Turkish Competition Authority’s Fuel Sector Inquiry Report Published

Introduction

The Turkish Competition Authority (“TCA”) published the Fuel Sector Inquiry Report (“Report”) on 18 March 2024 after completing its sector inquiry, which was initiated in 2020.

The sector inquiry covered regulations in certain countries, research conducted on the fuel market from a competition law perspective, and a detailed examination of the 2013 OECD Report.[1] The Report includes a brief summary of the TCA’s Fuel Sector Report dated 2 June 2008 (“Previous Report”), an overview of the preliminary investigation, investigation decisions rendered by the Turkish Competition Board (“Board”) in the fuel sector, and evaluations sent by the TCA to the Ministry of Energy and Natural Resources and the Energy Market Regulatory Authority (“EMRA”), which is the sectoral regulatory authority, within the framework of Tüpraş Investigation.[2]

Prices in the fuel sector, which are monitored by competition authorities globally, and the competitive framework of the market are discussed in the Report. Competition issues related to the fuel sector in Türkiye and proposed solutions are also highlighted within the Report.

How Did the TCA Previously Address the Fuel Market?

The Board has previously conducted investigations, preliminary investigations, and examinations on competitive concerns in the Turkish fuel sector.  The Previous Report comprehensively addressed structural competition concerns in the fuel sector as the sector is regulated and public interests such as the security of supply, continuity of supply, energy efficiency and independence, and consumer welfare must be protected. The TCA emphasised that the liberalisation and competitive pricing targets for the sector were not achieved during this period.  The Report dated 2024 analysed the impact of the fuel market’s structure and regulation and proposed solutions to the issues identified.

Issues Addressed in the Report

The TCA addressed the issues under the following headings:

·       The refinery market, consists of two players and restricted competition,

·       The distribution market, where effective competition cannot be established due to the concentrated structure remained the same for years, and

·       The retail market, where a lack of competition exists even with the abundance of players in the market.

In the refinery market, Tüpraş,[3] which was the sole fuel producer for a long time, now has a competitor named Star,[4] established in 2019. However, Star’s introduction to the market has not yet created significant competitive pressure on Tüpraş’s market power. The decisive position of Tüpraş in downstream refinery pricing has been maintained.    

At the distribution level, the concentrated and oligopolistic structure of the market has prevailed for many years, where a small number of large-scale undertakings conduct a significant portion of market activity.

In terms of dealership activities, there is a mandatory non-compete obligation regarding the relationship between distributors and dealers as per the Petroleum Market Law (“Petroleum Law”). However, the 5-year limit for non-compete clauses deriving from competition regulations has led market players to reduce the duration of these dealership agreements to 5 years.

The TCA emphasizes the issue of transparency in the Report as the visible publication of prices in the fuel sector creates a high-level of transparency and reduces the search costs of end-consumers by enabling price comparison. However, according to the TCA, it also brings the risk of horizontal coordination in the market.

The Previous Report and the Report both raise a common issue that both EMRA and distributors publishing price ceilings causes dealers to fix their pump prices to these price ceilings, thereby eliminating competition in pump prices and creating a coordination-inducing effect in the market. This problem has been on the Board’s enforcement agenda periodically since 2008 and has been recently addressed in the Fuel Distributors Decision dated 12 March 2020.[5]

Proposed Recommendations in the Report

The solutions proposed by the TCA to alleviate the shortcomings in the market are classified in four main categories.

Regarding the coordination-inducing effect on price competition at the distribution and retail levels arising from distributors publishing ceiling/recommended prices, the TCA suggests the termination of such practice and asserts that neither distributors nor EMRA should publish price ceiling lists or recommended prices.

Furthermore, the TCA anticipates that the transparency of pump prices increased by publishing price ceilings and recommended price lists by both EMRA and distributors should be transformed into a format that benefits consumers. In this regard, EMRA is expected to attempt to facilitate consumer access to prices via online platforms with the ultimate goal of making such information more easily accessible and understandable for consumers.

Another proposal for price competition is to promote prices in consumers’ purchasing decisions, which are expected to result in an increase in price competition. Among the measures that can be taken in this regard, the TCA suggests informing consumers of the requirement that all types of fuel products offered by license holders in Türkiye must comply with European Union standards and the technical regulations set forth by EMRA.

It is anticipated that once consumers become aware that fuel products from different distributors have identical features in terms of quality, the main factor affecting their purchasing decisions would be price.

Lastly, there are proposals to introduce alternative dealership models and eliminate distance restrictions between gas stations. Relying solely on exclusive agreements between dealers and distributors is considered insufficient to foster competition. The TCA suggests allowing “white-flagged” stations, which offer an alternative model for selling fuel products without exclusive dealership agreements. To achieve this, the Petroleum Law should be amended and exclusive dealership systems should become optional. Accordingly, the TCA expects that distribution companies will be encouraged to adopt more competitive pricing strategies.

In addition to the TCA’s recommendations, it is worth noting that the primary authority responsible for regulating the fuel market is EMRA, as authorized by the Petroleum Law, even to establish a competitive framework in the market. Although the TCA is not a sectoral regulator, it may still propose measures to maintain competitive processes and structures in different markets regardless of the sector. In the past, the TCA has addressed various regulated markets, including the fuel sector in 2008, the natural gas sector[6] in 2012, and the electricity sector[7] in 2015. Despite not being the regulatory authority for these sectors, it has conducted inquiries and shared suggestions to promote competitive practices.