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July 14, 2016

Watch out for anti-competitive mergers in cooking fuel sector: party-list to Competition Commission

MANILA - The party-list group Liquefied Petroleum Gas Marketers’ Association (LPG-MA) has warned of potential corporate mergers in the cooking fuel sector that could substantially reduce price competition to the detriment of consumers, and has urged the newly constituted Philippine Competition Commission (PCC) to be watchful.

“Should any two of the top four LPG suppliers combine via a merger or acquisition, then the four biggest players will suddenly be reduced to three, and any significant lessening of competition is never good for consumers,” LPG-MA Rep. Arnel Ty, a member of the House energy committee, said in a news release.
 
“Considering that LPG is classified as a basic necessity under the Revised Price Law, consumers are counting on the PCC to keep the cooking fuel market as highly competitive as possible, to ensure adequate price competition and consumer protection,” Ty said.
 
Under the Philippine Competition Law of 2015, the lawmaker said the PCC has the power to review corporate mergers and acquisitions based on factors deemed relevant.
 
He said the law forbids parties to a merger or acquisition agreement worth more than P1 billion from consummating their deal until the PCC either clears or prohibits the transaction.
 
Section 20 of the law states: “Prohibited Mergers and Acquisitions. – Merger or acquisition agreements that substantially prevent, restrict, or lessen competition in the relevant market or in the market for goods and services as may be determined by the PCC shall be prohibited.”
 
The country now has two large LPG suppliers – Petron Corp. and Liquigaz Philippines Corp. with 35.9 percent and 27.9 percent market shares respectively, according to the 2015 LPG supply/demand report of the Department of Energy (DOE).
 
The market also has two mid-sized suppliers, Isla LPG Corp. and Pryce Gases Inc. with 13.6 percent and 12.1 percent market shares respectively.
 
The four leading players have a combined market share of 85.9 percent, while the rest of the market – 14.1 percent – is supplied by nine smaller participants.
 
“We cannot rule out the possibility that there might be a merger or acquisition involving any two of the top four players. After all, from a business perspective, acquiring a rival is the fastest way to grow market share,” Ty said.
 
Petron had tried to acquire Liquigaz for $60 million in 2013, and this was immediately opposed by LPG-MA, which had warned that the oil giant would end up controlling an exceedingly large chunk of the market.
 
The Competition Law was still a bill at that time, and the DOE then said it could not do anything to stop Petron from buying Liquigaz, which had been put on the auction block by its previous owner, SHV Energy of the Netherlands.
 
Isla LPG and Petronas Energy Philippines Inc. promptly matched Petron’s $60-million offer for Liquigaz in the second round of the auction.
 
A year later, Cosco Capital Inc. came in and snatched Liquigaz for $80 million.
 
The LPG market has been one of the busiest in terms of business mergers and acquisitions since the passage of the Downstream Oil Industry Deregulation Law in 1998.
 
In 2007, Petron expanded its market share when it acquired the LPG business of Chevron Philippines Inc. (formerly Caltex Philippines Inc.) for an undisclosed amount, and rebranded Starflame to Fiesta Gas.
 
In 2011, Isla LPG acquired the LPG business of Pilipinas Shell Petroleum Corp. for $131 million, and renamed the Shellane brand to Solane.
 
Then there was Cosco’s acquisition of Liquigaz in 2014.
 
Ty said the country’s demand for LPG surged by 13.5 percent in 2015 – faster than the 11.5-percent growth in demand for diesel, but slower than the 14.6-percent increase in demand for gasoline.
 
The average international contract price of LPG plunged 47 percent to $430 per metric ton (MT) in 2015 from $804 per MT in 2014.
 
Ty said the big price plunge spurred consumers to shift from other fuels to LPG.
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