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26 September 2019
CADE's focus on unilateral conduct cases
Scope of investigations
State-owned oil and gas company Petrobras recently reached two settlements with the Administrative Council for Economic Defence (CADE) to close five investigations into alleged abuses of dominance in the oil refining and domestic natural gas markets. The settlements have drawn significant attention, as they constitute the first time that divestment commitments have been adopted as a remedy in a dominance case.
The investigations into Petrobas are in line with CADE's recent focus on unilateral conduct investigations, which has increased compared with previous years. In 2018 CADE opened 30 abuse of dominance investigations and concluded nine, whereas in 2017 it opened 18 and concluded four.(1)
CADE General Superintendent Alexandre Cordeiro publicly announced that CADE's investigation division underwent structural changes in 2018 to improve how it handles unilateral conduct cases.(2) Each unit within the superintendence allocated part of its team to work only on unilateral conduct cases.
This approach is also in line with the current trend to dedicate more resources to unilateral conduct cases, as expected per the public statements made by the authorities since the end of 2017 (for further details please see "Abuse of dominance enforcement – what's next?").
The investigations into Petrobras concerned alleged abuses of dominance occurring in the oil refining market and in the natural gas market.
CADE opened the probe into the oil refining market in December 2018 after an economic study by the antitrust authority indicated that Petrobras had an almost monopoly in this sector (a 98% market share), which had allegedly enabled it to abuse its dominant position. At first, the case was launched as a general inquiry into Petrobras's activities in the oil refining market, with no specific conduct being examined. Later, CADE merged a second case into its original investigation following a complaint by the Brazilian Association of Fuels Importers that Petrobras had abused its market power and introduced predatory prices in the domestic oil market in order to hinder imports.
With regard to the natural gas market, there were three different ongoing probes involving Petrobras, the first of which was initiated on April 2014. As reported by CADE, Petrobras controls approximately:
The company also controls 20 of the 27 state natural gas distributors. The conduct under investigation included alleged price discrimination and refusal to supply.
With the execution of both settlements, all five proceedings have been suspended and will be closed once Petrobas's compliance with the obligations undertaken is confirmed.
Petrobras's settlements involve divestment commitments, which are unprecedented as a remedy in dominance cases. The aim is to resolve the company's dominance of the oil refining and natural gas markets by transferring business to new players and, as a result, mitigate the effects of any alleged conduct that could qualify as abusive.
With regard to the oil refining sector, Petrobras has agreed to sell eight of its 13 Brazilian refining units to different buyers, including its oil transportation assets.(3) The refining units to be sold produce 8.1 million barrels of oil a day and represent approximately 50% of Petrobras's oil refining assets.
The commitments aim to foster competition through the entry of new agents into market sectors in which Petrobras enjoys almost monopolistic conditions. Through increased rivalry and Petrobas's reduced dominant position, the settlement plans to stop allegedly existing and prevent occasional future abusive practices that CADE uncovers.
Petrobras has until December 2021 to divest its eight oil refining units and ownership of its gas companies. This deadline can be extended by up to 12 months. The settlements contain no waiver for merger control rules, so divestment transactions that trigger the legal thresholds will be subject to merger control filings with CADE as a condition for their conclusion.
For further information on this topic please contact José Inácio Ferraz De Alemeida Prado Filho or Bruna Anklam at Barbosa, Müssnich & Aragão Advogados by telephone (+55 11 2179 4600) or email (email@example.com or firstname.lastname@example.org). The Barbosa, Müssnich & Aragão Advogados website can be accessed at www.bmalaw.com.br.
(1) For the 2018 figures, see CADE's 2018 management report, available here. For the 2017 figures, see CADE's 2017 management report, available here and "CADE, OCDE e o abuso de posição dominante", Valor Econômico, 14 May 2019. The unilateral conduct cases concluded by CADE include those that have been settled. In 2018 five investigations were settled, while in 2017 four investigations were settled.
(3) The units are located in the states of Bahia, Amazonas, Minas Gerais, Paraná, Rio Grande do Sul, Ceará and Pernambuco. Petrobras will keep its units in the states of São Paulo and Rio de Janeiro and one unit in northeast Brazil.
(5) The divestment of Petrobras's indirect participation in distribution companies will be made by selling its 51% share in Gaspetro or seeking the sale of Gaspetro's interest in its distribution companies.
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José Inácio Ferraz De Alemeida Prado Filho