When Mr Tomasz Chróstny was appointed the new President of the Office of Competition and Consumer Protection (OCCP) in January 2020, he did not expect that the activities of the authority under his leadership would come to be dominated by the tasks required to combat the effects of the emerging COVID-19 pandemic upon the economy. Indeed, as a result of the pandemic, the OCCP has assumed a number of additional duties in some new areas, for example, it has been tasked with reviewing foreign investments in selected industries as a consequence of COVID-19 legislation.
At the outset of the pandemic, there were substantial fears that the extraordinary situation will adversely impact the functioning of public administration bodies, including the OCCP. In the field of merger control, it was anticipated that the merger control reviews might be materially prolonged. However, despite the lockdowns and the necessity to work (to a large extent) remotely, the OCCP acted in a timely and efficient manner.
Phase I and II proceedings
The applicable laws require the OCCP to clear straightforward mergers in Phase I proceedings with a one-month deadline, which can be extended by the periods of related correspondence. If the OCCP believes the concentration is likely to have anticompetitive effects, requires a market survey or otherwise perceives the case as complicated, it initiates Phase II proceedings. The formal deadline for the OCCP to finalise Phase II proceedings is four months, but in practice, it takes much more time.
The average length of Phase I proceedings in 2020 was 39 days, which was six days longer in comparison to 33 days in 2019. The overall impact of COVID-19 and the related lockdowns was, therefore, limited. The OCCP has not suspended work at any time and despite the fact there were formal possibilities to stay the proceedings due to specific COVID-19 legislation, the officials have not elected to postpone ongoing cases.
Merger control decisions in the last 18 months
In 2020 the OCCP issued 251 merger control decisions, slightly less than in 2019 (270 decisions). It appears that the number of the decisions in 2021 will be in ta he similar range (127 decisions issued by the OCCP in the first five months of 2021).
The vast majority of those merger control decisions pertained to straightforward cases subject to Phase I, and in this respect the pattern has been quite similar to the preceding years.
However, 2020 contained an unprecedented number of OCCP decisions, which sparked high controversies and vigorous debates and unexpectedly brought the area of merger control to public spotlight. Interestingly, the debates focused on themes that seem very current in other jurisdictions and at EU level, eg, protection against political interference in merger control or the criteria which should be taken into account in the merger control process. Accordingly, while this article provides a glimpse into the local decisions, the authors consider that the themes discussed herein are more of a universal nature.
It should also be noted that the matters described herein are far from being ultimately decided upon. The OCCP will need to defend its decisions before the Court for Competition and Consumer Protection (the “Court”), and possibly appeal courts. Admittedly, this is a rare situation for the OCCP since its decisions pertaining to merger control issues have been infrequently challenged in the past.
PKN Orlen/Polska Press
There has been a marked tendency over the last decades for the Polish government to support and develop “national champions”. This trend has, arguably, increased in recent years and manifested itself, amongst others, in the consolidation of large state-owned companies or acquisitions of private companies by state-owned entities.
One of the major consolidating players thus far has been PKN Orlen – an energy, petroleum and chemical conglomerate active in Poland, CEE and the Baltic States. Due to the substantial scale of its operations, a number of transactions involving PKN Orlen have required clearance of the European Commission (EC), with the most notable case involving a merger with another, Polish state-owned company, Lotos (following Phase II proceedings, the transaction was ultimately cleared by the EC subject to a substantial remedy package). Nonetheless, in a number of cases, Poland had jurisdiction, amongst others, due to a referral from the EC to the OCCP.
Recent PKN Orlen activity
Recently, PKN Orlen has started to acquire non-core businesses. For example, it acquired a major distributor of press, Ruch. Following a referral from the EC, the transaction was cleared in June 2020, after a relatively short Phase I investigation. Even though the transaction involved limited overlaps (mostly on the local markets for the sale of printed press and FMCG), there have been concerns raised over the speedy handling of the case by the OCCP. Critics mentioned that the consolidation warranted a closer inspection, if only on account of vertical and conglomerate aspects. It is also noteworthy that the OCCP has not published any written justification of the clearance decision.
A few months later, PKN Orlen decided to further expand its portfolio and invest in another company from an unrelated sector by acquiring Polska Press, one of the biggest local and regional press publishers in Poland. The transaction was criticised by the opposition in Poland as a move to stifle free press in Poland. It was argued that the state-owned company invests in non-core business merely to remove journalists who are critical of the government.
The acquisition of Polska Press was unconditionally cleared by the OCCP in February 2021 in Phase I. The merger was deemed as an operation involving non-competitors and thus unlikely to cause any harm to competition.
The decision sparked further protests. In particular, a number of commentators argued that the issue of plurality of media and freedom of speech should have been taken into account by the OCCP during the merger control review. This aspect has been flagged, amongst others, by Mr Adam Bodnar, the Polish Commissioner for Human Rights (ombudsman). It has also been argued that the OCCP took a lenient approach to the transaction, downplaying, eg, potential vertical aspects resulting from combining the distribution business of recently acquired Ruch with Polska Press.
Historic ombudsman intervention
The concerns over plurality of the media have ultimately led the ombudsman to lodge a historic first appeal against the decision to the Court. This was a novel and surprising development. The law does not generally allow third parties to appeal merger control decisions. Exceptionally, the ombudsman is entitled to submit the appeal pursuant to the specific legislation which governs the activities of the ombudsman. The appeal of the ombudsman also contained a request for injunction to stop implementation of the transaction until the Court rules on the appeal.
In March 2021, the Court agreed that the merger should be suspended until a judgment on the merits is reached. This, in turn, prompted questions of admissibility of PKN Orlen to exercise control over Polska Press (eg, appointing senior executives) prior to the decision becoming final.
The OCCP has defended its decision and stated that the objections of the ombudsman are without merit. In light of those statements, it is unlikely that the OCCP will take any adverse actions vis-à-vis PKN Orlen on account of possible gun-jumping allegations.
The impact of lengthy appeal processes in Poland
Since the appeal processes in Poland are usually quite long lasting, the final determination whether the concerns raised by the ombudsman are merited is likely to be substantially delayed in time. It is also uncertain whether the matter will ultimately come to the Court. The tenure of Mr Bodnar as the ombudsman is set to expire in July 2021. It is uncertain whether his successor will be willing to uphold the allegations (at the time of writing, it was unknown who would succeed Mr Bodnar).
The debate over PKN Orlen/Polska Press highlighted two interesting aspects:
Regarding OCCP independence, it has been recalled by the critics of the decision that the OCCP regularly appears to take a lenient treatment of consolidations involving state-owned companies, which is aligned with the government’s strategy of favouring growth of national champions. Mr Chróstny has firmly rebuked the allegations of any biased or politically driven decisions. Nonetheless, it cannot be ignored that current regulations allow the Polish Prime Minister to revoke the President of the OCCP at any time and without justification.
This structural set-up, arguably, might make it hard for any head of the agency to pursue decisions which are at odds with the government’s strategy. In the past, there have been situations of the OCCP being dismissed arguably due to opposition to the government’s plans (eg, in 2012, Mrs Krasnodębska-Tomkiel was removed from that post; although no justification was provided, this dismissal was widely attributed to her opposition to the government’s plans to consolidate state-owned energy companies).
Rectifying the situation
This situation could soon be rectified. Poland must implement the ECN+ Directive (Directive (EU) 2019/1), which provides safeguards for the independence of competition regulators. One of the prominent features of the drafts of implementing legislation is a fixed tenure of the OCCP and substantial limits for dismissal during the term of office.
As regards the second aspect, it has been noted by critics of the PKN Orlen/Polska Press decision that the OCCP should take a more holistic approach to transactions which come under its radar, viewing them from a broader perspective. The OCCP countered this view by stating that it is bound under law to consider only competition-related aspects during a merger control review and any transgression beyond these considerations would be unlawful.
From a formal stance – taking into account the statutory sole criterion of “substantial lessening of competition” as the relevant proxy for screening the mergers – such position would be justified. Nonetheless, a question appears whether such formalistic approach is right to properly address consumer welfare considerations in the future? Arguably, in certain situations, it might be difficult to reconcile such formal approach with the novel challenges related to, eg, climate change (sustainability issue) or COVID-19. Accordingly, it appears that the discussion regarding how these topics should be dealt with in the future in the framework of the merger control regime is very much current.
Nord Stream 2 Gas Pipeline
Whereas the PKN Orlen/Polska Press decision drew criticism for the apparent lack of adequate enforcement, the Nord Stream 2 gas pipeline gun-jumping case could be seen as a clear example of a highly “interventionist” policy. The OCCP decided to depart from its established decisional practice and issued a decision which substantially stretches the concept of “concentration”. At the same time, notwithstanding the novel approach which the OCCP has applied, the authority decided to impose record fines.
In October 2020, the OCCP issued perhaps the most widely commented-upon decision in its history, both in Poland and abroad. The OCCP found that the conclusion of agreements related to financing of the construction of the Nord Stream 2 offshore gas pipeline amounted to the creation of a joint venture, for which neither Gazprom nor the financial investors (companies from the Engie, Shell, Uniper, OMV and Wintershall capital groups) had received merger clearance in Poland.
The authority imposed in this case record fines, with Gazprom fined over PLN29 billion, and the total amount of fines at almost PLN30 billion, which is a world-record fine. For the first time in its history the OCCP imposed maximum fines on the parties for gun jumping. In previous non-notification cases, the fine never exceeded PLN1 million nor reached the statutory limit of 10% of turnover. The OCCP also ordered all parties to terminate their contracts related to financing of the construction of the Nord Stream 2 pipeline, effectively halting its progress.
Points of interest
This case is interesting for several reasons, primarily due to the authority finding that the creation of a joint venture can occur in a situation where its alleged "founders" do not acquire shares or hold direct control rights in the commercial entity, which is in direct conflict with the provisions of the Act and the guidelines issued by the OCCP.
The sole shareholder of Nord Stream 2 AG throughout the project – the company constructing the pipeline – remained Gazprom. The OCCP found that the conclusion of financing contracts, with the use of market-recognised safeguard mechanisms, is sufficient to create a “quasi” joint venture, in its view constituting a notifiable transaction. This is a very far-reaching conclusion with potentially dangerous consequences from the perspective of the certainty of business transactions in Poland and potentially worldwide, with this reasoning relevant to all foreign-to-foreign financing and commercial arrangements.
Also notably, the OCCP, notwithstanding the far-reaching legal doubts as to the interpretation of the merger control regulations, imposed a remedy on the undertakings: it obliged them to terminate contracts related to financing of the construction of the Nord Stream 2 gas pipeline.
The issued decision has drawn criticism from competition law practitioners both in Poland and abroad. Those voices, as well as the OCCP’s communications, focus around a similar issue, although from varying perspectives – that the decision might aggressively adopt a stance that pushes the lines of legal argumentation or assess market effects on outdated data or on policy points other than competitiveness (including national energy security interests). The validity of this reasoning will ultimately be decided by the Court.
Eurozet's minority shareholder, Agora, filed back in 2019 a notification of its intention to acquire control over Eurozet by buying the remaining shares from the majority shareholder. After a preliminary analysis of the case, the OCCP concluded that the case required a market survey, with Phase II proceedings initiated. After more than a year of proceedings, the OCCP expressed its objections with respect to the planned concentration, indicating that competition may be restricted as a result of the concentration. Finally, in January 2021, the OCCP issued a prohibition decision.
The relevance of the decision
The case deserves special attention primarily because it is one of the few decisions issued by the OCCP in which emphasis was placed on reducing the number of competitors on the market. In the past, decisions issued by the OCCP have usually concluded that even if the number of competitors operating on the relevant market is reduced from three to two, a situation of a competitive duopoly is acceptable, as the existence of at least two strong competitors on the market naturally ensures the existence of competitive pressure, which offsets the risk of reduced competition.
It appears that the decision in the Agora/Eurozet case constitutes a departure from the previous approach – one which will have a significant impact on the assessment of future proposed transactions. Thus far only the potential risk of strengthening of a dominant position seemed to be a prevailing criterion. Following this decision, it is possible that more varied and exhaustive competitive assessments might be required for approving certain transactions (especially involving the consolidation of second and third market players).
The procedural aspects of this decision should also not be overlooked. First and foremost is the fact that this decision is the first prohibition decision issued in many years. Moreover, as can be inferred from the public statements made by Agora's representatives, the very fact of issuance of the decision was a surprise, as discussions with the OCCP were still ongoing concerning the terms of the transaction.
This decision was appealed to the Court. The judicial review will undoubtedly scrutinise the reasons that led the OCCP to prohibit the planned acquisition of control over Eurozet by its minority shareholder. While the case focuses on a politically sensitive market (media and radio publishing), it might have a wider impact on transactions previously considered not competitively restrictive consolidations.
Other Notable Cases
The vast majority of cases reviewed by the OCCP as part of merger control are initiated at the request of an undertaking, with the aim of obtaining the OCCP’s approval for the concentration. Sometimes, however, such cases are initiated ex officio by the OCCP – this applies to cases where there is a suspicion that undertakings have implemented a merger without the required clearance. Clear-cut cases are relatively rare, ie, cases where an undertaking acquires 100% of shares in another company without the clearance of the OCCP. As a rule, these cases are much more nuanced, and the decisions provide the undertakings with valuable information on possible assessment of their planned market actions.
The case can be traced back to 2014, when AmeriGas Polska began commercial co-operation with Centrum Dystrybucji Gazu, consisting of carrying out gas deliveries and renting its equipment available. AmergiGas made the conclusion of the agreement conditional on adequate security for potential claims against Centrum Dystrybucji Gazu. In this situation, a registered pledge was established on the shares of Centrum Dystrybucji Gazu in favour of AmeriGas, specifying in the pledge agreements the pledgee's rights, including:
The shareholders of the Centrum Dystrybucji Gazu were also obliged to obtain consent to adopt resolutions which could result in limiting the shareholders' rights to dispose of the shares or benefits, increasing the share capital, redeeming the shares, merging, dividing or transforming the company or diluting the shares. As established in the course of the proceedings, AmeriGas used its powers, inter alia, by not consenting to the sale by Centrum Dystrybucji Gazu of an organised part of the enterprise, whose value exceeded PLN500,000.
In the opinion of the OCCP, the powers granted in the above-mentioned agreements exceeded the acceptable level of protection of the interests of the pledgee or minority shareholder, and AmeriGas exercised a decisive influence on the operations of Centrum Dystrybucji Gazu. According to the authority, by acquiring in the pledge agreements a number of rights in Centrum Dystrybucji Gazu, AmeriGas in fact acquired control over the company without obtaining the consent of the OCCP, for which it was fined PLN730,000.
Linde Gaz Polska
Linde Gaz Polska was not a party to the merger control proceedings at all, ie, it did not file for a clearance decision to the OCCP to carry out the planned concentration, nor was it the subject of interest of another entity which wanted to acquire control over it. However, this did not prevent the OCCP from imposing on Linde Gaz Polska a fine of PLN120,000 for non-cooperation in the course of proceedings consisting in the failure to provide information requested by the OCCP.
Although the imposed fine may seem surprising, it is worth carefully analysing the reasons why it was imposed. As can be seen from the contents of the decision, as part of the merger control proceedings involving the acquisition of control over ACP Europe and Eurocylinder, the OCCP decided to initiate Phase II proceedings, which involved the need to conduct a market survey. The basic method of conducting such an investigation is to send out requests for specific market information to undertakings having knowledge of the relevant markets material to the concentration. The investigation in this case concerned the market of liquid CO₂, CO₂ in cylinders and dry ice.
In the course of the proceedings, the OCCP called upon the competitors and contractors of Air Products and ACP Group, including Linde Gaz Polska, to submit certain market data. As can be seen from the decision, Linde Gaz Polska, despite being requested to do so twice, did not respond. Finally, after the deadline had expired, the company submitted information requested by the authority, at the same time requesting that the deadline be restored, explaining that there were problems with the internal circulation of documents in the company due to the increased holiday period. In addition, Linde Gaz Polska explained that an external advisor was responsible for the internal transfer of documents, and the company's management board became aware of the OCCP's requests after the deadline for responding expired.
In the end, the OCCP assumed in the decision that the company's omission was not intentional and, moreover, the company eventually provided the requested information. However, this circumstance only reduced the amount of the fine, but did not result in waiving it in its entirety. In this context, it is worth recalling the serious sanctions threatening undertakings that fail to submit the requested information to the OCCP; ie, a fine of up to EUR50 million. Practice shows that this fine may be imposed not only on the undertaking directly concerned by the merger control proceedings conducted by the OCCP, but also on third parties that are requested to provide information/documents.