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Natural gas agreement approved with commitment

21. december 2005

Journal nr. 3/1120-0204-0193/ISA/ULS, LHH og UL The Council meeting 21st December 2005

The Danish Competition Council (DCC) has approved a natural gas agreement between DONG, Hovedstadsregionens Naturgas (HNG) and Naturgas Midt-Nord (MN), since the parties have given a binding commitment that will improve competition on the Danish gas market.

DONG has a dominating position on the Danish gas market. DONG has market shares of about 83 % on a Danish wholesale market and about 65 % on a Danish retail market. HNG/MN is a large buyer of gas (about 18 % of the Danish consumption) and resells primarily the gas to small households.

The Danish Competition Authority (DCA) had two concerns regarding the agreement:

First, HNG/MN was not able to buy gas from other suppliers than DONG for six years and three months. Other suppliers than DONG was hereby foreclosed the possibility to compete for supplying HNG/MN for a number of years.

Second, the cost price of HNG/MN depended on which customers HNG/MN resold the gas. The agreement contained two different cost prices: A cost price for metered customers and a cost price for non-metered customers. The different cost prices had anti competitive effects, since they reduced HNG/MN’s incentive to compete efficiently for both types of customers, including especially DONG’s customers.

In order to comply with these concerns DONG and HNG/MN have agreed to terminate the agreement by 1. January 2007 – that is a shortening of the agreement with two years. In addition, the parties have committed themselves to avoid exclusivity and different cost prices if the parties renegotiate a new agreement.

The DCC found that the parties’ commitment in a sufficient way complied with the above mentioned concerns. Accordingly, the existing agreement was approved with the binding commitment. The DCC stressed that this approval does not apply for any renegotiated agreement.