THE commission for the Protection of Competition (CPC) last week imposed fines totalling €21 million on the four oil companies operating in Cyprus. The CPC found that each company had engaged in price fixing with the operators of their petrol stations and imposed fines in accordance to each one’s market share. The decision is explained in a report of some 650 pages, which will come under the scrutiny of the companies’ legal teams.
One thing is certain. There will be an appeal against the fines just as there was in 2009 when the commission documented cases of price collusion among the companies and imposed fines totalling €42.9 million. Two years later the supreme court upheld the appeal on a technicality – the head of the commission at the time did not have the qualifications needed to hold the specific post – and no fines were paid. There have been several changes of personnel at the commission since then, but the investigation of the oil companies was not abandoned.
That it has taken six years, since the supreme court decision for the new investigation to be completed is an indication of the difficulty in documenting a case of price-fixing. This was also because the commission did not want to leave any possible loopholes that the teams of highly paid lawyers hired by oil companies could use to overturn the decision. The 2009 report was well documented and led to the big fines, but was overturned on a technicality, indicating there was price collusion.
Horizontal price collusion (among the companies) would justify bigger fines than vertical collusion (between company and petrol station), but the CPC decided against pursuing the former after a vote. The president and one member of the committee voted in favour but the three remaining members voted against. Interestingly the vote for the fines imposed was not unanimous either, with two members voting against the decision that prevailed.
The CPC must not give up the effort to document the case of horizontal price collusion, which appears blatantly obvious to consumers when there are marked changes in the international price of oil. When this goes up, pump prices immediately rise in Cyprus, but when oil prices fall it takes quite a while for this to be reflected in the pump prices. The practice is known as the rocket and feather phenomenon and is displayed by all the oil companies almost simultaneously.
Frustrated with this phenomenon, one government tried in the past to impose a ceiling on petrol prices but this proved a spectacular flop. It emphasised the fact that the only way to eliminate the price collusion, which results in consumers paying unjustifiably high prices for petrol, would be through the imposition of heavy fines by the CPC.
Last week’s decision was a start, but the investigation into horizontal collusion must continue until a solid case is put together.