August 2019 Edition

In this edition of our newsletter, we discuss the conviction of companies for bid rigging in train and subway markets; the agreement signed by CADE and Petrobras to open the Brazilian natural gas market; CADE’s new resolutions, which seek more transparency and standardization; the uncertainty over CADE’s nominees; and the approval with vetoes, by the Presidency, of Law that creates the National Data Protection Authority.

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Tribunal convicts companies for bid rigging in train and subway markets

During an extraordinary judgement session held on July 8, CADE’s Tribunal partially condemned 11 companies and 42 individuals for cartelization in at least 26 public bids on trains and subways in São Paulo, Porto Alegre, Belo Horizonte and the Federal District, which occurred between 1999 and 2013.

The Tribunal unanimously acknowledged the existence of a single long-term national agreement, renewed over the years, with the aim of allocating winners through bid rotation and price setting practices.

The Commissioners however disagreed on the fines and penalties to be imposed. By majority, the Tribunal decided to impose fines that considered the gross revenues of the companies in the branches of activity affected by the cartel. The Reporting Commissioner João Paulo Resende had suggested the fines be applied according to the gains each company obtained from each cartelized bid. Considered altogether, the fines amount to five hundred million Reais.

Also, the majority defined accessory penalties for some of the companies. Regarding Alstom, Bombardier, and CAF, CADE recommended the Brazilian Administration should not grant these companies the right to join programmes allowing payments of taxes in installments, tax incentives or other public subsidies for the next five years. It is worth indicating that the Tribunal was tied on the application of these additional penalties, and they were only established after a vote of the president of CADE1.

Alstom, on top of these other penalties, was also prohibited from participating, directly or indirectly, in public bids involving the acquisition and maintenance of rolling stock, ancillary systems and their integral parts for five years, to be counted from publication of the decision. According to CADE, this extra penalty relates to the fact that the company was the leader of the cartel.

1. Whenever there is a tie at the Tribunal, CADE’s Internal Rules determine that the President’s opinion will prevail.

 

CADE and Petrobras sign agreement to open natural gas market

In the same judgement session, CADE’s Tribunal unanimously approved a settlement with Petrobras regarding the opening of the natural gas market in Brazil. The state-owned enterprise is required to divest all of its direct and indirect interests in natural gas chain transportation and distribution, which includes its shares of the capital stock of Nova Transportadora do Sudeste (NTS), Associated Gas Carrier (TAG), Brazilian Carrier Bolivia-Brazil Gas Pipeline (TBG) and Gaspetro, by December 2021.

The settlement also establishes the termination of investigations that are underway at CADE about Petrobras’ conduct in the natural gas market. Thus, if the agreement is fulfilled, CADE will dismiss two complaints, one brought by Comgás about the differential pricing practices for gas distributors, and the other by Abegás, regarding Petrobras’ entire pricing policy and commercial conditions in the sector.

In recent years, Petrobras has been the target of other similar cases in this sector, notably in disputes with Ambar and Comgás. In the first, it was acquitted in when CADE analyzed potential price discrimination for the Cuiabá thermal power plant and convicted in the Gemini case, in which Comgás reported the practice of price discrimination between piped gas and liquefied gas.

CADE believes the rules of the agreement could prevent further charges. CADE’s president, Alexandre Barreto, also said he believes the agreement will make private investments in the sector more attractive, stimulating entry and introducing free competition through reliable access to inputs.

The agreement is part of the New Gas Market, a broader program involving the creation of committees and the elaboration of norms and guidelines by various government agencies with the purpose of breaking up Petrobras’ monopoly and introducing competition in the sector. The episode follows another Petrobras agreement related to the privatization of oil refining, approved by CADE in June.

 

With new resolutions, CADE seeks more transparency and standardization

CADE is implementing transparency measures through the update of some of its internal rules, including the Resolution 24/2019, which regulates Administrative Proceedings to Investigate Concentration Acts “APAC,” and a recently approved Internal Regulation.

The APACs are procedures instituted by CADE to investigate the potential closing of a merger (that meets the filing requirements and therefore must be submitted to the authority) prior to its clearance by CADE. When companies fail in their obligation to file an operation, CADE understand that gun jumping has taken place, as provided by article 88, §3, of the Antitrust Law (Law n. 12.529/11). The Resolution creates a methodology for calculating gun jumping-related fines.

Also, CADE’s Internal Regulation has been updated (in the Portuguese acronym, “RICADE”). Other than formalizing some proceedings that were already adopted by the authority, the new RICADE innovates on some aspects. In merger control, the most relevant change is that now the parties may request a preliminary injunction to consummate the transaction before the official approval by CADE. As for administrative procedures, which investigate anticompetitive conducts, the parties no longer enjoy extended deadlines in the case of multiple defendants.

 

Uncertainty over CADE’s nominees

With the termination of the terms of three Commissioners, CADE has no quorum to hold judgement sessions. Other than concern over the decision-making paralysis (all the procedural deadlines are suspended), there is great uncertainty over who will take office and replace such commissioners.

On May 20, the Brazilian Presidency had sent to the Senate two names to fill two of such vacancies at CADE’s Tribunal: Leonardo Bandeira Rezende and Vinicius Klein. On August 1st, President Bolsonaro withdrew such appointments.

So far, there is some speculation over the future nominees — several names have been raised, including that of current Chief-Economist Guilherme Resende — but no official decision has been formalized by the Presidency. According to the media, it is possible that the Senate will be responsible for suggesting two of the candidates, whilst the Presidency would propose the other two.

 

Presidency approves with vetoes the Law that creates the National Data Protection Authority

On June 8th, President Bolsonaro signed with vetoes the Law that created the National Data Protection Authority — after a longstanding debate over its structure. According to the Law n. 13.853, the authority was created as a part of the federal public administration, being officially subordinated to the Presidency of the Republic. However, the law itself highlights the legal nature of the ANPD is transitional and, after two years, the Executive may transform it into an indirect federal public administration entity, subject to a special autarchic regime — a regime such the one of CADE and most Brazilian regulatory agencies.

Other rules were vetoed. For example, in the original text approved by Congress, data subjects had the right to human review of automated decisions which affected their interests. The President vetoed such provision and, now, the Law no longer mentions human revision, only “review” — which enables the process to be automated.