The Hellenic Competition Commission (HCC) decided by majority, on 28 November 2022, to initiate the procedure stipulated art. 11 of Law 3959/2011 (regulatory intervention in sectors of the economy) in order to look into the petroleum industry and, in particular, to assess the prevailing market conditions in terms of effective competition in the three production and distribution stages (refining, wholesale, retail) of petroleum products (unleaded petrol, diesel and heating oil) in the Greek market. These are prime basic necessities with low price-inelastic demand.

Introductory remarks
The importance of the petroleum products sector for the Greek economy and its interconnection with all sectors of economic activity and, directly, with the final consumers are key factors triggering the regulatory competence of the HCC under art. 11 of the Greek Competition Act.
It is noted that the HCC, applying national and EU competition rules, has systematically dealt with this sector, issuing a series of Opinions and Regulatory Decisions over the last fifteen years:

1. The HCC, in the context of its regulatory intervention under Article 5 of former Law 703/77, as it was in force (now article 11 of Law 3959/2011), fully investigated the petroleum products sector at all stages (refining, wholesale, retail) and proposed, by virtue of its decisions 334/V/2007[1] and 418/V/2008[2], the adoption of specific measures by the State to address the structural weaknesses and long-standing problems which hamper the level of competition and have a price-increasing effect in the fuel market. Some of these proposals were gradually adopted by the competent political leadership (e.g., mandatory issue of sales receipts by retailers, access of Independent Gas Stations to the refineries, detailed listing of discounts on invoices, signposting on the closed road axes of Attiki Odos, etc.).
2. Furthermore, the HCC has issued the Opinion no. 26/VII/2012 regarding the maintenance of prior administrative authorisation in a number of professions in the petroleum industry, based on article 3(2) of Law 3919/2011 "Principle of freedom of profession, abolition of unjustified restrictions on the access to and exercise of professions".
3. In addition, the Authority issued “Opinion no. 29/VII/2012 in the context of the provisions of article 23 of Law 3959/2011, aiming at eliminating restrictions and regulations that create barriers to free competition in the petroleum products sector". This Opinion updated the HCC's two previous regulatory interventions in the petroleum industry, both by identifying regulatory barriers to the effective operation of the petroleum products sector and by identifying restrictions on the access to and exercise of the relevant professions, particularly in light of article 2 of Law 3919/2011, to the extent that they have not been addressed by state interventions in the meantime. The above Opinion included a total of 31 proposals, which were submitted to the competent Ministries, namely the Ministry of Development, Competitiveness, Infrastructure, Transport and Networks, the Ministry of Finance and, the Ministry of Environment, Energy and Climate Change. Certain of these 31 proposals included in the HCC’s Opinion were not adopted or were partially adopted by the competent Ministries.

Mapping of the petroleum industry

The initiation of the regulatory intervention is based on the findings of the Mapping study of the Petroleum industry Market, launched by virtue of an HCC Decision on March 22, 2022 (see press release here). The Mapping selectively focused on 95 octane unleaded petrol, diesel and heating oil and examined price pass-through in the oil production and distribution chain in the Greek market. Specifically, the mapping examined the phenomenon of asymmetric adjustment of fuel prices in relation to costs (also referred to as the "Rockets & Feathers"- R&F phenomenon), especially with regard to the existence of asymmetry in price adjustment between the three oil-production and distribution stages.

The econometric analysis focused on the direct effect of the change in product acquisition costs on prices. The conclusion of the analysis, which was geographically limited to the prefecture of Attica, a market where there is more competitive intensity, shows the existence of asymmetry for all three products in all three stages of the production and distribution chain (refining, marketing, retailing). Further econometric analysis reveals that, regarding 95 octane unleaded petrol and heating oil, there is an asymmetric pass-through to the retail (gas station) prices after a change in the price of wholesalers. Regarding these products, the asymmetry appears simultaneously with the wholesale price change (direct effect) and still exists cumulatively after five days (aggregate pass-through), albeit decreasing. Furthermore, the DG of HCC examined the pricing mechanism for all three products as well as other factors that may be linked to the asymmetry observed.

In respect of the competitive conditions, the following, inter alia, are preliminary observed:

(a) A high degree of concentration in the refining market. A moderate to low degree of concentration in the wholesale market. It is noted that there are approximately 5,000 gas stations operating in the retail market in Greece, however the competition is local, so the level of concentration may vary between regions and should be thoroughly examined.
(b) A significant increase in the turnover and profitability indicators of refineries and wholesalers during the period under consideration.
(c) A prima facie particular increase in the refineries’ profit margin in 2022 (almost doubles compared to 2021), however the figures need to be confirmed by a further investigation per product.
(d) An increase in the refining margin as calculated by the companies despite the individual fluctuations occurring in some cases, however, further investigation for reasons of comparability with other countries is required.
(e) A sharp downward trend in average wholesale prices in all three products under analysis during the 2020 restrictive measures intervals was recorded, with an upward shift from June 2020 onwards, and a strong upward trend from early 2022 onwards, also possibly due to the war in Ukraine.
(f) The average retail prices of all three products recorded a corresponding trend. Similarly, sales prices to the wholesale market (minus any discounts and credits) follow a similar spiral, showing an upward trend from mid-2020 onwards, while a significant price alignment is observed between the two refineries for both 95 octane unleaded petrol and diesel.

It is noted that the main drivers affecting retail prices are refinery prices, taxes and exchange rates. In turn, the price of refined oil products is highly dependent on international Platts prices and other factors. The pricing elements mainly determined by refineries include the fixed consideration for the mandatory maintenance of security stocks, the surcharges and their discount policy. Stocks and their costs are a key factor in pricing, setting prices and determining the profit margin at an accounting and actual level.

Regulatory intervention

By the decision to initiate the regulatory intervention, the Mapping is concluded. In the context of the initiated procedure, the conditions of competition in the relevant markets will be examined in depth, in order to clarify whether the observed asymmetry, and in general the price increase of these products over the last two years, are due to the absence of conditions of effective competition, as well as issues regarding the pricing policy mechanism, the maintenance of security stocks and other potential barriers to entry and development of the market, and maintenance of a high profit margin by the industry firms.[3] In this regard, it is noted that Greece is among the most expensive European countries for liquid fuels in terms of pre-tax prices (regular unleaded petrol and diesel), in conjunction with the existence of an asymmetric adjustment in the formation of final fuel prices (pump prices), especially for 95 octane unleaded petrol and heating oil, and the increase in the profit margin at the various stages of the value chain.

Procedure

Should it be found in the first place, during this initial stage, that there are no conditions for effective competition in the sector under consideration, the HCC will make its views public by launching a public consultation within 90 days from the initiation of the above procedure. The public consultation shall last at least thirty (30) days.

After the conclusion of the public consultation and in case the HCC still finds an absence of conditions of effective competition in the specific sector of the economy, it will announce specific measures deemed strictly necessary, appropriate and in compliance with the principle of proportionality, to create conditions of effective competition. The HCC shall make publicly available, by any adequate and appropriate means, its views on the measures it announces and puts them to public consultation. The public consultation shall last at least thirty (30) days.

Following the completion of the above consultation and after taking into account any conclusions drawn therefrom, the HCC may impose, by issuing a decision, which is binding, the specific measures it deems strictly necessary, appropriate and in compliance with the principle of proportionality to create conditions of effective competition. If the HCC finds that the lack of conditions of effective competition is due, inter alia, to legislative and regulatory provisions, it issues an opinion by virtue of article 23 of Law 3959/2011 for the repeal or amendment thereof. The HCC's opinion is submitted to the competent Minister and notified to the Minister of Development and Investments.

[1] By this decision, the domestic refining companies "HELLENIC PETROLEUM SA" and "MOTOR OIL (HELLAS) CORINTH REFINERIES SA" were ordered to price the petroleum products intended for the domestic market (petrol, diesel and heating oil) at prices known on the order date. Also, by this decision, petroleum trading companies that grant (invoicing, accounting, supporting, etc.) discounts were ordered to set objective criteria of a national scope on the manner of granting such discounts, to notify the HCC of these criteria, terms and other conditions for granting discounts to gas station owners, to indicate the amount (euro/liter) of discount on the sales invoices issued by them, to notify the HCC of the pricing mechanism and any change applied to retailers and their other buyers.
[2] By this decision, the domestic refining companies "HELLENIC PETROLEUM SA" and "MOTOR OIL (HELLAS) CORINTH REFINERIES SA" were ordered to disclose the cost of maintaining security stocks charged to trading companies and large end consumers both in the domestic market (petrol, diesel, heating oil) and in the international market (aviation, marine fuel), as well as to carry out an analytical allocation of cost elements included in the premium charged to trading companies and large final consumers both in the domestic market (petrol, diesel, heating oil) and in the international market (aviation, marine fuel). With this decision, among others, the above-mentioned refining companies were ordered to supply with fuel the independent gas stations (IGSs) that meet the conditions of direct access to them and to charge in a way that does not make the legislative provision regarding direct access of these stations to the refineries redundant.
[3] It is noted that the Rockets & Feathers phenomenon may be due to various causes and possible distortions of competition, both on the demand side and on the supply side, including the existence of explicit or implicit collusion, storage limitations, search costs) for consumers due to internalities etc.