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The Slovenian Competition Protection Agency recently adopted a decision finding that the company Geoplin had been abusing its dominant position. The abuse in question was the result of Geoplin’s implementation of illegal clauses into long-term contracts for the supply of natural gas, thereby artificially increasing natural gas prices and hindering competition on the relevant market.

The temporal element plays an important role in the case in question as most customers have only one gas supplier. Therefore, competition among gas suppliers commences only when the previous contract expires and ensues for a short period, until the next contract is negotiated and signed. The longevity of said contracts thus plays a vital role.

The Distrigaz decision

It is not the first time that the Agency has had dealings with Geoplin in relation to this material. In its previous decision it relied heavily on a European Commission decision in the case Distrigaz (COMP/B-1/37966). In that case the Commission looked closely at long term contracts concluded by Distrigaz, a Belgian gas supplier with a dominant position on the relevant market. Additionally, volumes of gas were tied to Distrigaz by virtue of said contracts, thereby foreclosing access to customers for other suppliers. 

Some contracts had a fixed annual contractual quantity and an annual minimum quantity, and Distrigas had a contractual obligation of a maximum quantity. Moreover, even further strengthening its dominant position, Distrigaz was a member of the Suez group together with Electrabel, the largest gas consumer in Belgium.

At the conclusion of the case, Distrigaz agreed to the proposed, and later modified, commitments prohibiting it (inter alia) from concluding contracts with industrial users and electricity producers for periods longer than five years and contracts with gas resellers with a duration above two years.  In addition, Distrigaz agreed to return 70% of the gas to the market per year on average, thereby giving its competitors a chance.  Finally, Distrigaz agreed to give parties a right to terminate a contract with six months’ notice, where the contract was for a period longer than 5 years and was still in effect. 

The Geoplin case

The contracts in issue in the Geoplin case defined contractual quantities of natural gas as well as minimal amounts that were to be purchased. The contract also set forth penalty payments to apply when these quantities were not honored. Additionally, according to the contract, purchasers were forbidden to resell any excess quantities of gas purchased. As a result, Geoplin, in effect, bound its contractual parties to buy gas at prices much higher than those in comparable EU Member States (up to 50% higher than the prices in the Czech Republic, according to the director of the Agency) and, according to TV Slovenija, the national TV channel, at the second highest price in the whole of EU.  These actions, in turn, have the effect of lowering the international competitiveness of gas purchasers, that is, mostly Slovenian companies.

This last decision is, as stated, a continuation of a procedure started by the Agency in the past.  As an interim result Geoplin produced a document in which it made commitments not to conclude contracts for periods longer than 3 years, not to limit the buyers of natural gas with the further disposition of gas purchased, and to adhere to the progressive decrease of the required minimal quantity of natural gas purchased on a yearly basis.

The outcome

In its most recent decision the Agency gave Geoplin a 3 months’ notice to implement measures that will eliminate the anti-competitive effects, including but not limited to modifying the contracts in question. A fine of up to 10% of the annual turnover of Geoplin can be imposed in accordance with the applicable law. It has been estimated that such a fine would amount to several (ten) million €. The agency did not declare the contracts in question null and void, nor did it give the contractual parties a right of termination. This has been criticized by some of these parties.

Geoplin has stated that it deems the decision to be illegal and will make use of all legal means at its disposal in an attempt to overturn it. In the event this does happen, an appeal will be lodged and the procedure before the Agency will be stayed until a decision with regard to the appeal is reached in a court of law. 

The case in question may also have EU legal implications. The soaring prices coupled with market foreclosure through the tying of customers by way of long term contracts may have driven away foreign purchasers of gas. This can be construed as “affecting trade between member states” in the sense of Article 102 of the TFEU. While highly unlikely at this point in time, a European Commission procedure is certainly not impossible to imagine either.

By Martin Okorn, ODI Law Firm

Regulatory overview

The governing legislation in the Republic of Macedonia regarding competition matters is the Law on the Protection of Competition (Official Gazette of the Republic of Macedonia No. 145/2010 and No. 136/2011) and the Law on the Control of State Aid (Official Gazette of the Republic of Macedonia, No. 145/2010). The laws are based on the EU competition law and state aid law, encompassing standard competition law institutes such as restrictive agreements and practices, abuse of dominant position and control of concentrations, as well as the regulation of the state aid.

The mandate of the Commission for the Protection of Competition (the Commission) is also set out by the governing laws, which prescribe certain specific procedural rules beside the rules on general administrative procedure. However, the sector-specific legislation contains certain specific rules and regulations, such as:

• banking regulations (specific merger thresholds that concurrently have to be approved by the National Bank);
• telecommunication rules;
• public health norms (regulation of the drug prices);
• media laws (prohibited media concentrations); and
• other local regulations.

The applicable sector-specific laws are:

• the Law on Electronic Communications (Official Gazette of the Republic of Macedonia No. 13/2005, 14/2007, 55/2007, 98/2008, 56/2009, 83/2010, 171/2010, 13/2012, 59/2012, 123/2012, 23/2013) and the Law on Broadcasting Activity (Official Gazette of the Republic of Macedonia No. 100/2005, 19/2007, 103/2008, 152/2008, 6/2010, 51/2010, 145/2010, 97/2011, 13/2012, 72/2013);
• the Law on Energy (Official Gazette of the Republic of Macedonia No. 16/2011, 136/2011, 75/2013); and
• the Law on Banks (Official Gazette of the Republic of Macedonia No. 67/2007, 88/2008, 42/2009, 90/2009, 67/2010, 26/2013).

The decision-making authorities

The Commission for the Protection of Competition

The Commission is the main administrative body in charge for the protection of the competition by enforcement of the Law on the Protection of Competition and the Law on the Control of State Aid.

The legal framework provides that the Commission is the only competent body that handles these issues. The procedure before the Commission is a special administrative one which starts by filing a request to start a misdemeanour procedure. The procedure than moves to the next phases provided by the law, depending upon the filled request. It ends with a decision by the Misdemeanour Commission in which the Misdemeanour Commission determines the existence of a breach of the provisions of the Law or refuses the request. This decision can further be revoked by filing an action with the Administrative Court. The Administrative Court passes a judgment regarding the validity of the decision of the Misdemeanour Commission, which can be appealed in front of the Supreme Administrative Court. The decision of the Supreme Administrative Court is final and enforceable.

The Commission consists of the following bodies: a president (Blagoj Churlinov) and four other members; a general secretary; the Misdemeanour Commission; and several other sectors. The Misdemeanour Commission, which is in charge of the decision-making process, comprises a president and two members who decide as a council. However, we must note that unfortunately the enforcement capacity of the Commission for the Protection of Competition is not sufficient, which implies a lack of ex officio activities.

Sector regulators

As regards the particular sectors, there are certain competition law-related competences reserved for state bodies in charge of regulating certain sector, including the National Bank, the Agency for Electronic Communications, the Broadcasting Council and so on. These regulators usually work in coordination with the Commission by cooperating and monitoring the conditions in a particular sector or deciding on related issues.

Restrictive agreements and practices

The Restrictive agreements and practices are defined in article 7 of the Law on Protection of Competition, which is in line with article 101 of the TFEU.

All agreements concluded between undertakings, decisions of associations of undertakings and concerted practices that have as their object or effect the distortion of competition shall be prohibited, particularly those which:

• directly or indirectly fix the purchase or selling prices or any other trading conditions;
• limit or control the production, market, technical development or investments;
• share the market or the sources of supply;
• apply dissimilar conditions to equivalent or similar transactions with other trading partners, thereby placing them in less favourable competitive position; or
• make the conclusion of the agreements subject to acceptance of supplementary obligations by the other contractual parties, which by their nature or according to the commercial customs are not connected with the subject of the agreement.

As regards restrictive agreements, in the Macedonian legal framework, the system of block exemption and individual exemption also apply. If a block exemption is not available to the parties, they may apply to the Commission for an individual exemption. Such exemption shall be granted if it fulfils the criteria prescribed in article 7 paragraph 3:

decisions of associations of undertakings and concerted practices that contribute to the improvement of the production or distribution of goods or services or to the promotion of technical or economic development, provided that the consumers have proportional benefit thereon, and which do not impose restrictions that are not necessary for the attainment of these objectives on the undertakings concerned and do not afford such undertakings the possibility of eliminating the competition in respect of a substantial part of the products or services concerned.

The law also contains a de minimis rule, which is applicable in situations where the total market share does not exceed 10 per cent for horizontal agreements or 15 per cent for vertical agreements. If it is not possible to determine whether the agreement is horizontal or vertical, a threshold of 10 per cent applies.

The most common cases handled by the Commission refer to restrictive agreements. The majority of the cases include price fixing in the pharmaceutical sector; concerted practice; and prohibited agreements in the electronic communications sector (particularly telecoms and media). Some of the aforementioned cases are final, but most are still in court and the outcome is yet to be seen.

Abuse of dominant position

The abuse of dominant position is regulated in articles 10 and 11 of the Law on the Protection of Competition. An undertaking is considered to have a dominant position if it it does not have competitors on the relevant market or if, compared to its competitors, it has a leading position on the relevant market, and especially in relation to:

• market share and position;
• financial power;
• access to sources of supply or the market;
• connection with other undertakings;
• legal or factual barriers for entry of other undertakings to the market;
• the ability to dictate the market conditions taking into consideration its supply or demand; or
• the ability to exclude the other competitors from the market by directing towards other undertakings.

The threshold required for the rebuttable presumption of a dominant company to kick in is a market share of at least 40 per cent on the relevant market.

As far as the law is concerned, the definition of abuse provided in article 11 of the Law is the same as in article 102 of the TFEU.

The Commission has been active in pursuing different kinds of dominance abuse infringements, such as exclusivity arrangements, margin squeeze, tying, pricing practice and so on. The sectors under particular observation were telecommunications, financial services, waste disposal and food and drink.

Control of concentrations

Thresholds

The Notification regarding the concentration shall be submitted to the Commission if:

• the joint aggregate turnover of all participating undertakings generated by selling goods or services on the world market exceeds €10 million according to the exchange rate valid on the day of preparing the annual account, gained in the business year preceding the concentration, and where at least one participant has to be registered in the Republic of Macedonia;
• the joint aggregate turnover of all participating undertakings, generated by selling goods or services in the Republic of Macedonia, exceeds €2.5 million according to the exchange rate valid on the day of preparing the annual account, gained in the business year preceding the concentration; or
• the market share of one of the participants is more than 40 per cent or the aggregate market share of the participants in the concentration on the market is more than 60 per cent in the year preceding the concentration.

The participants in the concentration shall be obliged to submit a notification to the Commission prior to its implementation and following the conclusion of the merger agreement; that is, the announcement of the public bid for purchase or acquisition of majority participation in the basic capital of the undertaking.

As previously mentioned, the additional rules apply for certain sectors (eg, banking, insurance, telecommunications and media).

Deadlines

The merger notification must be filed before the Commission by notification, letter of intent or any similar document showing both parties’ serious intent to enter into the transaction.

The Commission is then obliged to adopt a decision within 25 working days from the receipt of the notification. This period may be extended for up to 35 working days if the participants in the concentration assume commitments before the Commission in order to achieve the concentration that is in accordance with the provisions of the Law. The decisions referred to as decisions in case of initiated procedure shall be adopted within 90 working days from the initiation of the procedure. In coordination with the participants in the concentration, the Commission may extend the time periods referred to in paragraphs at any time following the initiation of the procedure. However, the total duration of each extension or extensions cannot exceed 20 working days.

If the Commission does not adopt a decision within the time periods determined above, the concentration shall be deemed to be in accordance with the provisions of the Law on the Protection of Competition.

Fees and penalties

The Misdemeanour Commission shall, by a decision, impose a fine of up to 10 per cent of the value of the aggregate turnover calculated in accordance with article 16 of the Law, expressed as an absolute and nominal amount, on the participants in the concentration, having an obligation to submit the notification referred to in the concentration appraisal if they:

• fail to submit a notification of the concentration;
• implement the contrary concentration;
• fail to act upon the decision adopted; or
• implement a concentration which, by an adopted decision, has been determined not to be in accordance with the provisions of the Law.

Furthermore, special sanctions might be applicable in particular sectors (ie, banking or telecommunications), such as additional fines or non-registration. However, until now, there has been no single case where the Commission has ruled against the mergers.

General sanctions

When setting the fine regarding a violation of the provision of the Law on the Protection of Competition, the Commission will consider:

• the gravity of the misdemeanour;
• the duration of the misdemeanour; and
• the degree of distortion of competition and the effects caused by the misdemeanour.

The Misdemeanour Commission shall first determine a basic amount of the fine and then adjust it taking into consideration mitigating or aggravating circumstances.

The basic amount of the fine shall, as a rule, amount to up to 30 per cent of the revenue of the perpetrator of the misdemeanour generated from the activity carried out at the relevant market where the misdemeanour was committed in the last complete business year in which the perpetrator of the misdemeanour participated therein. The amount determined in such a manner shall be multiplied by the number of years during which the misdemeanour lasted.

The Misdemeanour Commission shall, by a decision, impose on the undertaking or association of undertakings a fine of up to 10 per cent of the value of the aggregate turnover generated in the last business year, expressed in absolute and nominal amount for which the undertaking or the association of undertakings has prepared an annual account, if it:

• concludes a prohibited agreement or otherwise participates in an agreement, decision or concerted practices which distorts the competition in terms of article 7 of the Law;
• abuses the dominant position in terms of article 11 of the Law;
• fails to act upon a decision of the Commission for the Protection of Competition referred to in article 51 of the Law; and
• fails to act upon a decision of the Commission for the Protection of Competition referred to in article 52 of this Law.

Furthermore, if the misdemeanour is committed by an association of undertakings and refers to the activities of its members, the fine shall not exceed 1 per cent expressed in absolute and nominal amount for minor misdemeanours; that is, 10 per cent expressed in absolute and nominal amount for more serious misdemeanours from the sum of the aggregate turnover for each member of the association acting on the relevant market. If a fine is imposed on an association of undertakings for the activities of its members, and the association is insolvent, it shall be obliged to collect funds for payment of the fine from its members.

In addition to the fine, the Misdemeanour Commission may impose a temporary ban on carrying out a specific activity of between three and 30 days on the legal entity.

Granting immunity (leniency)

With the aim of detecting cartels, in the sense of the Law on the Protection of Competition, a company is automatically granted leniency if it first presents evidence enabling the Misdemeanour Commission to initiate a misdemeanour procedure or first presents evidence enabling the Misdemeanour Commission to complete the already initiated misdemeanour procedure with a decision establishing the existence of a misdemeanour if the existence of the misdemeanour could not be established without such evidence. If an undertaking does not fulfil the requirements for leniency, the fine may be reduced if it provides evidence that was not available to the Commission and that contributes to the closure of the case.

The Misdemeanour Commission shall not grant full immunity from a fine to the undertaking referred throughout the duration if the cartel has taken measures by which it has forced the other undertakings to participate or remain therein.

Recent developments and case law practice

The Commission aims to be considered the most efficient regulatory body in the field of competition. In its relatively brief history, the Commission passed many important decisions, mainly on request of third parties but also ex officio. These decisions are aimed at sanctioning the infringement of the rules for the protection of competition. However, we must emphasise that most of the decisions that are appealed in front of the Administrative Court are confirmed at a later date, underlining the fact that the Commission is an independent body which passes decisions based on the experience and expertise of its decision-makers.

The main principles taken into consideration when determining sanctions are the principles of instruction in order not to repeat the activities in question and punishment for the unlawful activities. However, the main purpose of the sanctions of the Commission is in its educative nature, especially considering that the sanctions adjudicated for the infringement of the Law on the Protection of Competition are still among the lower limits provided by the law. In our opinion, the main reason for this is that the Commission for the Protection of Competition did not establish a severe infringement of the Law on the Protection of Competition to be ultimately sanctioned and, furthermore, the goal of the Commission is to maintain the market condition without causing further distortions for the market players by imposing severe sanctions.

We must note that the recent case law practice of the Commission is in line with global trends. It recently dealt with licensing agreements in the field of intellectual property. In relation to this, there are two very important decisions that created case law practice regarding the ‘semi-exclusivity’ of copyright. In both cases, the Commission ruled that semi-exclusivity is forbidden, especially when the main players on the media market are not equally treated.

The Commission also deals with the regulation of prices of internet services in the telecommunications sector. In one decision, the Commission found an abuse of dominant position of a telecommunications operator in a case where the offer for a wholesale given to internet service providers was almost the same as the retail prices for the end users. Put simply, it ruled that it is not allowed to offer wholesale prices that are higher than retail prices.

There is an ongoing case relating to price fixing in the pharmaceutical sector in the procedure for public procurement of a generic drug. The case was decided by the Commission, and the unsatisfied parties (the pharmaceutical companies) started a court procedure in front of the Administrative Court. The court annulled the Commission’s decision and returned the case to the Commission for re-deciding, with an instruction to correct the procedural errors and the wrong application of the substantive law in the determination of the fines. The Commission appealed the judgment before the Supreme Administrative Court unsuccessfully. Upon the given instructions, the Commission passed a decision which did not satisfy the parties and the case is in front of the Administrative court once again, which this time should rule in meritum.

Finally, it is important to note that the number of cases before the Commission is constantly increasing, since the Republic of Macedonia is moving forward in the area of telecommunications, media, energy and pharmaceuticals.

The Commission’s role is ‘creating the rules’ for the protection of competition in the fastest developing sectors in the Republic of Macedonia. This mission has a beneficial role for all of the market players and for the welfare of the consumers.

By Valentin Pepeljugoski, Managing Partner, and Ana Pepeljugoska, Junior Adviser, Law Office Pepeljugoski