Maximum fines imposed by the Polish competition authority for gun-jumping in the Nord Stream 2 project, and appeals against the decision | In Principle

In connection with the recent intensified press reports on the construction of the Nord Stream 2 gas pipeline, it is worth reviewing the current status of the case and the actions of the president of the Office of Competition and Consumer Protection in this regard. In a decision dated 6 October 2020, the Polish regulator imposed fines in the maximum amount (over PLN 29 billion) on Gazprom and five other companies (in the total amount of PLN 234 million) for setting up a joint venture without his prior consent.

The circumstances of the case

In December 2015, an application was submitted to the Polish Office of Competition and Consumer Protection (UOKiK) for approval to form a joint venture under the name of Nord Stream 2 AG, based in Switzerland. The president of UOKiK analysed the notified case and presented his reservations, indicating that the planned concentration could potentially restrict competition. As a consequence of these reservations, the participating companies withdrew their application in the second half of 2016, which in practice meant that the contemplated concentration could not be implemented.

Subsequently, the parties to the planned concentration modified the structure of the transaction, continuing it with the assumption that the transaction need not be notified in its new form to the president of UOKiK. The Polish regulator had stated that a joint venture may be created when two or more entities combine their economic interests (even if this does not lead to creation of a new entity). In the case of Nord Stream 2, this occurred by signing financial agreements which, according to the president of UOKiK, were key to execution of the project and effectively led to the creation of a joint venture.

In April 2017, upon learning that the parties to the transaction had signed a pipeline construction agreement, the president of UOKiK initiated an investigation (conducted in the matter and not against specific entities). The investigation found that, despite the lack of consent to the concentration by the Polish regulator, Gazprom and other companies financing construction of the gas pipeline connecting the Russian part of the Baltic coast and the German coast never abandoned the intended concentration, but instead carried it out in another form. None of the entities involved notified the president of UOKiK of these actions. As a result, a year later, antitrust proceedings were initiated against six entities involved in the project—Gazprom (Russia), Engie Energy (French, registered in Switzerland), Uniper (Germany), OMV (Austria), Shell (British/Dutch), and Wintershall Dea (Germany) (the last four entities are registered in the Netherlands)—for conducting a concentration without the consent of the president of UOKiK. The proceedings lasted two and a half years and were concluded with issuance of a decision on 6 October 2020.

Notification requirements for the intended concentration and possible fines for gun-jumping

Pursuant to the Polish Competition and Consumer Protection Act of 16 February 2007, transactions consisting in establishment of a joint venture by two or more entities are subject to notification to the president of UOKiK. This obligation also applies to foreign transactions if they produce or may produce effects in the territory of Poland. The act bans companies from conducting concentrations without the required consent of the Polish regulator.

Conducting a concentration without the required consent of the president of UOKiK is punishable by a fine of up to 10% of the annual turnover of the entity committing the violation. Moreover, if a concentration effected without the consent of the president of UOKiK has led to a situation where restoration of competition on the market is not possible, the regulator may order a total or partial divestment of the assets of the newly formed undertaking or of the shares ensuring control over the undertaking, or even dissolution of the joint venture.

Additionally, the president of UOKiK may impose a fine of up to the equivalent of EUR 50 million on a company that fails to provide information requested by the regulator in the course of the proceedings.

Fines imposed in the Nord Stream 2 case

In the course of the Nord Stream 2 antitrust proceedings, two participants in the project, Gazprom and Engie Energy, were first fined on procedural grounds for failing to cooperate with the president of UOKiK in the proceedings and for failing to provide requested information and documents. These fines were record-high: for Engie Energy PLN 174 million (equivalent of EUR 40 million) and for Gazprom almost PLN 213 million (equivalent of EUR 50 million), i.e. the maximum amount provided for in the act.

As a result of the antitrust proceedings, by decision of 6 October 2020, the president of UOKiK imposed the following fines on the participants in the Nord Stream 2 project for forming a joint venture without his required consent:

• Gazprom, about PLN 29 billion (EUR 6.5 billion)
• OMV, about PLN 88 million (EUR 19.5 million)
• Engie Energy, about PLN 56 million (EUR 12.4 million)
• Wintershall Dea, about PLN 31 million (EUR 6.9 million)
• Shell, about PLN 30 million (EUR 6.7 million)
• Uniper, about PLN 30 million (EUR 6.7 million).

In the course of the proceedings, the president of UOKiK found that implementation of the Nord Stream 2 project constituted a violation of the law and principles of fair competition, resulting in an increased dependence of gas customers in the internal market on a single supplier, i.e. Gazprom. The regulator found that the companies involved in the concentration acted intentionally and there were no mitigating circumstances in the case. This is why the fines imposed for premature concentration (gun-jumping) were so high.

Appeal by all participants of the Nord Stream 2 project against the decision of the president of UOKiK

On 6 November 2020, the president of UOKiK announced on his Twitter account that the six companies fined for financing the construction of Nord Stream 2 had filed an appeal against the decision (Gazprom filed its appeal on 4 November 2020). Pursuant to the procedure, an appeal against a decision of the president of UOKiK shall be transferred, together with the case file, to the Court of Competition and Consumer Protection, via the president of UOKiK, promptly, but no later than three months from filing of the appeal.

Conclusions

The fines imposed for procedural violations on Gazprom and Engie Energy and also for gun-jumping on all project participants in the Nord Stream 2 case were surprisingly high. The fines for gun-jumping were the highest provided for by law, corresponding for each fined company to 10% of its annual turnover. The fines imposed in the Nord Stream 2 case were also the highest individual fines ever imposed by the president of UOKiK for both procedural and substantive violations.

The companies involved in the project have not yet paid the fines. They will be obliged to pay them within 14 days after the decision of the president of UOKiK becomes legally final, which will occur when a judgment issued by the Court of Competition and Consumer Protection, or the appellate court if there is an appeal, becomes legally final. If the fine is not paid on time, enforcement proceedings may be initiated pursuant to the Administrative Enforcement Proceedings Act. At the same time, in a statement, the Polish competition authority stressed that the regulator also has legal tools at its disposal arising under EU regulations, which, if the decision is upheld, will enable effective enforcement of the fines.

Weronika Szyszka, Competition practice, Wardyński & Partners