In his decision of 6 October 2020 in the Nord Stream 2 case, the President of the Polish Office for Competition and Consumer Protection (Polish Competition Authority – PCA) imposed maximum fines on Gazprom (exceeding PLN 29 billion /EUR 6.5 billion/) and five other companies (exceeding PLN 234 million /EUR 52 million/) for creating a joint venture without PCA’s prior consent.
Background of the case
In December 2015, a notification for approval of a contemplated concentration of undertakings into a joint venture named Nord Stream 2 AG was submitted to PCA. Then PCA analysed the case and made reservations indicating that it could potentially lead to a restriction of competition. Following PCA’s objections, the participating undertakings withdrew the notification in the second half of 2016, which in practice meant that the concentration would not be allowed to go ahead.
Subsequently, the parties to the planned concentration restructured the deal and proceeded as if now a notification was no longer required. According to PCA, a joint venture may be established when two or more entities unite their economic interests (even if a separate entity is not created). This has been achieved in the Nord Stream 2 case through the signing of a financing agreements, which, according to PCA, were significant to the execution of the project and led de facto to a creation of a joint venture by the parties.
In April 2017, upon becoming aware that the participants in said transaction had signed a contract for the construction of the Nord Stream pipeline, PCA opened an investigation (into the circumstances of the case and not against any specific entity). The investigation showed that, despite the absence of PCA’s consent, Gazprom and other companies financing the construction of the gas pipeline connecting the Russian part of the Baltic Sea coast with the German coast never abandoned their concentration intention and simply carried it out in a different form. None of these undertakings notified PCA of their actions. As a result, one year later, antimonopoly proceedings into the creation of a concentration without PCA’s consent were initiated against six undertakings involved in the project, namely Russian Gazprom, French Engie Energy (registered in Switzerland), German Uniper, Austrian OMV, Dutch-British Shell and German Wintershall (the last four undertakings were registered in the Netherlands). These proceedings lasted two and a half years and were concluded with the issuance of a decision dated 6 October 2020.
Requirements for notification of a contemplated concentration under Polish law and possible penalties for gun-jumping
Pursuant to the provisions of the Polish Act on Competition and Consumer Protection of 16 February 2007 (the “Act”), transactions consisting in the creation of a joint venture by two or more undertakings are subject to prior PCA notification. This obligation also applies to transactions performed abroad when they have or may have an effect in the territory of Poland. The Act prohibits undertakings from implementing a concentration without PCA’s consent.
Undertakings that violate the prohibition of concentration without PCA’s approval are liable to a fine in the maximum amount of 10% of their annual turnover. Also, if the concentration was implemented without PCA’s consent and led to a situation where it is no longer possible to restore competition, PCA may order a total or partial disposal of the newly created joint venture’s assets and shares granting control over it, and even a dissolution of the joint venture altogether.
In addition, any undertaking that fails to provide the requested information during the proceedings may be subject to a PCA-imposed fine of up to EUR 50 million.
Fines imposed in the Nord Stream 2 case
In the course of the Nord Stream 2 antimonopoly proceedings, two participants in the project, Gazprom and Engie Energy, were first subjected by PCA to a procedural fine for failing to cooperate with PCA in the proceedings and for failing to provide requested information and documents. These fines were record-high: in the case of Engie Energy, the fine amounted to PLN 174 million (equivalent to EUR 40 million) and in the case of Gazprom – to almost PLN 213 million (equivalent to EUR 50 million), i.e. the highest fine allowed.
As a result of the antimonopoly proceedings, in its decision dated 6 October 2020, PCA imposed fines in the following amounts on the participants in the Nord Stream 2 project for creating a joint venture without its consent:
- Gazprom – approx. PLN 29 billion (EUR 6.5 billion)
- OMV – approx. PLN 88 million (EUR 19.5 million)
- Engie Energy – approx. PLN 56 million (EUR 12.4 million)
- Wintershall Dea – approx. PLN 31 million (EUR 6.9 million)
- Shell – approx. PLN 30 million (EUR 6.7 million)
- Uniper – approx. PLN 30 million (EUR 6.7 million)
In the course of the proceedings, PCA found that the implementation of the Nord Stream 2 project constituted – according to PCA – a violation of the law and the rules of fair competition, which had the effect of increasing the dependence of gas buyers in the internal market on a single supplier – Gazprom. PCA indicated that the companies involved in the concentration acted deliberately and that there were no mitigating circumstances in the case. This is why the fines imposed for gun-jumping were so high.
Nord Stream 2 project participants’ appeals against the PCA decision
On 6 November 2020, PCA informed on Twitter that all six companies hit with fines over the construction of Nord Stream 2 had already appealed its fine-imposing decision (Gazprom stated that it had filed its appeal on 4 November 2020). According to Polish procedural rules, an appeal against a PCA decision is transferred to the Competition and Consumer Protection Court via PCA together with the case file immediately, and in no case later than within three months from filing the appeal.
The enormity of fines imposed in the Nord Stream 2 case, both for procedural violations on Engie Energy and Gazprom, and for gun-jumping on all participants in the Nord Stream 2 project, was surprising. The fines imposed for gun-jumping were the highest financial penalties available to PCA, equal in the case of each fined undertaking to 10% of its annual turnover. Fines imposed in the Nord Stream 2 case were also the highest individual fines that PCA has ever meted out whether for procedural or substantive infringements.
The companies involved in this case have not paid the fines yet. They will have to pay them within 14 days from the judgement of the Polish Consumer and Competition Protection Court or within 14 days from the ruling of the appeals court upholding the PCA decision becoming final, so the case should continue to be monitored as it may be a source of many new and unique insights.
with Weronika Szyszka
Wardyński & Partners