Imposition of a HUF 702 million (approx. EUR 2,8 million) fine

PROCEEDING BASED ON LENIENCY

Before the proceeding the ABB Power Technologies Management Ltd. and the ABB Switzerland Ltd. (hereinafter together: ABB) made an application to the GVH on 19 April 2004 in which it entirely revealed the activity of the cartel and submitted evidence to establish the infringement. The GVH got to know of the cartel from ABB`s application (in which it announced that ABB stopped functioning in the cartel from 3 March 2004 and put in a leniency application to the European Commission and to the GVH as well) to which it attached some written documents related to the forming and functioning of the cartel. In the application it also described the functioning of the cartel. The documents were made up of charts, emails, project lists. For example: the complete text of the GQ-agreement (G: gear Q: quota) dated 15 April 1988, or another document which is the complete text of the GQE-agreement (with the letter E standing for Europe). It fixed the relation to the GQ-agreement with that every point of GQ-agreement is obligatory to the members of E-group. The GIS-cartel members were divided into two groups: E-group (European undertakings) and J-group (Japanese undertakings). The approving undertakings were marked with code numbers.

Preliminary to the proceeding, the European Commission had started an examination (COMP/E-2/38.899.) on 11 May 2004 on the GIS-manufacturer parent companies and on Japanese undertakings, which took part in the agreement. It was probable that the market sharing cartel concerned the Hungarian market but the European Commission did not examined these effects on the Hungarian market because the cartel finished its activity before the Hungarian accession to the European Union. Considering this, the GVH started a competition supervision proceeding on 8 July 2004 for a suspected infringement of the Hungarian Competition Act (Article 11). It was probable that the Hungarian affiliated companies of the undertakings participated in the unlawful conduct, so these were drawn into the proceeding, just like Tessag Kft., Alstom and Areva.

THE CARTEL

On 15 April 1988 some players of the GIS-market (nine European and five Japanese undertakings) signed the GQ-agreement, which was purposed to share the worldwide market of the relevant products between European and Japanese groups. On the same day the European participants concluded a complementary cartel agreement, which was called GQE-agreement (hereinafter E-agreement). The functioning of the European cartel members was based on this E-agreement. (As an enforcement of the GIS-agreement, European participants had settled the factual mechanism of sharing, the quotes to be allocated to individual undertakings in the E-agreement).

The unlawful conduct was committed on the market of GIS-systems. The GIS-system consists of electric switchgears and substations, which have the main function of distributing, linking and measuring of electricity (of at least 72 kV voltage). The GIS-systems are equipments with a relatively great value of what is usually announced in public procurement procedures in which the undertakings can get the right to accomplish the particular project.

Relevant product markets were the markets of GIS-systems and other equipments and services (substations) connected with those. The undertakings drawn into the proceeding count as significant participanats of the European (and Hungarian) markets. Beside the members of GIS-cartel the Hungarian Ganz Transelektro count as a significant participant on the European market. On the world market, mostly Asian and Chinese undertakings could be the competitors of the cartel.

The object of the cartel was to make the members reach and keep the established market shares. The members agreed market shares reflected in quotes, which were allocated to all individual undertakings. To reach the achieved market quotes, the members regularly met or they coordinated other ways the allocation of certain projects.

The members gave licenses to the license-users, which licenses usually put the license-users into a competitive position against the members. However, the members were able to influence on the behavior of the market through their license-users.

The main idea of the allocation of market was not on a territorial base, but on the base of the market share to be reached. The GIS-agreement was more than a skeleton agreement because it prescribed the duty of coordination. Within the frame of basic operation of the GIS cartel, the representatives of undertakings:
- regularly met,
- informed each other of the available projects,
- consulted on how to divide projects among themselves,
- effectively divided projects.

The GIS-cartel had two organs: the "Directing Commission" and the "Working Group". The Directing Commission used to meet once a year - usually in the spring - to settle the common strategy, approve the functioning and to clear the disagreements, which came into being in the Working Group. These meetings were called general assemblies and were organized by the European or Japanese Commissions by turns. The decisions of the Commission were obligatory for both groups. The objective of the cartel was to make the members to keep their stable market shares. The members` market shares were reflected by the quotes, which were distributed among them. The GQ-agreement gave 62,5% to the European and 37,5% to the Japanese members from the quotes. The projects were divided in a credit system, the objective of which was to assure that cartel members could participate in the projects proportionately to their quotes to retain their market shares. If only one undertaking was interested in a project, it immediately got it. If there were other interested members too, they discussed the method of dividing. The "successful" member determined the price and it informed the others which also announced their (false) prices considering that the customers usually asked for 4-5 offers.

>From April 1988 to September 1999 Siemens was the secretariat of the European members. Siemens and Hitachi temporarily left the cartel between 1999 and 2001. In this period ABB, Alstom (as the secretariat of the cartel), Reyrolle and Schneider from the European members and Mitshubisi, Toshiba from the Japanese members took part in the functioning. So in the opinion of the Competition Council, it is proven that the cartel was functioning in this period as well (at least one Hungarian project`s - Dunafer S/S - discussion was held at that time).
The number of cartel members decreased to six in 2002. (The remained members were: ABB, Alstom (Areva), Siemens, VA Tech, AE Power (Hitachi/Fuji), TMT+D (Mitsubishi/Toshiba)).

The agreements were obligatory for 5 years to both groups. After expiry the membership extended for one more year unless the member canceled it. The canceling notification had to be handed in 12 month in advance. The GIS-cartel operated all over the world except in the USA and Canada. The cartel agreement concerned the Hungarian market and it was suitable for the restriction of competition.

HUNGARIAN RELATIONS

The GVH was informed of the Commission`s proceeding against the cartel. The GVH started a proceeding against the same cartel because the cartel`s observation (and its broke up at the same time) by the Commission happened still before the EU accession of Hungary (1 May 2004). For that very reason, the Commission had not got competence to examine the cartel`s effect on the Hungarian market.

The Competition Council established - based on the explored evidences - that the cartel affected on the Hungarian GIS-market. There was a difference in the effect whether a project was really divided (or the announcer withdrew it) or it was realized. In the opinion of the Competition Council, the potential effect could be established in both cases. The suitability for the restriction of competition originated from the GIS-agreement (and the connected mechanism) itself. The GQ-agreement almost covered the whole world (with some exceptions), but the Competition Council established that relevant market (geographic area) in this proceeding was the territory of the Republic of Hungary.

The cartel members negotiated on at least 13 Hungarian GIS-projects from 1991 to 2004 (1991-1999: 10 projects, 1999-2001: 1 project, 2002-2004: 2 projects). Those projects were for example: Borsodchem, ELMÜ-Budaközép (Middle Buda), ELMÜ-Városliget (Citypark), Paksi Atomerőmű (nuclear power plant). Among them, there were projects that were withdrawn by the undertakings inviting to tender, following the discussion (e.g. development projects invited to tender by ELMÜ in 1990 and 1992, or the project of the switching station in Lackovich street in 1993, or the project invited to tender by Dunafer in 1999), some others were not shared (e.g. the project of Paks Nuclear Power Plant in 1998). In the cases of City Park project in 2002 and Middle Buda project in 2003 both invited to tender by ELMÜ, the GVH could produce evidence that they had been discussed by the cartel and one of the projects had been actually shared between cartel members.

DECISION

The GIS-agreement was concluded with the clear purpose of restricting of competition.

A complex cartel is qualified as a single infringement of the law during the whole existence of it, although the agreement was modified or there were changes in the mechanism of concerted practice [1] So the GIS-cartel was qualified as a single infringement of the law with regard to the whole existence of the cartel even if it had been modified.

To the practices between 1 January 1991 and 31 December 1996, the former Competition Act applied.

The investigators of the GVH established that the conduct of ABB Power Technologies Management Ltd., Areva T&D S.A., Siemens AG and VA Tech T&D GmbH infringed the Hungarian Competition Act (Article 11 (1) and points d) and e) of 11 (2)), therefore, they suggested that a fine (based on Article 77 (1) point d)) be imposed.

Against ABB Switzerland Ltd. and ABB Kft., with regard to the agreement having been concluded between their parents, Areva Hungária Kft. and Siemens Rt. the investigators suggested to terminate the proceeding.

Concerning Areva T&D Holding S.A., Areva T&D S.A. and Tessag Kft., the investigators established that their conduct infringed the Competition Act (Article 11 (1) and points d) and e) of 11 (2)), therefore, the investigators suggested the establishment of the infringement and the imposition of a fine (based on Article 77 (1) point d)).

Because Alstom`s T&D branch was taken over by Areva before the cartel had been wound up, the responsibility was shared between the two undertakings ( Article 53 (2) [2] ).

It was established that ABB took part in the infringement but it got immunity from fine within the frame of the leniency policy of the GVH (Notice 3/2003, issued by the President of the GVH and the Chair of the Competition Council of the GVH).

In its decision reached in the trial held on 22 December 2005, the Competition Council of the GVH established that the defending undertakings concluded an agreement, which was suitable for the restriction of competition on the Hungarian market of the so-called gas-insulated high-tension electric switchgears (GIS). The undertakings concerted their practice to execute the agreement. The Competition Council imposed a HUF 702 million (approx. EUR 2,8 million) competition supervision fine as a total on the defending undertakings. In details:
- Alstom Holding S.A.: fined HUF 440 million (approx. EUR 1760000);
- VA Tech T&D GmbH: fined HUF 159 million (approx. EUR 636000);
- Siemens AG.: fined HUF 80 million (approx. EUR 320000);
- Areva T&D Holding S.A. and Areva T&hD S.A.: ordered to pay a HUF 23 million (approx. EUR 92000) competition supervision fine as a joint obligor.
- No fine was imposed on ABB Power Technologies Management Ltd. and ABB Switzerland Ltd. (beyond the establishment of their infringement), due to the leniency policy of GVH.
- The Competition Council of the GVH terminated the competition supervision proceeding against the following undertakings:
- ABB Kft.,
- Areva Hungária Villamos Kapcsolóberendezések Kft.,
- Siemens Rt.,
- Tessag Hungária Kft.

December 22, 2005. Budapest

Footnotes

  • :: d1e152

    See: judgment of the Court of First Instance in the case Solvay et Compagnie SA Co. contra Commission (number: T-12/89) delivered on 10 March 1992 and the decision of the Commission in the case of industrial and medical gas (number: COMP/E-3/36.700) delivered on 24 July 2002 (decision number: 2003/207/CE)

  • :: d1e184

    "Where, in the course of proceedings started ex officio, a party has been wound up, its legal successor may be drawn into the proceedings."