The Competition Court (i) declared that the operation inquired by Organización Terpel Chile S.A. and Quiñenco S.A. infringes the norms of Decree Law N° 211; (ii) partially accepted Organización Terpel Chile S.A.’s request, in that the period for Terpel Chile’s assets divestiture is extended in five months, counted from expiration of the deadline set in Resolution # 34; (iii) declared that, excepting the deadline for Terpel Chile’s assets divestiture, the rest of Resolution # 34 remains in effect.

In its analysis, the Court concluded that both the wholesale and retail distribution markets for liquid fuel are highly concentrated and present barriers to entry and expansion of competitors. Given this, the Court thinks that it’s reasonable to expect that the companies who currently participate in these segments grow organically in other segments –those without significant expansion barriers-, thereby preserving competition in the whole industry.

This reasoning is justified by the existence of risks of both unilateral and coordinated behaviors that have been identified, and that derive from the market concentration and the low substitutability of supply –especially in the retail distribution market-, as well as from other market characteristics, such as product homogeneity, price monitoring and the low price elasticity of consumers’ demand. The coordination risks would be exacerbated if the proposed operation was authorized, bearing in mind that Copec and Shell (Enex) share transportation and storage infrastructure throughout the country.

Given this, the Court considers that preserving the largest possible number of independent rival companies is beneficial for competition, breaking the tendency to concentrate.

Regarding the identified risks, the Court stated that they would not be compensated by any of the efficiencies claimed by the inquirers, for they do not comply with the requirements of the Court to give them the ability to inject more intense competition into the market with a high probability and in a reasonable timeframe.

This Court believes that the disappearance of a rival, plus the low probability of it being replaced by an entrant in a reasonable timeframe will decrease competitive intensity in the market. Therefore, the proposed operation’s unconditional approval is not justifiable. The Court believes there are no conditions or mitigation measures that can restore competition to today’s level.

Two ministers, Mr. Menchaca and Mr. Peña, voted against this decision; they were to approve the proposed operation. The minority vote expresses their disagreement with the level of requirements set in the decision regarding efficiencies, and the need to demonstrate that this concentration operation will have neutral or positive effects on competition. Even though some risks associated o the merger might exist, the minority voters consider that the projected efficiencies, both in fixed and marginal costs, will be sufficient to restore competition in the markets. Therefore, approval of the operation would comply with the mandate in Resolution # 34, which was to allow for the creation of a competitive entity, especially given the market power of the dominant firm.