The Sunday Times: Huge Topaz slip-up under scrutiny

October 15, 2006

The fallout is only just beginning over the Competition Authority’s oil industry blunder, writes Ciaran Hancock  
 
AS A keen fan of American “cajun”barbecues, Bill Prasifka is used to taking the heat. Last week, however, the American competition lawyer and chairman of the Competition Authority found himself on a spit being roasted for the authority’s failure to act in time on the proposed merger of Statoil and Shell, two of the biggest petrol retailers in the state.

News of the incredible gaffe emerged on Tuesday, when the authority put a statement on its website admitting that it had missed by one day the deadline to make a determination on Topaz’s €285m takeover of Statoil’s wholesale and retail oil operations here. As a result, the deal was free to proceed.
 
Topaz already owned Shell’s network of service stations and the combined entity now has between 30% and 35% of the Irish petrol retailing market as well as a strong position in wholesale terminal facilities and the distribution of heating oil.

“It is extraordinary that such a big deal should be so badly handled,” said Tom Noonan, head of Maxol, a leading competitor of Statoil and Shell, who has locked horns with the authority on a couple of occasions. “This confirms the concerns that I have had about the competence of the Competition Authority,” he said.

In a face-saving move for the authority, Topaz issued a statment on Friday saying it had agreed to address those areas that concerned the regulator.

Topaz has agreed to lease a wholesale terminal in Galway to maintain three independent fuel-supply operators in the area. It will also divest itself of a petrol station in an area of Dublin where the authority had identified a potential competition issue.

A third matter that does “not materially affect the scope of the transaction” has also been “resolved”, although details were not released due to “commercial sensitivity”.

Topaz’s move was an act of good faith, according to its chairman, Neil O’Leary. “Modern business is often caricatured as a dog-eat-dog world,” he said.

“Perhaps this episode demonstrates that there is still a role for courtesy and goodwill amid the tensions that will inevitably exist between businesses and regulators.”

The gesture by Topaz, which is backed by thr telecoms multi- millionaire Denis O’Brien and the Galway property developer Gerry Barrett, is unlikely to stem criticism of the competition watchdog.

The authority was powerless to stop the deal proceeding. Normally, it would issue a detailed report outlining how it had assessed the market and formulated its concerns. In the Statoil case, this will not happen.

For example, neither the regulator nor Topaz would say in which part of Dublin the oil company had agreed to sell a service station.

“It beggars belief that there’s only one area in the country where there’s an overlap,” said one industry executive, who asked not to be named. “This seems to be a smokescreen to minimise the fallout from this debacle.”

Prasifka insisted the authority had found only one area where a competition issue arose in relation to petrol retailing. “These are people who don’t come from a competition perspective and who don’t do the economic analysis we do. There was a problem with just one station,” he said.

There’s no doubt Topaz’s gesture was a boost to Prasifka at the end of a very bad week for the regulator. But he’s not off the hook just yet. 
 
Micheal Martin, the enterprise minister, has written to him seeking an explanation for the cock-up and wanting to know what steps are being taken to ensure it will not happen again. The American said this will probably be completed this week.

“We need to initially conduct an internal review and finalise that,” Prasifka said. “We then need to decide what further action we will take. I’m anxious to rectify the situation. 
 
The Oireachtas committee on enterprise and small business is also planning to give him a grilling. The committee has asked him to appear on October 25 to explain the circumstances surrounding the matter.

Phil Hogan, a member of the committee and Fine Gael’s enterprise spokesman, said Prasifka has serious questions to answer. “It is outrageous that the Competition Authority allowed time to elapse on such an important takeover,” Hogan said. “We’ll give the chairman an opportunity to explain what happened and how [the authority] failed to perform its duty.”

Hogan said heads should roll. “I think someone should be held to account for this. I’ll give him a chance to explain what happened and then take a view.” Prasifka said he has not offered to resign, nor have any other members of the authority.

The investigation into the Statoil takeover was led by Paul Gorecki, director of the mergers division. Gorecki has been at the forefront in breaking down what was viewed as anti-competitive practices in the oil business, securing criminal convictions against members of a cartel operating in the home-heating-oil market in the west of Ireland.

The convictions were a first in European competition law. The Statoil-Shell merger will create a company with 49% of the home-heating market in the same region.

“We completely understand the gravity of the situation,” Prasifka said. “I make no attempt to make any sort of excuses. It is absolutely correct to hold us to criticism for this, it was unacceptable what happened.”

Sweeney Oil, owned by the petrol mogul and property developer John Sweeney and a rival of Shell and Statoil in the west of Ireland, objected to the merger. Sweeney was an underbidder in the sale of Statoil. Another underbidder, Petrogas, is believed to have also raised objections.

The authority made a schoolboy error in calculating the deadline for reaching a decision. The deadline ran out on Monday, October 9 with the authority thinking it did not expire until the following day.

Lawyers at McCann FitzGerald, acting for Topaz, pointed this out to the authority in a conference call on October 10.

Prasifka said: “I’m not trying to sugar-coat this. It was a failure of our statutory responsibilities.”

The episode is highly embarrassing for Prasifka, who took up the role in April.

Prasifka, who is paid €144,000 a year, was previously aviation regulator, where he fell foul of Ryanair’s boss, Michael O’Leary.

The airline boss labelled the regulator “inept” over airport charges determinations and called for him to resign and then be dismissed. “Clearly someone on a nice easy wage like this is not going to resign — so we believe he should be sacked.”

Prasifka rejected O’Leary’s attacks as “intemperate, ill-informed and unconstructive”.
The American lawyer now faces the prospect of jousting with O’Leary once more. Dermot Mannion, chief executive of Aer Lingus, said that he expected the Irish Competition Authority will have a role in determining any planned merger between Ryanair and Aer Lingus. 
 
With the Competition Authority falling down in its role as a consumer watchdog, the public might rightly ask who is looking after their interests.

The Topaz story was widely covered by the media on Wednesday, yet when contacted by The Sunday Times, neither Ann Fitzgerald, head of the National Consumer Agency, nor Dermot Jewell, chief executive of the Consumers’ Association, a lobby group, was aware of the story.

On Friday, having had time to digest the gravity of the situation, Fitzgerald was still remarkably sanguine about events.

“They made a mistake,” she said. “They have to get themselves out of it. They’ll have to account for it. There’s nothing more to say about it.”

Related article: The Sunday Times

Statoil mix-up ‘outrageous’

Ciaran Hancock
 
A SENIOR member of the Oireachtas committee on enterprise and small business has recommended that “heads should roll” over the Competition Authority’s handling of the €285m takeover of Statoil by Topaz Energy. Phil Hogan, Fine Gael’s enterprise spokesman, said the gaffe, in which the authority missed its own deadline to issue a finding, was “outrageous”.

The Competition Authority last week had to wave through the takeover of Statoil’s Irish fuel business after the mix up. Topaz plans to combine its exisiting Shell petrol business with Statoil and the merged entity will control between 30% and 35% of the retail petrol market in Ireland. 
 
This weekend, Topaz issued a statement saying it had agreed to address the authority’s concerns voluntarily, but the gesture is unlikely to quell dissatification with the watchdog.

Bill Prasifka, chairman of the authority, will be called before the Oireachtas committee on October 25.

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