A classic case of the big operator screwing the small guy, seeking to reduce market competition: Commerce Commission intervention saw First Gas Ltd fined $3.4 million for its actions in forcing GasNet out of the Tauranga market. The size of the fine results in First Gas purchase of ten kilometres of reticulation pipeline in new Papamoa subdivisions being totally uneconomic; the asset will never be profitable over its lifetime.
Controlled by Whanganui District Council, GasNet Ltd looked to expand during 2016 into Bay of Plenty establishing gas networks alongside new subdivisions in the rapidly expanding Tauranga seaside suburb of Papamoa. There are big cost savings in laying pipes while a subdivision is under development, rather than retro-fitting pipes in an established suburb.
The High Court was told First Gas, with annual revenues in the region of $158 million, looked to elbow GasNet out of the way. At a July 2016 meeting in Whanganui, GasNet was given the message; sell its Papamoa distribution network or life would be made very difficult. GasNet spurned two offers, before agreeing to First Gas’ third buyout offer. GasNet says this third offer did not represent fair value nor reflect the true value accruing to First Gas. This offer was accepted after First Gas began stacking pipes in subdivisions already reticulated by GasNet with First Gas threatening to retro-fit its own distribution network alongside GasNet’s existing lines. As part of the buyout, Gas Net agreed to a restraint of trade: it would not provide gas distribution services in the Bay of Plenty for the next five years.
Commerce Commission pounced when the two companies, in all innocence, provided details of their deal as part of ongoing Commission calculations of price-setting for the regulated gas distribution business. The High Court confirmed a negotiated fine of $3.4 million and declared the restraint of trade unenforceable.
Commerce Commission v. First Gas Ltd – High Court (21.02.19)
19.046