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Commission Moves To Revoke Pohokura Authorisation

Commerce Commission’s preliminary view is to revoke Pohokura authorisation

The Commerce Commission’s preliminary view is that it should revoke its authorisation of an otherwise anti-competitive arrangement to jointly market and sell gas produced from the Pohokura field in Taranaki.

Commission Chair Paula Rebstock said the Commission had granted the authorisation in September 2003 despite its detrimental impact on competition, principally because it was persuaded by the parties that a joint approach was necessary to realise the benefits associated with early production of gas from the Pohokura field.

“The parties informed the Commission at the time of the application that a joint approach was necessary to ensure production from the Pohokura field by mid 2006. The Commission granted the authorisation on the basis of the benefits that would accrue from earlier development of the field.

“The parties have since informed the Commission that because they had been unable to agree on issues associated with the joint approach, it is now necessary for them to separately market and sell gas. This change would not cause any delayed production from the Pohokura field,” said Ms Rebstock.

The Commission today released a draft determination prepared as part of its consideration whether to revoke the authorisation. The Commission granted authorisation to OMV New Zealand Limited, Shell Exploration New Zealand Limited and Shell (Petroleum Mining) Company Limited and Todd (Petroleum Mining Company) Limited (the Pohokura Joint Venture) in September 2003. Subject to conditions, the Commission’s authorisation allowed the parties to discuss and agree on all relevant terms and conditions, including price, quantity, rate, specification and liability for the joint sale of gas from the Pohokura natural gas field. The authorisation also provided for the parties to negotiate and enter into contracts for the sale of gas from the field jointly, for example as one seller. In April 2004, the Pohokura Joint Venture advised the Commission that because they had been unable to agree on issues associated with the joint marketing and sale of the Pohokura gas, it would be necessary to market and sell the gas separately.

Ms Rebstock said the Commission’s preliminary view is to exercise its discretion under the Commerce Act and revoke the authorisation. This would be only the second time the Commission has revoked an authorisation of anti-competitive behaviour under the Act.

“Based on what we currently know, we consider the Pohokura authorisation was granted on the basis of information that was false or misleading, or that there have been material changes in the circumstances since the authorisation was granted,” said Ms Rebstock.

“The material change is that the nexus between joint marketing and sale and early production no longer exists. Without that, the public benefit analysis alters substantially in a way which was discussed by the Commission when it gave the authorisation. The Commission indicated in its authorisation decision that without that nexus, the authorisation would not have been given.”

The Commission announced last year it was considering revoking its original decision to authorise the joint venture, and subsequently received initial submissions on a possible revocation. The process from here is for interested parties to make submissions in respect of the Commission’s preliminary conclusions contained in its draft determination. At this stage, the Commission does not consider a conference is necessary to discuss the draft determination, although that is something the Commission will reconsider based on the submissions it receives.

A copy of the draft determination is available on the Commission’s website, Submissions close on 23 March 2005.

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