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India – CCI Approves Proposed Combination Between Mumbai International Airport Private Limited, Indian Oil Corporation Limited, Bharat Petroleum Corporation Limited, Hindustan Petroleum Corporation Limited And Mumbai Aviation Fuel Farm Facility Limited.

28 December, 2014

 

 

On September 29, 2014, CCI approved a proposed combination between Indian Oil Corporation
Limited (‘IOCL’), Bharat Petroleum Corporation Limited (‘BPCL’), Hindustan Petroleum
Corporation Limited (‘HPCL’) (collectively referred to as the ‘Oil PSUs’), Mumbai International
Airport Private Limited (‘MIAL’), and Mumbai Aviation Fuel Farm Facility Limited (‘MAFFFL’),
to create a joint venture in MAFFFL by the OIL PSUs along with MIAL for the construction and
management of an integrated fuel facility at Chhatrapati Shivaji International Airport, Mumbai
(‘CSIA’) (all parties referred to as ‘Parties’) by way of a Shareholders Agreement (‘SHA’).
While the Oil PSUs, are inter alia, engaged in the production of aviation turbine fuel (‘ATF’),
IOCL supplies ATF and owns and operates ATF fuelling infrastructure at over 80 airports in India.
IOCL also partially owns the fuelling infrastructure at Terminal 3, Indira Gandhi International
Airport, New Delhi and Kempegowda International Airport, Bengaluru respectively.

 

BPCL inter alia supplies ATF through its 36 aviation service stations at all the major airports in
the country, while HPCL is stated to own and operate 30 aviation service facilities in India for
supply of ATF to its customers. MIAL has the exclusive rights to operate, manage and develop
CSIA. MAFFFL was incorporated by MIAL as its fully owned subsidiary to establish an integrated
fuel farm facility at CSIA.

 

Under the terms of the proposed transaction, it was proposed that each of the OIL PSUs and
MIAL would have 25% shareholding in MAFFFL, which would own the existing fuel facilities at
CSIA, and modify the existing fuel infrastructure owned by the Oil PSUs to create and operate an
integrated fuel facility. MAFFFL would only be responsible for receiving, storing and delivering
ATF to aircrafts.

 

In terms of Regulation 34 of the Combination Regulations, CCI sought comments from the
Airports Economic Regulatory Authority (‘AERA’) and Petroleum and Natural Gas Regulatory
Board (‘PNGRB’) with respect to the proposed transaction. Also, under Section 19(3) of the Combination Regulations, CCI sought comments from certain private oil companies, namely Reliance Industries Limited (‘RIL’), Essar Oil Limited (‘Essar’) and Shell MRPL Aviation Fuels and
Services Ltd. (‘Shell MRPL’). Pursuant to receiving these comments, CCI was of the prima facie
opinion that the combination would result in an AAEC in the market for supply and distribution
infrastructure necessary to supply ATF to aircrafts within CSIA in India and accordingly issued a
show cause notice to the Parties to the Combination.

 

The concerns of CCI enumerated in its show-cause notice were as follows: (i) that the transportation of ATF from refineries, terminals and depots to aviation fuel stations at airports
through pipelines, rail or trucks depending on the infrastructure available (‘Off-site Infrastructure’)
may not be available and may constrain the ability of new ATF suppliers to operate and
compete with Oil PSUs at CSIA, (ii) as per the existing inter se arrangement between the Oil PSUs, IOCL had been extended the facility of buying and drawing ATF from 2 refineries of BPCL and HPCL for supplying ATF at CSIA, which may distort the level playing field in ATF supply and (iii) the SHA contained certain restrictive clauses such as restriction on share transfers for a period of 5 years, obligation on the Oil PSUs to together hold a minimum of 51% of the share capital of MAFFFL at all times, right of first refusal to non-selling shareholders and prior written consent from each of the non-selling shareholders in case the prospective transferee was their competitor, all indicated an intention of the Parties to control operations and management of MAFFFL in perpetuity. This, CCI believed, may result in foreclosure due to the dual role of Oil PSUs as ATF suppliers and owners of the integrated fuel farm facility.

 

The Parties, in their response to the show cause notice, clarified that the off-site infrastructure
(i.e. pipelines) is unlikely to constrain the ability of a new ATF suppliers since ATF suppliers
at other airports use both tank trucks and pipelines to transport ATF to airports. Moreover, the
pipelines are connected to fuelling infrastructure at CSIA on one end and to HPCL’s and BPCL’s
respective refineries at the other, as a result of which allowing access to any other ATF supplier
is not physically possible. The Parties also inter alia agreed (i) to amend the SHA to remove any
restrictive clauses, (ii) that the ownership of the infrastructure would be transferred to MAFFFL,
and that it could be used by any ATF supplier in an open access and arm’s length basis, (iii) that
the equitable distribution of shareholding in the facility would mean that no single shareholder
could abuse it to their advantage, and that there were sufficient checks and balances to ensure it
did not happen, (iv) that a Joint Co-Ordination Committee (‘JCC’) would be formed with varied
representation that would ensure that the MAFFFL is treating air suppliers and carriers fairly, (v)
the storage space at the facility would be shared equally, (vi) they would ensure increased space
by construction and (vi) to provide information relating to the facility on its website, and incorporate
clauses in supplier agreements to ensure compliance with competition law, and provide
adequate monitoring mechanisms.

 

The Parties further submitted that the proposed transaction would facilitate reduced infrastructure
charges for ATF suppliers and trigger competition among oil companies for supply of
ATF. It was further urged that the existing arrangements between the Oil PSUs are on a reciprocal
basis and that any new ATF supplier may be able to negotiate similar arrangements.

 

CCI was of the opinion that with the commitments offered by the Parties, participation of non-
Oil PSU player (s) in the ownership of the MAFFFL would be possible in future and other voluntary
measures would enhance transparency and promote arm’s length distance in the operations of
MAFFFL. Accordingly, CCI directed Parties to pass the requisite board resolutions as agreed on principle within 3 months from the date of the order, and furnish copies of the resolutions and
amended agreements within 30 days of the passing of the board resolution. CCI approved the
proposed transaction subject to the voluntary commitments above being complied with.

 

AZB

 

For further information, please contact:

 

Zia Mody, AZB & Partners
zia.mody@azbpartners.com

 

Abhijit Joshi, AZB & Partners 
abhijit.joshi@azbpartners.com

Shuva Mandal, AZB & Partners 
shuva.mandal@azbpartners.com

 

Samir Gandhi, AZB & Partners
samir.gandhi@azbpartners.com

Percy Billimoria, AZB & Partners 
percy.billimoria@azbpartners.com

 

Aditya Bhat, AZB & Partners 
aditya.bhat@azbpartners.com

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