and thus facilitate the possibility of switching gas supplier in a more expedient manner.

These recent decisions show that the authority remains committed to opening up the gas market to new entrants and treats liberalisation in the gas sector as one of its priorities. The recently completed proceedings also demonstrate close cooperation between the authority and the energy regulator (with the opinion of the latter arguably crucial to the ultimate outcome of the proceedings).

PGNiG's policies are also subject to an ongoing European Commission investigation, which aims to determine whether the conduct of gas companies from central and eastern Europe is likely to impede fair competition by, among other things, dividing markets and blocking equal access to infrastructure.

For further information on this topic please contact Krzysztof Kanton at Soltysiński Kawecki & Szlęzak by telephone (+48 22 608 7000), fax (+48 22 608 7070) or email (krzysztof.kanton@skslegal.pl).