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Brussels, 9 February 2000

Commission authorises TotalFina to take control of Elf Aquitaine subject to substantial changes to the plan originally notified

The Commission has authorised the merger between TotalFina and Elf Aquitaine, under scrutiny since 24 August last. The undertakings given by TotalFina will enable effective conditions of competition to be restored in the retail fuels and domestic heating oil markets by opening up petroleum products logistical capacities considerably. TotalFina has also undertaken to eliminate the effects of the merger on the motorway fuel retail market by divesting itself of 70 service stations. It will also sell Elf Antargaz, the second largest supplier of liquefied petroleum gas (LPG) in France. And it will sell Elf's jet fuel supply business at Lyon and Toulouse airports.

Performance of these undertakings will preserve an open competitive market in a particularly consumer-sensitive sector. "I am glad that TotalFina has offered undertakings that will settle all the problems raised by the operation. Opening up petroleum products logistics, hitherto dominated by the major refiners, will have a deterrent effect on refiners tempted to raise prices for fuel and domestic heating oil", said Mario Monti, Commissioner responsible for the competition portfolio. "And", he added, "TotalFina's sale of a large number of motorway service stations will protect the motorist's freedom of choice, which is the only way of preserving effective competition on a basically captive market."

This case illustrates the approach followed by the Commission where national majors are liable to combine to form a national champion. Such operations can engender a dominant position on these firms' traditional national market for certain of their lines of business, and even fence the national market off. In that event, it is essential for the maintenance of the common market to remove all business overlaps (motorway sales, LPG sales and jet fuel supplies) or potential bottlenecks enabling the new entity to corner the market (control of import, transport and distribution logistics).

The planned merger of which the Commission was notified is the result of TotalFina's takeover bid, originally hostile but later friendly, for Elf Aquitaine.

The two groups' main business is in oil and gas exploration and production, refining, petroleum products distribution, petrochemicals and specialty chemicals; Elf is also in the health care business.

The merger will produce the world's fourth largest oil group.

On 6 October 1999 the Commission decided that the planned operation called for in-depth scrutiny in view of the substantial business overlaps in France that were liable to engender dominant positions.

Wholesale business in fuel and domestic heating oil, and control of the "logistical chain"

In recent years competition on the French market for refined products (petrol, diesel et domestic heating oil) has been stimulated by, in particular:

  • rivalry between the two national refiners (Total and Elf);

  • the emergence of supermarkets and the like as major retail suppliers of fuels, with an aggregate market share of 52%. This phenomenon is more marked in France than anywhere else in Europe, and it has helped to hold pre-tax prices down to a level among the lowest in the European Union.

It emerged from the Commission's analysis that the TotalFina/Elf merger would seriously compromise this balance. It would have led to a single integrated refiner holding 55% of refining capacity and an equivalent share in the wholesale car fuel and domestic heating oil markets and controlling most French import depots, the three main pipelines supplying every corner of France and a substantial share of the local depots. This combination would have given TotalFina/Elf substantial market power which neither the demand side (supermarkets or major end customers) nor competitors in the refining industry could have challenged. This would have allowed TotalFina/Elf to increase prices, initially on the wholesale markets and then, having thus weakened competition from the supermarkets, on the retail market for sales of car fuel and domestic heating oil.

In these circumstances, only a significant opening-up of the market could allow retailers to use import pressure to ensure that competition conditions in France were maintained.

TotalFina has therefore undertaken to sell off a large proportion of its investments in transport and storage logistics in order to gain the Commission's approval for the planned merger.

TotalFina is thus giving up any presence at all or its controlling position in most French import depots, most notably those which supply the major pipeline systems which cover the country. In particular, the two largest depots in the Seine valley (the principal French supply route for refined products) will become independent, including France's largest depot, at Le Havre, hitherto controlled by Elf. The same goes for the second route for transporting refined products - the Rhône valley - with Elf's share in the Fos depot (France's second-largest) being sold. Furthermore, TotalFina/Elf will retain only minority interests in the two main French pipeline systems (the Seine and Rhône valleys) and is withdrawing completely from the third of these systems (the Nantes-Melun-Metz pipeline) and from all the depots adjacent to this pipeline. Finally, a number of "hub" depots (depots located in urban areas, the main areas of consumption) will be sold off.

These commitments will lead to a fundamental transformation of oil logistics in France, previously dominated by the major refiners - Elf and Total prime among them - and will therefore enable competitive conditions to be maintained on the retail sales market.

Motorway fuel sales

As the Commission has already established in previous cases (Total/Fina and Exxon/Mobil), the sale of fuel on motorways constitutes a separate market characterised by prices that are noticeably higher than off-motorway prices. Supermarket chains barely make an appearance on this market, which is basically shared between five operators, all refiners: Total (40% market share), Elf (20%), and Shell, Esso and BP (between 10 and 15% of sales apiece).

The inquiry carried out by the Commission showed that competition, already reduced by the merger between TotalFina and Elf, would be virtually eliminated if these two operators managed to concentrate nearly two thirds of the market in their hands.

In view of the Commission's extreme concern about this risk, TotalFina proposed to give up 70 service stations. This figure corresponds approximately to Elf's motorway network (85 stations), after deducting the stations located on the outskirts of urban areas which are probably more subject to competitive pressure from local non-motorway service stations.

Liquefied petroleum gases (LPG)

Liquefied petroleum gases (propane and butane) are by-products of the refining process. They are marketed either in conditioned form (in bottles) or in bulk (delivered in tanks). LPGs are used by households, for cooking and heating, and by industry, as a source of energy and as a primary product.

The Commission found that the LPG market is already highly concentrated, with the four main operators (Butagaz, Elf Antargaz, Totalgaz and Primagaz) each holding a market share of between 20 and 28% of all LPG sales (these market shares vary considerably depending on the use made of the LPG). Moreover, the only other two operators are, in one case (Vitogaz), 34% owned by TotalFina and, in the other (Air Liquide), linked to Elf in a joint venture.

The Commission's enquiry revealed that, following the merger, the new entity would acquire a dominant position on the market; in particular, its control of the logistical infrastructure for imports, storage and bottling (for conditioned LPG) would make it completely independent across the whole of France, freeing it from the need to have recourse, as is normal practice in this sector, to infrastructure access swaps with its competitors. French LPG logistics are stretched, especially in winter when demand is heaviest, making it difficult for a competitor to increase its supplies should the dominant group up its prices. In such a price-hike scenario, it would probably be in the interests of players to follow the market leader rather than risk a confrontation.

With a view to meeting these concerns, TotalFina proposed a number of measures one after another aimed, in particular, at further opening up import depots and the remaining infrastructure where the merger with Elf would have placed it in a stronger position than its competitors. These various solutions were not, however, considered sufficient to offset the serious risks of the creation of a dominant position identified by the Commission. TotalFina has therefore finally offered to sell off the whole of Elf Antargaz, which will have the effect of eliminating any overlapping between Total's and Elf's LPG businesses.

Sale of jet fuels at Lyon and Toulouse airports

At every major airport the fuel storage facilities, hydrant fuelling systems and aircraft refuelling trucks are managed by one or more groupings ("pools") whose members are the fuel suppliers who have invested in these common logistics.

Lyon and Toulouse airports are each served by a single pool in which Total and Elf hold 50% of the capital respectively.

In order to prevent the new merged entity from gaining a complete stranglehold over this infrastructure, access to which is essential to any new operator wishing to supply fuel to these airports, TotalFina has undertaken to sell the 50% share acquired following its takeover of Elf.

Referral to the French authorities

The Commission and the French authorities have been in constant touch at every stage of the proceedings. Last September the French authorities requested, under Article 9 of the Merger Regulation, the referral of certain markets considered local. In reply, the Commission made a partial referral of certain local markets. The remedies offered by TotalFina have made it possible to clear up all the points raised by the French authorities, and the latter have accordingly withdrawn their request with regard to those aspects which had not already been referred.


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