MRA 'has the right' to terminate gas distributors' exclusivity agreement

The Malta Resources Authority has the right to terminate an exclusivity agreement brokered in 1992 between Enemalta and the gas distributors, according to the regulator’s chief executive officer Anthony Rizzo.

The MRA could terminate the distributors’ licence “in accordance with the agreement giving the distributors three months’ notice,” Mr Rizzo said. The authority, however, is taking a gentler approach and “discussions are ongoing with the distributors to reach an agreement” that would bring them in line with a new licensing system that came into force in 2008.

Gas distributors, represented by the Malta Chamber of Small and Medium Enterprises – GRTU), are however hanging on to the 1992 agreement. This is because while the agreement, which is still in force but has not yet been updated, gives each distributor exclusivity over a certain territory, the newer MRA licences make no mention of territory. Licences under the 1992 agreement have in fact been sold on for upwards of €300,000.

GRTU president Paul Abela said there was no way the distributors would come under the new licensing regime unless the government compensated the distributors for the loss of territory as “the new licences make the older agreement worthless”.

The government has declined to pay up, saying the agreement is a commercial one between the distributors and Liquigas, the main gas supplier.

Liquigas, which took over the gas supply from Enemalta, still wants to honour the agreement, which it says provides it with exclusive use of the distribution network and which it reportedly paid €5million for when it took over from Enemalta.

But, in another complication, gas distributors are claiming the agreement had granted them rights to distribute any brand of cylinder – which Liquigas is disputing.

There are, however, doubts whether this kind of agreement can stand or if it is even legal.

Peter Fenech, a competition lawyer at Ganado Sammut Advocates, said there was no place for similar agreements under EU law. “Monopolistic service agreements are no longer viable in the current political and commercial scenario,” he said.

“Obviously, someone has to interpret the issue because they have a contract... and (the fine print) is for the people involved to see. But, in my opinion, these contracts, which are reflected in other areas, are no longer permissible because you can’t have monopolistic services,” Dr Fenech insisted.

Nicolai Vella Falzon, of Fenech & Fenech advocates, said agreements that might be seen as stifling competition were inadmissible at law.

However, deals known as vertical agreements, such as those between a distributor and a supplier, “have long been recognised as generally necessary and beneficial to economic efficiency”. In 1965, the European Commission had issued block exemptions on similar agreements.

This, however, will change on June 1, as vertical agreements made by entities having more than 30 per cent of the market share will be presumed illegal if challenged. The parties, said Dr Fenech, would have to demonstrate the vertical agreement does not restrict competition and that it contributed towards improving the distribution of goods or services and as a result allowed consumers a fair share of the resultant benefit.