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TRANSPORT

Competition report slams cozy fuel sector

CNC says small number of firms control “monopolist” transportation network

Jesús Sérvulo González

Spain has the highest automotive fuel pre-tax prices in all of Europe. The National Competition Commission (CNC) has analyzed why, and concluded that a lack of competition, significant corporate concentration and barriers to the markets are to blame. In a harsh report, the supervisor paints a scenario with multiple obstacles to free competition, entry barriers to the retail market (gas stations) and significant hurdles in the wholesale segment of the market (refineries).

The competition watchdog’s analysis states that “the inadequate level of effective competition detected, both in the wholesale and the retail segments, means the Spanish economy is faced with higher relative fuel prices, with the consequent harm to consumers, to the international competitiveness of our companies and to the economy in general.”

“This report puts forth evidence that the level of effective competition in the automotive fuel sector in Spain is insufficient; a situation which may explain the high prices and margins recorded in Spain and their differential with respect to other EU countries,” it adds.

The CNC notes that the automotive fuel distribution segment is highly concentrated in three major operators (Repsol, Cepsa and BP), which enjoy substantial advantages with respect to all other operators due to their weight in the market, their vertical integration with refining activities in Spain, structural ties to the transportation network monopolist, CLH, [...] and due to their highly extensive and stable retail networks of service stations.” This concentration is higher than in comparable European countries, the report adds.

At the same time, the CNC underscores that since the beginning of the economic crisis in 2007, and up until 2010, gross distribution margins in Spain grew 20 percent, both for gasoline and diesel. This increase, says the report, was recorded despite the fact that Spain started out “from a baseline of much higher previous levels than seen in comparable countries and despite the pronounced contraction of fuel demand seen since then.”

The report also warns about the lack of control over CLH, the company that owns and operates the national fuel transport and oil pipeline networks. The major operators have access to and influence over CLH, whose board of directors and managing bodies include representatives of said operators.

The 85-page document also highlights the numerous administrative hurdles to opening new service stations in Spain, and blames local governments for this problem. The CNC also notes how difficult it is to open new refineries, and recalls that the last refinery to be built in Spain dates back to 1970.

After this analysis, the competition watchdog puts forward 23 specific measures to help improve competition and allow other players into the automotive fuel market. These include the creation of conflict of interest regulations to prevent distribution execs from occupying positions of influence in CLH, setting a ceiling of 5 percent of the share capital that anyone may directly or indirectly hold in CLH, and reducing bureaucratic hurdles to opening new gas stations or refineries.

The report also warns that all pro-competition measures must be applied simultaneously “in both segments of the market. Otherwise, if measures are implemented in only one segment of the market, there will be no assurances of success.”

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