E1996C0118(01)

Notice pursuant to Article 19 (3) of Chapter II of Protocol 4 to the Agreement between the EFTA States on the establishment of a surveillance authority and a Court of Justice concerning Case No COM 0114 - Fesil and Finnfjord (96/C 13/08)

A. The application and notification

1. On 30 November 1994, the EFTA Surveillance Authority received an application pursuant to Article 2 and notification pursuant to Article 4 of Chapter II of Protocol 4 to the Agreement between the EFTA States on the establishment of a surveillance authority and a Court of Justice of a non-exclusive distribution agreement between Fesil KS (Fesil), Norway, and Finnfjord Smelteverk AS (Finnfjord), Norway. The agreement entered into force on 1 July 1994.

B. The parties

2. The Fesil Group is mainly active in the sale and production of ferrosilicon and silicon metal. The Group consists of, apart from Fesil, Fesil AS (previously Ila og Lilleby Smelteverker AS, ILS), which is the parent company, five producing units (Lilleby Metal, Holla Metall, Hafslund Metall, Rana Metall and Fesil Brikettfrabrikken) and four sales companies in the EEA. The Group's turnover in 1994 was NKr 2 009 million.

3. Fesil is a limited partnership incorporated under Norwegian law. It is engaged in the marketing and sale of ferrosilicon from the Fesil Group's producers and Finnfjord as well as the sale of ferro alloy briquettes from Fesil Brikettfabrikken. Fesil's turnover in 1994 was Nkr 1 190 million.

4. Finnfjord is a Norwegian producer of ferrosilicon. Its turnover in 1994 was Nkr 237 million.

C. The agreement

5. The notified distribution agreement is considered to be a continuation, although more limited in nature, to the earlier joint distribution of Finnfjord and ILS based on their joint ownership of Fesil. The present agreement was drawn up in connection with Finnfjord's sale of its shares in Fesil to ILS on 31 May 1994, which made ILS the sole owner of Fesil.

6. The agreement gives Fesil the non-exclusive right to sell ferrosilicon produced by Finnfjord. Furthermore, Finnfjord shall keep Fesil informed on a quarterly basis about the volume of products it intends either to have distributed through Fesil or sell otherwise. Fesil, on its part, shall keep Finnfjord regularly informed about expected sales of the products. Finnfjord may terminate the agreement with six month's notice, whereas Fesil's corresponding termination period is two years.

D. The market

7. Ferrosilicon is an essential raw material in the production of steel and iron. It is mainly used as a deoxidizer in steel production and as an alloying component for steel alloys or in cast iron production. It is an internationally traded commodity, shipped mostly in bulk. Transport costs per unit are thus kept at a modest level. However, there are presently custom duties and anti-dumping measures on imports in to the EEA which can be as high as 74 %. Imports originate from inter alia Central and East European countries (which are not subject to anti-dumping duties), the CIS, Brazil and China.

8. Users of ferrosilicon are steel and iron mills and foundries. The largest buyers in the EEA include Usinor-Sacilor, Ilva, British Steel, Thyssen-Krupp and the large automobile foundries. The total consumption of ferrosilicon in the EEA is estimated to be some 550 million tonnes. Normally, the needed supply of ferrosilicon is procured on quarterly contracts. However, deals on the spot market have been significant. In 1993 they represented some 55 % of the ferrosilicon sold in the EEA, but typically their share is between 15 and 30 %.

9. The production of ferrosilicon is a very energy consuming process. The proximity to cheap power has thus traditionally been more important than the location of the actual raw material or markets. Because of cheap supply of electricity, Norwegian producers have had a strong position as suppliers to the European markets, presently representing some 50 % of the total consumption of ferrosilicon in the EEA.

10. Fesil's share in the EEA in 1994 was approximately 25 % making Fesil the single largest supplier of ferrosilicon. Around one quarter of Fesil's sales originated from Finnfjord. Other major producers in the EEA are Elkem AS (Norway), Pechiney Electrometallurgie (France), Ferro Atlantica (Spain) and Vargön AB (Sweden). In addition there are significant imports from producers located outside the EEA.

E. The intentions of the EFTA Surveillance Authority

11. The presence of a number of relatively large and financially strong competitors within the EEA together with significant imports from inter alia Central and East European countries, the CIS, Brazil and China indicate that the market for ferrosilicon in the EEA is indeed competitive. In view of the competitive market situation and the non-exclusive character of the distribution arrangement, the EFTA Surveillance Authority intends to take a favourable view on the agreement summarized above and in due course close the file with the sending of an administrative letter ('comfort letter`). However, before doing so it invites interested parties to send their comments within a month from the date of publication of this notice, quoting file number COM 020.0114, to the address below:

EFTA Surveillance Authority,

Competition and State Aid Directorate,

Rue de Trèves/Trierstraat 74,

B-1040 Brussels.