Only the English text is available and authentic.

REGULATION (EEC) No 4064/89 MERGER PROCEDURE

Article 6(1)(b) NON-OPPOSITION Date: 29/06/2000

Also available in the CELEX database Document No 300M1859

Office for Official Publications of the European Communities L-2985 Luxembourg

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 29/06/2000 SG (2000) D/104573-5

In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EEC) No 4064/89 concerning non-disclosure of business secrets and other confidential information. The omissions are shown thus [Ö]. Where possible the information omitted has been replaced by ranges of figures or a general description.

PUBLIC VERSION

MERGER PROCEDURE ARTICLE 6(1)(b) DECISION

Dear Sirs,

Subject: Case No COMP/M.1859 ñ ENI/GALP Notification of 24.05.2000 pursuant to Article 4 of Council Regulation (EEC) No 4064/89

1.On 24 May 2000, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EEC) No 4064/89 by which the Italian energy company ENI S.p.A., through its subsidiaries AgipPetroli S.p.A. ("AGIP"), Snam S.p.a. ("SNAM") and Societ‡ Italiana per il Gas per Azioni ("ITALGAS"), acquires joint control of the Portuguese refiner PetrÛleos e G·s de Portugal, SGPS, S.A. ("GALP"). This is done by way of purchase of shares, in particular from the Portuguese State which had sole control over GALP.

2.After examination of the notification, the Commission has concluded that the notified operation falls within the scope of Council Regulation (EEC) No 4064/89 and does not raise serious doubts as to its compatibility with the common market and with the functioning of the EEA Agreement.

I. THE PARTIES AND THE OPERATION

3.AGIP, SNAM and ITALGAS (the ëENI companiesí) are respectively active in the refining and marketing of petroleum products, the supply and transmission of natural gas and the retail distribution of natural gas and water supplies in Italy. All aforementioned companies are controlled by the State-owned Italian energy company ENI, that is active world-wide in the oil and gas, petrochemicals and engineering sectors.

4.GALP is a holding company, controlled by the Portuguese State, combining its interests in the Portuguese oil company Petrogal (active in the refining, transport,

Rue de la Loi 200, B-1049 Bruxelles/Wetstraat 200, B-1049 Brussel - Belgium Telephone: exchange 299.11.11 Telex: COMEU B 21877. Telegraphic address: COMEUR Brussels.

storage and marketing of petroleum products principally in Portugal) and the Portuguese gas companies G·s de Portugal and Transg·s that operate the Portuguese gas transmission network and which have interests in local gas distribution companies.

5.The notified operation concerns the acquisition of joint control by the ENI companies, over GALP, an undertaking previously independent of the ENI companies and exclusively controlled by the Portuguese State . As a result of the transaction, the ownership of GALP will be restructured, with the Portuguese State holding 48,31%, the ENI companies 33,34%, the Portuguese electricity company EDP 14,27%, the Spanish electricity utility company IBERDROLA having 4% and NETG¡S/PORTG¡S holding the remaining 0,4%.

II. CONCENTRATION

6.The Shareholders Agreement provides that the Portuguese State and the ENI Companies shall co-ordinate their positions in GALPís management board and shareholders meeting and that strategic decisions will require the agreement of both the Portuguese State and the ENI companies. As such, the proposed concentration is an acquisition of joint control within the meaning of Article 3(1)(b) of the Council Regulation.

III. COMMUNITY DIMENSION

7.The combined aggregate worldwide turnover of the undertakings concerned (1999 figures) exceeds Ä 5000 million. The aggregate Community-wide turnover of each party exceeds Ä 250 million. They do not achieve more than two-thirds of their aggregate Community-wide turnover within in one and the same Member State. The notified operation, therefore, has a Community dimension according to Article 1(2) of the Merger Regulation.

IV. COMPATIBILITY WITH THE COMMON MARKET

A. Relevant product markets

8.The economic sectors involved in the concentration are the upstream and downstream oil industry, the production and sale of natural gas and the production and sales of various (petro-)chemical products. While the ENI companies and GALP are both active in a wide range of activities at all levels of the oil and gas industry, there is very limited geographic overlap between their businesses. As such, the effects of this concentration will be in the oil industry, more specifically the marketing of petroleum products and only to a small extent in the area of petrochemicals.

M ARKETING OF PETROLEUM PRODUCTS

9.At the distribution level downstream of refining, the operation covers the retail sales of motor fuels and the non-retail sales of fuels. As concluded by the Commission in 1 2 BP/Mobil and Exxon/Mobil , retail sales and non-retail sales are to be considered as distinct product markets. Concerning the retail sales of motor fuels, the

Case N∞ IV/M. 727 - BP/Mobil

Case N∞ IV/M. 1383 - Exxon/Mobil

10.Commissionís previous conclusion not to further distinguish motor fuels can be maintained as there is a considerable degree of supply side substitutability at the refining level. In addition, the distribution of these products is made at the same point of sales in order to serve the maximum number of automotive customers (market shares for each type of fuel roughly coincide with the aggregate market share). It is not necessary to ascertain whether fuel retail sales on motorways constitute a market different from off-motorways retail sales. Firstly, ENI (operating under the AGIP brand) does not have service stations located along motorways in the affected geographical market. Secondly, even in a market limited to off motorways sales, the operation would not lead to competition concerns.

As concluded in BP/Mobil, in the non-retail market, it is not possible to aggregate the different types of fuels into one category as each refined product constitutes a relevant product market. Non-retail sales of fuels is therefore further subdivided into sales of gasoline, diesel, fuel oil and LPG.

PETROCHEMICAL PRODUCTS

11.The operation creates horizontal overlaps in the Community in four chemical products, namely, benzene, toluene, orthoxylene and paraxylene. The question whether each of these products constitutes a product market in itself may be left open in the present case, as, no matter the exact delineation of the market, effective competition would not be significantly impeded in the EEA or any substantial part of it.

B. Relevant geographic market

12.In line with the findings in Exxon/Mobil concerning motor fuel retailing in other countries the Commission has found that this activity corresponds to a national market in Portugal as well.

13.The parties argue that the relevant geographic market for the non-retail fuel products is at least national. This is because, even if the products are distributed on a sub-national level, there is price transparency, overlapping supply boundaries and supply agreements between suppliers. On the other hand, the Commission has found in 3 previous cases that the geographic market can be narrower in scope as resellers and end-users seek to economise on transportation costs. As such, each point of supply can supply a certain geographic area (hinterland), of which the radius is a function of the transport costs for transporting the products to the final destination. However, since the operation does not raise competition problems under any envisegeable market definition.

Case N∞ IV/M. 1383 - Exxon/Mobil, Case N∞ IV/M. 1628 - TotalFina/Elf

14.In the Partiesí view, the relevant geographical market for petrochemicals (and with specific reference to paraxylene) is at least EEA-wide. The market investigation has not indicated elements that could contradict this view. For the purpose of the present notification, it can be left open whether the market could be wider than EEA, as even under any wider definition of the market, competition would not be significantly impeded in the EEA or any substantial part of it.

Case N∞ IV/M. 1383 - Exxon/Mobil, Case N∞ IV/M. 1628 - TotalFina/Elf

V. ASSESSMENT

M ARKETING OF PETROLEUM PRODUCTS

15.Concerning the marketing of petroleum products, the transaction involves four affected markets: retail sales of motor fuels in Portugal, non-retail sales of motor gasoline in both Portugal an Spain and non-retail sales of diesel in Portugal.

Portugal

16.Concerning retail sales of motorfuels in Portugal, the partiesí combined market shares will amount to [45%-50%] on an overall market covering motorways and non-motorways. Although GALPís leading position [45%-50%] is uncontested, the competitive conditions in this market will not be appreciably changed through the operation as the addition of ENIís share (through AGIP) represents a mere [0%-5%]. Several strong multinational oil companies such as BP Amoco [20%-25%], Shell [15%-20%], Repsol [5%-10%] and a growing number of recent entrants, both independent ìwhite pumpsî and hypermarkets, will continue to compete. The situation would essentially be the same if the relevant product market were limited to retail sales off motorways. The combination of GALPís and ENIís activities in the said market would thus not lead to the creation or strengthening of a dominant position.

17.On the non-retail markets in Portugal (gasoline and diesel), the liberalisation has led to the emergence of competition from non-vertically integrated players. The effect of ENIís disappearance as a supplier unconnected to GALP on this market is considered as minimal by the market, as ENI purchases almost all the motor fuels it resells in Portugal from GALP. Through Petrogal, GALP controls and operates Portugalís only two crude oil refineries, located in Porto and Sines, and almost all the distribution logistics infrastructure (import terminals / storage facilities / pipelines) in the country. Third parties have indicated that this poses difficulties for both non-vertically integrated players and for vertically integrated players to have product access and that this may make it difficult for new players to enter the market. However, the operation will not appreciably change the competitive conditions in the market as ENI has no interests in any infrastructure of the logistic chain

18.The other competitors depending on supply and infrastructure would thus not be in a worse situation than before the operation. In particular, they should be able to win the market shares formerly held by ENI if this company would raise its prices to adapt them to GALPís prices. Although being fully supply dependent on GALP, these competitors have obtained significant market shares, as illustrated by the following figures (concerning a possible national market and for diesel and for gasoline respectively): Repsol [5%-10%] respectively [20%-25%], BP/Amoco [15%-20%] respectively [15%-20%], Cepsa [10%-15%] respectively [10%-15%] and Shell [15%-20%] respectively [0%-5%]. For these reasons, the arithmetical addition of ENIís market shares [0%-5%] respectively [5%-10%] to GALPís existing shares [35%-40%] respectively [35%-40%] is not sufficient to conclude that the operation would create or strengthen a dominant position.

Spain

4

19.19. The concentration of Galp and ENI will not pose further additional supply difficulties for non-vertically integrated players in the oil market because non-vertically integrated players are not supply dependent on GALP or ENI (the parties do not own or operate crude oil refineries in Spain), nor is there any control by the parties on the logistical infrastructure. This infrastructure is, on the contrary, de facto controlled by the Compania Logistica de Hidrocarburos (CLH) in which Repsol, Cepsa and to a smaller extent BP Amoco and Shell participate. These are moreover the leading players in Spain, as illustrated by the following figures: Repsol [40%-45%], Cepsa [20%-25%], BP-Mobil [5%-10%] and Shell [0%-5%]. Moreover, even in terms of market shares, ENIís position [15%-20%] will only be reinforced ëde minimisí by GALPís market share of [0%-5%].

Petrochemical products

20.20. On a product by product basis, the only product in which the partiesí aggregate share of sales on EEA basis exceeds 15% is paraxylene [15%-20%]. Competitors such as ExxonMobil (25%-30%) and ICI [15%-20%] have market shares well above this percentage. Other competitors are Cepsa [0%-5%], Veba [5%-10%], Shell [0%-5%] and TotalFina [5%-10%]. Neither under this product/geographic market definition nor under any other possible definition the transaction raises competitive concerns.

VI. ANCILLARY RESTRAINTS

21.21. As part of the transaction, the ENI companies will enter into a Strategic Partnership Agreement with GALP, providing a framework for co-operation and the contribution of expertise for the development and implementation of projects with GALP, both upstream and downstream for oil and gas, in the Iberian Peninsula and other Portuguese speaking countries. The notifying parties have asked the Commission to declare this agreement ancillary to the operation. However, the scope of this agreement is vague and not limited in time. In its present form, they cannot be considered as directly related and reasonably necessary to the operation at stake. As such, this Strategic Partnership Agreement is thus not covered by the present decision.

VII. CONCLUSION

22.22. In view of the foregoing, it can be concluded that the proposed operation would not create or strengthen a dominant position as a result of which effective competition would be significantly impeded in the EEA or any substantial part of that area. Therefore, the Commission decides not to oppose the notified operation and to declare it compatible with the common market and with the functioning of the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of Council Regulation (EEC) No 4064/89 and Article 57 of the EEA agreeement.

For the Commission, Mario MONTI

5