Case Name: Distrigaz

Court Name: EC

Decision Date: 2007

Citation: COMP/B-1/37966

Introduction: In Distrigaz, the Commission expressed some concerns over Distrigaz's supply
contracts with industrial customers. In connection with a Commission investigation pursuant to
Article 102 TFEU into Distrigaz gas supply activities in Belgium, the preliminary assessment
showed that the company had a dominant market position in the market for supply of gas to large
customers in Belgium.

Procedural History: TBA

Facts: As a customer usually has only one gas supplier at a time, competition for new customers
only occurs when a new agreement is concluded. In this situation, the use of long-term contracts
limits the scope for competition, resulting in foreclosure of the market. In particular, the
combined effect of long-term contracts employed in the markets would have this effect.

Issues: What is the applicable law, or what has been argued to be the applicable law? Is the
dispute about defining specific circumstances when a particular legal principle may be
relevant? For example, whether in the circumstances has a duty of care arisen and if there
has been a breach of the duty of care; or whether a particular term in a contract be
interpreted in a specific way and if that term has been breached based on that
interpretation.

1. The argument is that long-term supply contracts are an essential part of the financing of
large scale natural resource projects by providing security as to off-take and prices, from
exploration and production to pipelines and/or natural gas liquefaction facilities.
2. Natural gas purchasers may also desire long-term contracts in order to guarantee security
of supply. Long-term take-or-pay contracts thus play a key role.
3. The scope for international trade and downstream market structure are also
relevant factors, since the need for long-term contracts will be increased when the
number of prospective purchasers and suppliers into any market is smaller.
Judgement: In its Decision, the Commission identified five elements to be considered when
determining whether long-term contracts are to be considered illegal under competition rules.
These are the market position of the supplier, the share of the customers demand tied under the
contracts, the duration of the contracts, the overall share of the market covered by contracts
containing such ties, efficiencies.

Analysis: Is the decision supported by the reasoning? If it is a split decision (there is a

dissenting judgment) is the majority's approach convincing? If the case is the outcome of a
series of appeals how does the decision reconcile or justify earlier decisions? How has the
case been treated subsequently? Are there any social implications? Will this affect business
practice?

In the case at hand, the Commission took the preliminary view that Distrigaz held a dominant position in
the Belgian market for the sale of high calorific gas (H-Gas) to large customers with a demand in excess
of 1 million m3 /a of gas. In this context, the Commission stressed Distrigaz market share; existing
barriers to entry (e.g. congestion on the entry points into the Belgian gas transport network, the lack of
liquidity of the Zeebrugge hub, and the balancing regime on the transport network), and Distrigaz
affiliation with the vertically integrated Suez Group. 22 With regard to the share of the customers
demand under the contracts held by Distrigaz, the Commission reached the preliminary conclusion that
in most cases Distrigaz covered the total demand of its customers. The latter were usually required to
offtake a certain minimum amount from Distrigaz, this contractual obligation was usually paired with
the customers right to source all their gas (up to a maximum amount set above the expected maximum
demand) from Distrigaz, allegedly leading to the effect that most customers did in fact source all their
gas from Distrigaz rather than look for supply alternatives for at least part of their demand.23 As to the
duration of the contracts, the Commission found in its preliminary assessment that about 60 per cent of
Distrigaz contracts ran for at least a year and more than 30 per cent of its contracts ran for over three
years.24 Consequently, about 3545 per cent of the market were tied to Distrigaz for more than a
year.25 On the other hand, the Commission acknowledged that long-term contracts may be justified if
they generate efficiencies that outweigh their negative effects.

Summary: What can you say overall about the importance of the case? In order to
complete the case note you may have to do further research. How would you familiarise
yourself with the law? How would you determine whether the case is important or not?

The commitments should be made binding on Distrigas for a total period of four years. The gas
market in Belgium has been in the process of liberalisation since 2000 when Belgium transposed
Directive 98/30/EC. Competition is gradually developing and could take off rapidly under the
right conditions. It is therefore important to ensure that alternative suppliers are not faced with
barriers to entry due to foreclosure of customers during this period of liberalisation. The period
until the end of 2010 is therefore crucial and should be covered by the commitments. If the
commitments were binding for a shorter period they would not ensure that alternative suppliers
have access to a sufficient number of customers to build up their presence in the market and so
help to promote competition.
Loosing Arguments:

Obiter Dicta: