A question often considered by firms seeking to invest in production assets is whether the joint marketing by project participants of the project off-take (oil, gas, hydrogen or power) infringes the competition rules.  

Very little has been published by the EU on this question since a spate of press releases in the early 2000s. Back then, the European Commission (Commission) made clear that joint marketing of off-take would most likely be considered "by its very nature as being harmful to competition", regardless of the parties' market shares (a restriction of competition "by object"), and tantamount to price fixing.  

The Commission's 2011 guidance on horizontal cooperation agreements indicated a softening of approach. It confirmed that the Commission would be unlikely to view joint marketing as a restriction "by object" where joint price setting is "necessary for producing jointly", meaning that the parties would not otherwise have an incentive to enter into the production agreement in the first place.

The latest version of the guidelines published in July this year, appears to go one step further. It makes clear that joint marketing (including joint setting of price) will not be considered a "by object" infringement "where a joint price is objectively necessary for the implementation of "the combined production and distribution agreement".  The fact that the cooperation is simply more difficult to implement, or less profitable without the restriction concerned, does not make that restriction "objectively necessary".  However, given that distribution is defined as "sale and supply of the products to customers, including the commercialisation of those product", it is at least arguable that joint price setting will always be necessary where the parties jointly distribute the products.     

Of course, this doesn't mean that joint marketing is always acceptable.  Even if not a "by object" infringement, joint marketing may be caught as a restriction "by effect". To assess this, parties would need to carry out an economic assessment of the likely effects of the agreement on competition, taking into consideration the market power held by the parties and the dynamics of competition to determine whether the rules are infringed.  Here, it is worth noting that the EU's revised guidelines make it clear that production agreements which also provide for joint distribution carry a higher risk of restrictive effects than production agreements that are limited to production: 

"Joint distribution brings the cooperation closer to the consumer and often involves the joint setting of prices and sales, namely practices that carry the highest risks for competition".   

That said, given the fragmented nature of wholesale energy markets, firms should take some comfort from the new guidance that the Commission seems unlikely to prioritise investigations into joint marketing of project off-take. 

What does this mean in practice?  

• Consider and record the rationale for joint marketing – why is it objectively necessary for joint production and distribution? 
• If joint marketing is necessary – then consider and record the effects of the joint production arrangement on competition.
• Finally, it is important not to lose sight of the fact that a joint venture that extends to production, distribution and marketing may be caught by the merger control rules in various countries and may require mandatory notification to the merger control authorities.  

A second common question is whether a joint bid by competing suppliers infringes competition law.  For example, can competing LNG suppliers or competing hydrogen suppliers submit a joint bid to fulfil a long-term supply contract?

First and foremost, firms should ensure they stay on the right side of the line between, on the one hand, joint bidding and the other, bid rigging (a cartel offence).  To minimise risk, firms should assess the legality of the joint bid before holding detailed discussions with a competitor and, where a joint bid is feasible, firms should ensure that communications leave no room for doubt that the customer is receiving a joint bid. 

However, whilst transparency certainly helps avoid accusations of bid rigging, it does not necessarily mean that the parties avoid a "by object" infringement.  The Commission's guidance confirms that much will turn on whether the competitors would, absent the joint bid, have been able to undertake the project individually. If not, the joint bid will fall outside the scope of competition law rules. However, if they could, then unless they can point to a significant degree of integration of resources and activities, the joint bid will in principle amount to a "by object" infringement and tantamount to price fixing.  

Helpfully, the Commission's new guidance makes it clear that: 

"the mere theoretical possibility of carrying out the contractual activity alone does not automatically make the parties competitors: it is necessary to assess whether each party is realistically capable of completing the contract on its own". 

But this begs the question: – what does this mean in practice?  The guidance includes examples of factors to be taken into account including, "the level of financial risk induced by the project as well as the level of the investments required for the project, and the present and future capacity of the undertaking assessed in light of the contractual requirements".  Whilst this is helpful, there remains scope for interpretation – this leaves firms to consider when is financial risk and level of investment too much for a firm to go it alone particularly given one firm's risk appetite will differ from a second. 

What does this mean in practice? 

• Ensure that the customer understands which parties are included in the consortium bid.
• Consider and record the rationale for a joint bid – are the parties capable of undertaking the project individually?
• If individual bids would be possible, consider and record the benefits of the joint bid. 

A third and increasingly important question is whether projects which have sustainability benefits (e.g., wind production) are exempt from competition law rules.

The Commission recognises that industry collaboration can mitigate the negative effects which individual production or consumption decisions may have on the environment, but this does not go as far as a blanket exemption for any form of collaboration between competitors that reduces environmental harm.  

The Commission's revised guidance makes it clear that the joint development of new industry standards e.g.,  standards for production materials or processes, is very unlikely to be considered problematic under the competition law rules provided that: 

(i) the procedure and the outcome of the standard-setting process is transparent and open; and 

(ii) the participants only account for a small percentage of the total market (the rule of thumb being less than 20%).  

Where a greater proportion of the market is involved in the standard setting process, the Commission may have concerns where the standard leads to a significant increase in price but even then, this will need to be weighed up against the sustainability benefits that are likely to result from the introduction of the standard.

Other forms of collaboration (for example, joint production, joint marketing or joint purchasing) may well have significant sustainability benefits e.g., less polluting production.  These will only, however, need to be taken into account if the core area of collaboration, e.g., joint marketing, clearly infringes competition law rules (i.e., amounts to an anticompetitive restriction "by object" or "by effect").  Where this is the case, sustainability benefits may well outweigh any negative effects on competition but only where the benefits can be substantiated, and the parties can show that that there are no other economically practicable and less restrictive means of achieving the benefits.  For example, the benefits of industry participants agreeing to source more sustainable materials doesn't necessarily mean that they need to agree to the purchase price. 

What does this mean in practice?

• Where considering participation in a standard setting process, seek advice upfront to ensure the process is designed to secure compliance with the competition law rules.
• For all other areas of collaboration, where clear anti-competitive effects are identified, substantiality benefits may exempt the agreement under the rules, but do not assume this is the case – careful analysis of the potential benefits will be needed.