Competition and Antitrust

Elif Mungan

Introduction

The Competition Board (“Board”) has evaluated whether Türkiye Petrol Rafinerileri A.Ş. (“Tüpraş”) abused its dominant position through its turnover premium rebate system in accordance with Art. 6 of Act No. 4054 on the Protection of Competition (“Competition Act”) in its decision[1]dated 16.03.2016 and numbered 16-10/159-70.

Tüpraş and the Relevant Market

Tüpraş, the greatest oil refinery in Turkey, is active in regard to the procuring, exporting, importing and stocking of unprocessed petroleum, the processing of unprocessed petroleum or semi-finished petroleum, producing every type of petroleum product, by-product or side-product, and stocking, blending, exporting and launching the products produced through the processing of the unprocessed petroleum. Tüpraş has been privatized through the Board’s decision dated 21.10.2005 and numbered 05-71/981-270^[2].

The Board determined the relevant product market as the “diesel oil whole sale market,” and identified the relevant geographic market as “Turkey.” Moreover, the Board stated that Tüpraş holds a dominant position in the relevant product market, and based its dominance evaluation upon its previous decisions[3].

Tüpraş’s Rebate System

The Board reviewed Tüpraş’s “Year 2016 Fuel Sales Implementations” (“Sales Implementation”) that is sent to fuel distributor companies. The Sales Implementation comprises the order notifications, revisions, compliance, maturity, payment, warrant, interest for the fuel distributor companies and other commercial conditions for other types of fuels.

The complaint primarily concerns the “turnover premium system” that is applied to the fuel types and regulated in the Sales Implementation. It is alleged that the gradual turnover premium system will strengthen the positions of the four-five distributors in the distribution sector in which the premium margins are very low. Moreover, the system will result in discrimination between the distributors and, therefore, middle and low level distributors may be excluded from the market, since there are large gaps between the tiers[4].

The Board stated that the turnover premium implication can be regarded as a rebate system and can be evaluated as a breach of competition law, if the system results in anti-competitive exclusion or discrimination. Firstly, the Board decided that the rebate system cannot result in exclusionary effects, since approximately half of the diesel demand is met through imports, and Tüpraş is the only diesel producer in Turkey. Therefore, the Board evaluated whether the rebate system may, in consequence, create discrimination amongst the distributors.

According to the decision, although the rebate system is a retro-active and progressive system, it is flexible for the customers, since the tiers can be revisited if the customers exceed or cannot reach the determined amount for the tier. Moreover, the rebate system is defined as a transparent and standardized rebate system that is provided to all customers with equal conditions, and in objective amounts. The reason for the application of the rebate system is to use the increased diesel supply capacity and, following the increase, the diesel demand will continue to be met through imports, and the rebate system will not limit the distributor’s import opportunities. Besides, the rebate system is likely to result advantageously for middle and low-level distributors, since the first tier starts from a reasonable level, and the system’s marginal contribution gradually decreases. Moreover, 99% of Tüpraş’s total diesel sales will benefit from the rebate system. The Board mentioned that the rebate system is less likely to result in anti-competitive effects in the diesel market, since the structural features or the purchasing power do not determine the diesel market’s competition conditions, and there are many players in the subject matter market. The Board also considered the distributor responses concerning the rebate system that indicate that the rebate system does not result in discriminatory practices, but will have a consequence to cost benefits among importer distributors and distributors who does not have the capacity to import and reduce the differences with regard to the purchase conditions among the different-scale undertakings. Within that context, the Board decided that Tüpraş has not abused its dominant position through its rebate system in accordance with Art. 6 of the Competition Act.

Past Competition Board Decisions in Regard to the Rebate Systems

According to the secondary legislation, and the Board’s past decisional practice[5], the retroactive rebate schemes raise fidelity inducing effects. That being said, the retroactive rebates[6] are more likely to cause anti-competitive foreclosures since competitors will be required to propose a larger discount to customers in order to persuade them to switch sellers, rendering them unable to compete with the dominant undertaking, under equal conditions for the entirety of each customer's demand.Furthermore, the personalized rebate schemes[7] are prone to consequences under competition law concerns, such as exclusion of the rivals, as well as aggravating market entries. According to the decisional practice of the Board, the retroactive and personalized features of a rebate scheme have a direct effect with regard to the determination of its loyalty inducing effects. Progressive rebates[8]are defined as having the potential to address a greater part of the market in comparison with fixed-ratio rebates[9].

On the other hand, The Board found that Tüpraş’s retroactive and progressive rebate scheme is not anti-competitive, since it is considered to be a flexible scheme. As explained above, the Board based its “flexibility” assessment upon the amendable places of the customers who exceed, or cannot reach, the determined amount for the tier. Furthermore, the Board considered the market conditions, as well as the effects and the benefits of the rebate system.

Conclusion

The Tüpraş decision is significant for the reason that it provides guidance in regard to the competition law aspects of the turnover premium rebate schemes of the dominant undertakings. Moreover, the decision shows that the Board considers the special features of the rebate scheme along with the market conditions. Therefore, it is correct to conclude that the Board has adopted a more analyzing approach, instead of a formal approach, since it examined all the features of the rebate scheme, and was not solely focused on the retroactive and progressive characteristics of the system.