The acquisition of cooking gas supplier IGL has concentrated around 80 per cent of the market in the hands of Massy Group, enough to raise concerns about market dominance, but Jamaica’s Fair Trading Commission, FTC, has decided not to object to the deal.
Instead, the competition watchdog has proposed what it describes as remedial measures to keep the playing field open.
Once the two remedies are introduced and enforced, the commission argues, the market for liquid petroleum gas – otherwise referred to by its initialism as LPG or as cooking gas at the consumer level – would remain vibrant enough for other players to compete.
The two remedial measures are: first, allowing competitors access to Massy’s LPG storage facility in Montego Bay, which would putatively act as a distribution point and thereby allow for greater choice for that market; and second, expanding the empty gas cylinder pickup and surrender agreements.
“The staff recommends that the commissioners issue a statement of non-objection to parties to the agreement, subject to Massy Gas Products Holdings Limited’s verifiable implementation of the proposed remedial measures,” the FTC said, following its investigation into the agreement for Massy Gas Products Holding Limited to buy IGL Jamaica from Caribbean Petroleum Marketing Limited. Massy also operates the GasPro brand.
As to what the decision implies for the market leader’s local gas business going forward, IGL Jamaica Managing Director Peter Graham, who once headed Massy Group’s Jamaica operations, punted questions to the conglomerate’s communications office in Trinidad & Tobago, then later said a response would be forthcoming from Massy within 48 hours.
The FTC has said, however, that the Trinidadian company is okay with the first measure.
“Massy expressed a willingness to make its storage facility in Freeport, Montego Bay, accessible to other marketing companies,” the agency said in its July 25 report.
As to the second remedy, the competition watchdog said that generally, marketing companies need to have three or four cylinders for every residential customer they serve. Marketing companies aim for a high cylinder rotation rate, but competitors can stymie the rate of rotation, the commission remarked.
“The movement of cylinders from filling stations to end users is fairly well monitored. During the return trip from end users back to filling plants, however, marketing companies are exposed to significant commercial risks arising from losing cylinders, through, for example, illegal cross-filling and household abandonment, or slower-than- anticipated cylinder rotation rate, through, for example, the failure of rival marketing companies to surrender cylinders in a timely manner,” the FTC said.
Regarding the retrieval and surrender of empty cylinders, Massy Gas said it has begun to make arrangements, but the FTC wants it to give an undertaking “to continue engaging other marketing companies through private arrangements, until a public arrangement has been implemented”.
Generally, the Fair Trading Commission’s decisions regarding M&A transactions are usually couched within the context of there being a breach or not of the Fair Trading Act. And while it did stipulate that the IGL-Massy deal raised concerns under Section 17 of the FCA that speaks to agreements with the potential to substantially lessen competition in the market, this time around, the commission issued a ‘non-objection’ finding.
Asked for clarification, FTC Executive Director David Miller said the commission issues a ‘statement of non-objection’ in matters where it has concluded that the challenged transaction is unlikely to breach the FCA.
“In general, it would not be appropriate for the FTC to approve any given transaction, because other government regulators may have an interest in reviewing the matter. Similarly, it would not be appropriate for the FTC to state that there was no breach, because at the time of our investigation, the challenged transaction was only proposed and had not yet been completed,” said Miller.
“Accordingly, there could be no contravention or breach of the FCA,” he said.
The transaction to acquire 100 per cent interest in IGL Jamaica, which is held by Caribbean Petroleum, for US$140 million was entered into last December. The deal was subject to regulatory approval, and the decision by the FTC paves the way for the merger.
The FTC report refers to the deal as a “challenged transaction”, a term Miller said was used “to describe the commercial conduct” that was “being investigated as a potential breach of the Fair Competition Act”.
“In this matter, the FTC investigated a proposed amalgamation of the assets of IGL Jamaica and Massy Jamaica Limited,” Miller said.
Jamaica’s LPG market is populated by a dozen suppliers. Its players include Massy’s GasPro, IGL, Petcom, Yaadman, Regency Petroleum, and recent market entrant Fesco, which launched FesGas after the acquisition of young player Wilson Beck.
Jamaica imported one million barrels of LPG in 2022, reflecting an eight per cent shrinkage in volumes since the 2019 pre-pandemic year.
The FTC said that without the proposed remedial measures, the IGL and Massy agreement would likely harm both the less price-sensitive consumers in the residential segment of the LPG market by reducing the pace of product innovations, and bulk customers in the commercial segment of the LPG market by exerting an upward pressure on prices.
The report indicated that up to 85.8 per cent of households use LPG for cooking, with wood and charcoal accounting for 11.2 per cent, and electricity 1.5 per cent.
The market is broken down into various segments, including residential; commercial, which includes restaurants, hotels, and hospitals; industrial, where the gas is used to power forklift trucks in warehouses, aluminium die-casting, food processing and glass production; agricultural for crop drying, poultry breeding, thermal desiccation, sanitation, and incineration; and transportation, where LPG serves as as an alternative fuel to gasolene and diesel.
For three decades, the market was largely a three-horse race but over the last five years, its players have grown to 12. The third-largest player is Phoenix Fuels, which acquired the Petcom brand in 2016 from the Petroleum Corporation of Jamaica. The FTC indicated at the time that IGL and Massy each held two-fifths of the market.
“At that time, only IGL, Massy and Petcom participated in the market, with Massy accounting for 42 per cent of the market, IGL had 40 per cent, and Petcom commanded 18 per cent,” the report said.
The current market share for IGL and Massy remained largely the same up to 2022, the commission found in its investigation.
“In particular, Massy’s share marginally increased by 0.1 percentage point, while IGL’s share declined by 1.1 percentage points,” FTC said.
In 2018, Yaadman and Regency were said to have entered the residential segment as the first de novo entry in over 29 years, a term indicating that the businesses entered the market as start-ups.
“By the end of 2022, the combined share of the nine most recent entrants was 3.4 per cent,” said the commission.
“The disproportionate change in market share is consistent with the view that the recent entry had a relatively greater impact on Petcom than it did on IGL and Massy,” it said.
The dozen LPG marketing companies also include Jamgas, Blaize Service Centre, C&J Petroleum, Coastal Gases and Sunshine Gas.
Senior Business Reporter Steven Jackson and Business Writer Avia Collinder contributed to this story.