Article by Gönenç Gürkaynak Esq

Turkish Competition Board ("Board") published the reasoned decision (16.03.2016; 16-10/159-70) on a preliminary investigation against Türkiye Petrol Rafinerileri A.Ş. ("TÜPRAŞ") based on Akaryakıt Ana Dağıtım Şirketleri Derneği's ("ADER") allegations that TÜPRAŞ's turnover premium system, within the framework of its 2016 Fuel Sales Applications that will be applied to undertakings conducting distribution activities within the fuel sector based on their diesel fuel purchases from TÜPRAŞ, would further strengthen the current positions of the biggest four or five distributors within the distribution market, where profit margins are relatively low.

Furthermore, it is also alleged that the gradual premium system determined with wide ranges would give rise to discrimination amongst the distributors and, consequently, the exclusion of the mid and low level distributors from the market.

In its assessment, the Board defined the relevant product market as the fuel wholesale market and, without conducting an analysis on dominance, it concluded that TÜPRAŞ is in a dominant position within the relevant market based on the previous Board decisions and assessed TÜPRAŞ's turnover premium system subject to the case at hand.

The Board found that TÜPRAŞ's 2016 Fuel Sales Applications subject to the allegations included a gradual turnover premium system where the grades are determined pursuant to the annual demands and remain stable throughout one year. The Board stated that in the scope of abuse of dominance, the anticompetitive effects of rebate systems are categorized under exclusion and discrimination and separately analyzed TÜPRAŞ's relevant applications under the foregoing categories.

With regards to the exclusionary effects of TÜPRAŞ's applications, the Board found that the turnover premium implemented by TÜPRAŞ would not produce such effects as nearly half of the fuel demands within the market are supplied by imports, and TÜPRAŞ is the only source of local production.

With regards to the discriminatory effects of TÜPRAŞ's applications amongst the distributors active in the downstream market, the Board made the following assessments: (i) The premium system grants flexibility to customers as even though it is retrospective and progressive, the customers are allowed to benefit from the higher grade if they exceed the purchase amount or move to the lower grade in case their purchase amount is deficient, (ii) The premium system is not personalized but standard, targeted, transparent and consists of quantity discounts that are granted under equal conditions and objective amounts to all customers. Furthermore, the relevant system is not designed based on the distributors' specific qualities, but designed according to the characteristics of the commercial transaction. Therefore, the premium system will not produce anticompetitive exclusionary effects amongst the distributors, (iii) The premium system is principally implemented for the evaluation of the excess fuel production capacity generated as a result of the investments realized by TÜPRAŞ, nearly half of the current fuel demands within the market are supplied by imports and a large portion of the demand will still be supplied by imports after the relevant capacity increase, and there are no restrictions imposed on the imports by the distributors, (iv) In consideration of the premium system's structure, where the grades are initiated from relatively low tonnages within reason (i.e. 10,000 tons). The lowest premium rate (i.e. 1.75%) corresponds to purchases between 10,000-100,000 tons and the highest premium rate (i.e. 3%) corresponds to purchases of 1,500,000 tons and above. Even though the premium rates are increased with 0.25% grades, for each additional 0.25% increase, the purchase amount increase is continually escalating, and therefore, in line with decrease in the marginal yield of the premium system, the results would be in favor of the small and mid-scale distributors. In addition to that, the Board determined that almost 99% of the distributors benefit from the premium system.

In light of the above, the Board decided that TÜPRAŞ's abovementioned turnover premium system is not deemed an abuse of dominance. Ultimately, the Board refrained from initiating a full-fledged investigation.

The Board's foregoing TÜPRAŞ decision sets out significant parameters and considerations for the application of turnover premium rebate systems by undertakings in a dominant position. Indeed, pursuant to the Board's assessment, the turnover premium systems that are not personalized but standard targeted, transparent, granted to all customers under equal terms and objective amounts and where economies of scale are taken into consideration along with the balance of nondiscrimination amongst the undertakings active in the relevant market, are considered to be in line with Law No. 4054. However, it is clear that the Board will continue to evaluate such premium systems on a case by case analysis.

This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in September 2016. A link to the full Legal Insight Quarterly may be found here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.