In order to alleviate the effects from gas shortages: German Federal Cartel Office approves capacity cooperation

  • 09/07/2022
  • Reading time 4 Minutes

The gas shortage is increasingly affecting all areas of life, including food production. In the case of local sugar producers, the Cartel Office is now sending a signal to affected industries.

The capping of gas supplies could also cause significant problems at some sugar factories in Germany. At worst, this could result in production stoppages, a spoilage of the sugar beet harvest or significant price increases. As a basic product for food production, excessive sugar price spikes would impact the entire value chain. These price increases would also reach the consumer.

In order to be prepared for a possible gas shortage, the four sugar companies producing in Germany have agreed to make production capacities available to each other with the involvement of the German Sugar Industry Association (Verein der Zuckerindustrie; VdZ). The German Federal Cartel Office (Bundeskartellamt; BKartA) has now approved this cooperation on a one-off basis and for a limited period until the end of June 2023.

A central aspect for the Bonn authority’s decision was that the companies had made considerable efforts to convert sugar factories from natural gas to other fuels such as fuel oil and coal due to the impending emergency in the supply of natural gas. Nevertheless, such a conversion had not been possible for some factories in the short time available (especially since many factories had previously been completely converted from coal and oil to gas for environmental reasons and due to government requirements, which could not be reversed in the short term).

Strict regulations imposed by Federal Cartel Office

The provision of free production capacities as part of the cooperation is only permissible if sovereign energy measures lead to cuts or caps in the gas supply and, as a result, to production stoppages at a location. However, the companies must first use all their free production capacities in Germany and Europe within the Group and attempt to process the sugar beet at another company location not operated with natural gas, provided this is economically feasible.

The VdZ is to query the available free processing capacities at the sugar companies’ individual locations in order to prepare the provision of the capacities and to ensure their implementation. In addition, the association is to introduce continuous monitoring of which capacities can be made available on a voluntary basis.

Sophisticated system for ensuring compliance with antitrust regulations

Since the permitted cooperation would inevitably involve the exchange of competitively sensitive information, this flow of information is to be reduced to an indispensable minimum. Settlement of the processing is to be based on the production costs, which will be requested bilaterally and confidentially from the individual sugar companies by an independent economic consultant.

Finally, the economic consultant informs the company of the respective total amount for the processing costs without disclosing the specific calculation approach and the data used. This should also enable a tracking of the production costs. The supplier’s requirement to collect his production share from the processor at his own expense also ensures that the respective processor receives no information about the further use of the processed sugar and the subsequent supply flows and customer relationships.

What does this mean for companies?

The Federal Cartel Office’s decision is a signal to other industries that capacity cooperation (and other conceivable cooperation) between competitors to overcome the gas shortage may, under certain premises, be permissible under antitrust law by way of exception.

This requires that the respective industry is dependent on natural gas and that a gas shortage threatens to result in a loss of production. Furthermore, the companies must not be able to mitigate the gas shortage situation by relocating production to other German or European company locations or by other measures, or not at economically viable conditions. Likewise, it must not be possible to change the fuels used in the time available. Finally, the loss of production would also have to have a significant impact on other companies in the value chain or on consumers.

Even if capacity cooperation is possible under these provisions, companies must additionally ensure to limit the exchange of competitively sensitive information to an indispensable minimum in order to conduct the cooperation.
 

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Author of this article

Armin Mozaffari Jovein

Manager

Attorney-at-Law (Rechtsanwalt)

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