Lack of standing to act against Hrvatske šume

Following a complaint by an anonymous complainant alleging discriminatory behaviour, in the market investigation that the Croatian Competition Agency (CCA) carried out within the case Class: 034-08/19-01/022, it investigated the contracts on the sale of wood chips or firewood for the production of electricity and/or heat that the public forestry and woodland management company Hrvatske šume concludes with cogeneration facilities.

The market investigation of the CCA indicated the following:

In 2010 Hrvatske šume adopted the Criteria for the sale of wood chips and firewood for the production of electricity and/or heat in a public tendering procedure.

Following the public tenders in 2010, and call for tenders in 2012, 2015, 2016 and 2019 Hrvatske šume has concluded dozens of agreements with the buyers of wood chips or firewood.

Pursuant to the agreements concerned Hrvatske šume committed itself to selling wood chips or firewood to undertakings engaged in the production of electricity and/or heat.

The buyers committed themselves to the use of this raw material exclusively for the production of electricity and/or heat. Otherwise, the agreements would have been terminated, as stated under the agreements concluded since 2012.

The criteria contained in the calls for tender have been changed since 2010. In 2010 the buyers were not limited as to the maximum volumes of wood chips or firewood they could buy. In 2012 the call for tender limited the maximum volume that could be sold to the buyers to 100,000 tons of wood chips per year. In the calls for tender for 2015 and 2016 the volume was further reduced to the maximum of 60,000 tons annually per project.

In the calls for tender in 2019 it was indicated that the buyer can buy the cap volume of 40,000 tons of wood chips or 40,000 m3 of firewood per year and per project but not more than 8,000 tons of wood chips or 8,000 of m3 of firewood per 1 MWe of the installed power capacity per year. In other words, the cap volumes of wood chips and firewood that could be bought according to the call for tender depends on the power capacity of the installation, a criterion that was not present in the calls for tender in the previous years.

In addition, unlike the previous ones, the call for tender in 2015 introduced new criteria and scoring of the criteria in the selection of bidders. One of these criteria was “most economically advantageous tender” taking into account also the significance of the criteria that were introduced and evaluation of these criteria in accordance with the scoring system, such as the construction stage of the installation, the renewable energy approvals, the construction deadlines, the uptake of the installation, the required volume per 1mW max 10,000 t, the financing of the project and the development index of the self-government unit in accordance with the decision of the government of 2013. The call for tender in 2016 listed the same criteria.

In 2019 these criteria were further revised and new criteria were introduced, such as the total energy efficiency of the installation, the planned number of workers employed by the buyer for the use of the installation per 1 MWe of the installed capacity, the ranking of the self-government unit in which the installation is located indicated by the development index, the development stage of the installation, the deadline for the start of the operation of the installation, the required volume of goods per 1MWe of the installed capacity and the combined use of heat.

In the period concerned Hrvatske šume have terminated a number of agreements on several occasions but solely where the party to the agreement failed to submit a certificate of occupancy within a prescribed time period, which was a mandatory requirement under the agreement concerned.

The agreements have been concluded for a period of 14 years in conformity with the Agreements on the purchase of electricity from co-generation biomass co-generation plants concluded between the Croatian Electricity Market Operator (HROTE) and the holders of the co-generation facilities that have been also concluded for the limited duration of 14 years pursuant to the Tariff system for the production of electricity from renewable sources and cogeneration.

The submitted documentation contained no indications that Hrvatske šume behaved in contravention with competition rules.

As described above, during the years the terms in the tenders have been revised and updated for the buyers of wood chips or firewood, which lead to the limitations of the amounts of wood chips or firewood that could be purchased from Hrvatske šume. In that sense, the maximum amount of wood chips that could be purchased by the buyer in 2019 depends on the installation capacity, which previously was not the case. However, the criteria have always been equal for all the buyers and the submitted documentation does not lead to the conclusion that any of the buyers has been treated unfairly or unequally, whereas the CCA did not investigate into the selection of the criteria and the scoring system, given that these issues fall outside its jurisdiction.

In the same manner, the submitted documentation and the anonymous complaint did not indicate that Hrvatske šume would treat the buyers unequally with regard to the termination of the agreements. All the agreements that have been terminated by Hrvatske šume in the described period have been terminated on the account of the fact that the buyers failed to submit the certificate of occupancy. What could have also raised competition concerns in the view of the undertakings that contacted the CCA, was the fact that where the agreement was terminated by Hrvatske šume, the undertaking concerned would have to offer its bid in a new call for tender, in other words, meet the requirements specified in the new tenders that became more complex and sophisticated with time. In the view of the CCA, this should not raise competition concerns since any undertaking that failed to present the certification of occupancy brought itself alone in this position by not fulfilling the requirement under the previous agreement in the specified time period.

The complainant also claimed that where Hrvatske šume agreed the volumes of wood chips that would be delivered to a single cogeneration installation, it did not take into account the fact that the installations that belong to an installation group that processes wood used its own wood waste. Therefore, it was the standing of the complainant, Hrvatske šume would have to decrease the delivery of wood chips to these installation groups as to prevent them from selling the surplus in the free market.

In this respect, the agreements that Hrvatske šume has concluded with its buyers since 2012 contain a provision stating that the agreement can be terminated if the buyer does not use the goods entirely for the production of electricity and/or heat. It follows, that the purchased wood chips would have to be used by the buyers for the production of electricity and/or heat and should not be sold in the free market. At the same time, in compliance with the call for tender of 2019 the advantage was given to the installations that asked for a lower percentage of the raw material relevant to the installed capacity of the installation given that this gave a better scoring position to the bidder. On the basis of the two latest call for tenders Hrvatske šume can for the first time systematically monitor the execution of the committments undertaken under the provisions of the Agreement on the sale of wood chips or firewood for the production of electricity and/or heat.