Refineries and fuel wholesale: More reason for new regulatory powers?

The German Bundeskartellamt has published an interim report on its ongoing investigation into fuel refinery and wholesale. While the regulator has so far found no indications of illegal agreements on prices, it will continue to investigate whether market participants might have breached antitrust law. At the same time, the findings could fuel (no pun intended) plans of the German government to equip the Bundeskartellamt with new far-reaching powers.

The interim report is an intermediate step of an “ad-hoc” sector inquiry initiated in April 2022, following the war in Ukraine and rising energy prices, which at the time sparked quite a bit of regulatory activity across Europe (see our posts here and here, and re gas prices here).

Those who imagine an interim report to be a short high-level paper with an initial overview are mistaken: The report is just over 120 pages long and provides an (apparently) thorough analysis starting with how fuel is produced all the way to the factors that might influence pricing. The report distinguishes between reasons not relevant to antitrust law (e.g., supply shortages) and reasons relevant to antitrust law (e.g., market dominance).

Big profits

In line with what seemingly was also public opinion, the German regulator finds that fuel prices “decoupled” from crude oil prices, and that oil companies made “very large” profits following Russia’s attack on Ukraine. The Bundeskartellamt goes on to say that significantly increased prices on the level of refineries and wholesalers cannot not be explained by increased costs.

No cartel

However, different from at least parts of the public debate, the regulator has found no indications of illegal anticompetitive agreements between oil companies. The report notes that the cartel prohibition applies to any form of cooperation between companies which has as its object or effect the restriction of competition. But simply monitoring what competitors do is generally not an antitrust infringement.

Short of such an infringement, the interim report nevertheless points to “structural problems” in the market, with many players being active on all levels of the supply chain. Yet, unilateral conduct generally only violates antitrust law if it amounts to an abuse of dominance, for which the hurdles are relatively high.

When it comes to monitoring the behaviour of competitors, the regulator seems cautious of market information systems, which lead to a “relatively high” transparency on the refinery and wholesaler level. The Bundeskartellamt will assess these market information systems further in the next stage of the sector inquiry.

This is not entirely without irony, as the Bundeskartellamt itself runs the market transparency unit for fuels, which gathers information on fuel prices and passes the information on to information service providers like fuel price apps. The system is meant to enable consumers to compare fuel prices across petrol stations, times of day etc., but in return significantly increases transparency for fuel sold via petrol stations (the system of course does not directly relate to wholesale of refineries).

Political implications

The Bundeskartellamt will now investigate further, with a particular focus on the wholesale level, and will ultimately prepare an even longer final report. The regulator expects to be able to use its findings also for future proceedings, but clearly states that it cannot yet foresee whether its findings will indeed lead to new cartel investigations.

Still, the interim report already has two intertwined political implications:

• Time and again, the Bundeskartellamt feels compelled to point out the applicable legal framework and the “extraordinarily” high burden for finding a given pricing to be an abuse of dominance. Explaining the law to the public is of course important, but the sometimes prominent emphasis could be a hint to the public and/or political pressure to act.
• At the same time, a market structure that is deemed to be problematic and high legal hurdles to act tie in well with the German government’s intention to significantly broaden the Bundeskartellamt’s powers. We have blogged on this already, so I will keep it short: The government plans to enable the regulator to impose specific measures on market participants following a sector inquiry, even absent of an antitrust infringement. I.e., even where companies have done nothing illegal, the Bundeskartellamt would be able to order them to change their behaviour.

The interim report might be read by some as further encouragement for the government to go ahead with its plan. And it will be interesting to see whether the final sector inquiry report comes out before or after the law has been amended, and whether that would make a difference.

Photo by Kamran Chaudhry on Unsplash