ACCC to oppose Santos' proposed acquisition of QGC

The Australian Competition and Consumer Commission will oppose Santos' proposed acquisition of QGC, ACCC Chairman, Mr Graeme Samuel, said today.

Having withdrawn a previous proposal to acquire QGC that it had put before the ACCC, Santos approached the ACCC on 30 January 2007 with a revised proposal that included undertakings which it submitted would preserve the competitive structure of the wholesale gas supply industry in southern Queensland. Further amendments to this proposal were made on 7 February 2007.  

"After comprehensive investigation and conducting inquiries with industry participants, the ACCC has formed the view that the proposed acquisition, even in light of the undertakings, is likely to substantially lessen competition for the wholesale supply of gas, particularly in southern Queensland," Mr Samuel said.

The undertakings contemplate the existing QGC management forming NewCo. Santos would retain a 30 per cent stake in NewCo.  NewCo would have post-acquisition rights to certain tenements, access to 100 petajoules of gas and some additional exploration and marketing support. 

However, having considered the likely operation of the undertakings and the overwhelming message from industry about the uncertain prospects of the newly established NewCo, Mr Samuel said that: "the ACCC was not satisfied that the proposal would sufficiently resolve the ACCC's substantial competition concerns.  

"Santos and QGC are both significant suppliers of gas to the southern Queensland market. If Santos were to acquire most of QGC's gas in place, it would control a large percentage of harvestable gas reserves in the region. While there is a possibility that NewCo could establish itself as a serious competitive constraint in time, a number of factors lead to the conclusion that it remains speculative that NewCo could do so within the foreseeable future.

"Industry participants affirmed that QGC currently competes vigorously in tendering for gas supply contracts, and consequently acts as a strong competitive constraint on Origin and Santos. Removal of this efficient and vigorous competitor from the market, through implementation of Santos' proposal, will likely decrease the level of competition in the market and lead to higher prices for consumers. Having consideration to a reasonable time frame, the proposed undertakings are unlikely to alter this outcome. 

"Market inquiries revealed that while barriers to initial gas exploration are not substantial, there are significant impediments and barriers to reaching the stage of being able to reliably supply to customers significant quantities of gas. Although the coal seam methane industry can be dynamic, it is unlikely that the competition offered by the existing independent QGC will be restored within a reasonable time frame.

"In addition, the ACCC is concerned that if the acquisition was to proceed, it will reduce the prospect of dry-gas pipeline interconnections being built so that competitive southern Queensland gas supplies can flow into other areas, including the Hunter region and the southern states via Moomba. An independent QGC has a strong incentive to support new gas pipelines which have the significant potential to supply competitively priced gas supplies from southern Queensland into the southern states.

"The ACCC took into consideration information provide by Santos, QGC and many other market participants, including customers, competitors, gas aggregators and pipeline operators and developers," Mr Samuel said. "The ACCC has also relied on information obtained through use of its formal information gathering powers under the Trade Practices Act 1974."

The ACCC will issue a Public Competition Assessment on its decision in due course.

Background

Section 50

Section 50 of the Trade Practices Act 1974 prohibits mergers and acquisitions that will have the effect, or are likely to have the effect, of substantially lessening competition in a market. Section 50(3) sets out a non-exclusive list of matters that must be taken into account in determining whether an acquisition is likely to substantially lessen competition.

The ACCC conducted an informal merger assessment process in relation to the proposed acquisition in accordance with its published guideline. The ACCC's Merger Review Process Guidelines is available on the ACCC website.