Case Documents

I, r. !1 HI , i N! i ii ~ I r: I ], h Nh Ii h DRAFT- March 15, 2000 Reference: The Commissioner of Competition v. Ultramar Ltd., 2000 Comp. Trib. x File no.: CT-2000!001 Registry document no.: xx

IN THE MAT IER OF an application by the Commissioner of Competition for a consent order pursuant to sections 92 and 105 of the Competition Act, R.S.C. 1985, c. C-34;

AND IN THE MATTER OF the proposed acqufairlon by Ultramar Ltd. of a petroleum product terminal facility and wholesale supply business Located in Ottawa currently owned by Coastal Canada Petroleum, Inc. BETWEEN: The Commissioner of Competition (applicant) and • Ultramar Ltd. (respondent) nate of hearing: 20000xxx Members: XXl!J(XXXXXJCXJCX D<1l1< uf uHki: 2000011.xx Order signed by: xxxxxxxxx

CONSENT ORDER •

FfT"i'-.. .• . .. . .. . .. . .. . ..... "' "'' -c.:;. ~;~~ COMPETITION TRIBUNAL F TRIBUNAL OE LA CONCURRENCE P I R ~ · ~MAR 29 '.2000 ~ ~ T REGIS1RAR-REGIS1RAIRE OTTAWA, o~rr.

I. ~ Ir h i. ! ~ 11 ii ~ I r: I [, ~ Nh II ~ II ;; I / ~ I !I ii I i: : I i P. (i ii ~1 1 l! I I fll FURTIIBR TO the application of the Commissioner of Competition pursuant to sections 92 and 105 of the Competition Act, R .S C J 985, r. C-34 (thP. "Ar.r") for n r.ons~nr orrl~r directing the continued competitive presence of the fo.cility and wbolestl.!e r,upply business encompassed by the proposed tnmsaclion (all as tlt:fined hen:in) tu1tl ~t:i·l<tln ulht:i· u:llleilie;;;

[2J ON CONSIDERING the notice of application dated February 16, 2000, the statement of grounds and material facts, the consent order impact statement, the affidavit of Michael Dilauro dated I'ebruary 15, 2000, the draft con5cnt Older and the consent of the parties, filed herein;

[3] AI\'D ON CONSIDERING THAT the Commissioner declares himself satisfied that, on tile basis of th., c.onsirl<'<c~tions 011t!inP.rl in rhP. ~onsP:nt nrtli;r imp~~t stAtement, thP. remetlil'.~ provided herein, if ordered, will be sufficient to eliminate the likelihood of o. sub$tantiul lessening or prevention of cumpelilion in the t.t:rminalling am! wholesale supply of rcfim:ll pelrnlt:uru products in the Ottawa region as described in the notice ot application;

[4] A.."ID ON CONSIDERING THAT the Commissioner and the respo1:1dent :u-e in "gi:eement with respect to the terms of this c(,msent otdor;

{5] AND IT BEING UNDERSTOOD by the parties that the Commissioner has alleged certain m~te.rial far.ts, anti rhp. rP.spnntlt'mt t1011,; nor nP.<:A.<sarily agrp.e with all rhe fact~ alleee.rl hut docs not contest the statement of grounds and ma.terio.l facts ;md consent order imp:i.ct statement for the purposes of dtls application :md any proceeding inilialoo by the Cumrrlis•iuuer relating Lu this consent order, including an application to vacy or rescind; • [6] AND ON HEARING counsel for the parties in respect of this application; THE TRIBli~AL ORDERS THAT: [7] The purpose of this ordt:r is lo maintain il1t: cunliuucu culilpelili ve >J1t!l>e111,;~ uf a vi alJlc: petrolewn terminal facility and wholesale supply business, such that the proposed acquisition ot that facility and wholesale supply business by i:ntramar Ltd from Coastal Canada Petroleum. Inc. will not prevent or lessen, or be likely to prevent or lessen, competition substantially in the terminalling and whole~alo supply of refined petroleum produc!5 in the Ottawa region.

Definitions • [8] For the purposes of this order the following definitions shall apply: (a) "affiliate" and "affiliated" shall be defined in accordance with subsection 2(2) ot the Act and shall include UDS:

(b) "ceases to operate" shall mean that Ultramar is r,ot usins, at a minimum, tenk&.&c at the tacillty with a nonunal capacity of 6'1,900 barrels (10.8 l\'!L) to 40 percent capacity on a ye.arly

UO i i'l i'l ·.1 J i'l ! ll I I, r. lr ~ I, I Ii !I (J ,', I r 1 L h 11 h Ii h 11,~/f.~/llll 11::1~ ~.UllOl\JI! average; Ultramar shall be deemed not to have ceased to operate the facility if Ulrramar can show,.to the reasonable satisfaction of the Commissioner, that levels have fallen below those specified in this definition due to force majeure, normal maintenance requirements, rearrangement of the tankage at di.c facility and at the Ultcamar rcrmirutl in accordance with Schedule A hereto, underliftings or other similar circlllilBtances;

(c) "CoAstal" shall mean C.oa~tal Canarla Petroleum. Inc .. a corporation incorporated under the laws of New Brunswick;

(d) "Commissioner" shall mean the Commissioner of Competition appointed pursuant to section 7 of the Act;

(e) "conditional sale" shall mean the obligation of lntramar to offer for sale the facility pursuant to§ [14];

(f) "facility" shall mean the Coastal petroleum product terminal facility located lll: 300 Hunt Club Road West, Nepean, Ontario, Canada;

(g) "force majeure" shall mean any unforeseen event which is outside the control of 1:.ntrnmlir and could not be avoided by the exercise of reasonable diligence and shall include any legislative or regulatory change which has a significant effect on the viability of the facility, or the wholesale supply business, all of which is established to the reasonable satisfaction of the • Commissioner; (h) "fuel ethanol" shall mean a high octane, water-free alcohol used as a blending ingredient with regular unleaded gasoline or, in the summer, low vapour pressure gasoline; (i) "fully operational" shall roean that Ultramar has not ceased to operate the facility, a.~ defined herein;

(j) "independent marketers" shall mean wholesalers, wholesale-retailers and retailers who are in Lhe bu~inci;s uf sell.i..ui; 1efiucd petrnlcwn product:; in the Ottawa rc&on, who neither own nor are affiliated with any person who owns a refinery;

(k) "loading rac~' :.Lnd "rack" shall mean an app~rat11s that tr>1nsfers refined petroleum product~ from a storage tank, via pipeline, to a tank truck. Loading racks/racks are equipped • With arms that deliver these products to the tank truck either from aLuve ("tup luai.!iag") or from below ("bottom loading"); (1) "Ottawa region" for the putposes of this order shall refe.r to the :11;"1 ~nrrminrline the city of Ottawa southeast to Hawkesbury and Cornwall, south to Kingston and west and north to Pembroke and Maniwaki, respectively;

(m) "proposed transaction" shall mean the transaction by which lntramar will acquire a facility aod wl1olcsale supply business located in Ottawa which is currently owned by Co11Stcl;

i. r. li Hi . i NI I !J ;, I r ! L ~ NM I! ~ (n) "refined petroleum product" shall include gasoline and Low vapour pressure blendstock gasoline, distillates and fuel ethanol, but shall not include jet fuel;

(o) "refurbish" shall mean the completion of the modifications to the Ultramar terminal in accordance with Schedule A to this order;

(p) "terminal" shall mean an intermediate storage and product distribution facility which has large storage capacity for truck and pipeline receipts of refined petroleum products;

(q) "terminalling" shall mean the business of offering tennina.l space to others for storage and/or throughput of refined petroleum products:

(l) "TSSA" shall meai1 du:: Tecluucal Stauda11:l,; a111;l Safety Autlio1ity which is u:spousil>k for the administration and enforcement of the Gasoline Handling Act, R.S.O. 1990, c. G.4 and regulations made pursuant thereto; · (s) "UDS" shall mean Ultramar Diamond Shamrock Corporatiori, a U.S. coi:poi:ation incorporated under the laws of Delaware, having its head office in San Antonio, Texas;

(t) "Ultramar" shall mean 1.J1trarnar Ltd., a Canadian corporation incorporated under the laws of Canada and having its head office in Montreal, Quebec;

• (u) "viable" shall mean the condition of the facility on the closing of the transaction, reasonable wear and tear excepted, provided that any change in the condition of the facility that may be required to avoid any envir.onmenta! or safety ha:z;a.rd identified in Schedule A hereto and any material change to the facility th11t ma.y be required by the TSSA during the term ofthis order, non-compliance with which Ll:te TSSA is unwilling to waive, shall not be deemed to render the facility non·viable; and

(v) "wholesale supply business" shall mean the wholesale supply of refined petroleum product5.

Application [9] The provisions of rhis or:der. shall apply to Ultramar and its affiliates and to: • (a) each division, subsidiary or other person controlled by them and ea.ch officer, director, employee, agent or other person acting for or on behalf of any of them v.ith respect to any of the matters referred to in this order; and (b) each of their respective successors and assigns, and all other persons acting in concert or participating with any of them with respect to the matters referred to in this order who shall have received actual notice of this order.

I,! j I /, ~ I U !I ! / : I /, . U 11 i / iJ 1 I

I. r, I! .~ I, I ~ 11 II ;, ! r. j l, ~ rl j., !I h \l,)//.~/ll!J li.:iJ t.ii\111!:111 Preservation of Facility [10] Subject to force majeure, the provisions of this order, Schedule A to this order and any federal and provincial laws and regulations and municipal and regional by-laws, for n period of three years from the date of this order, Ultramar shall not, without seven days' notice to, aad the consent of, the Commissioner, take any action or cause or permit any affiliate or any other person to tak.e Hny ~~lion th~t will rnat~rially alter, impair, dismantle, move or destroy any part of the facility or materially degrade the facility so as to inhibit or delay the conditional sale of the facility on the tenns conl~mplatt:U by Lhls 011.!er.

Perl'ormance Conditions (11] During the term of this order or until the sale of the facility, Ultramar shall: (a) within two years from the dare of closing the proposed transaction, subject to force majeure, complete the refurbishing of its terminal located at 111 Bentley Road, Nepean, Ontario (the "lJltramar terminal"), which is adjacent to the facility, in accordance with Schedule A to this order, such that the Ultramar terminal is operational in accordance with requirements of the TSSA as prescnbed by the Uasoiine Handling Act and regulations made pursuant thereto;

(b) subject to force majem:e, ensure that there is no material intenuption of the operation of the facility, as the facility is operated in all :r.n<lterial respects ru; at the date of the closing of the • proposed transaction, with the exception of inte!Tllptions attributable to the change over of operations from the facility to the Ultramar terminal, until the refurbtshed Ultramar terminal is fully operational; (c) subject to foccc majeure, maintain a .minimum of three top loading llrnlS operational at the facility or at the refurbished Ultramar facility in accordance with all federal and provincial laws and regulations and mll!l.icipal and regional by-laws;

(d) subject to force majeure and any federal and pmvincial laws and regulations and uiuukipal aml l~gloual Ly-laws, Ulaliltain at the facility or at the refurbished Ultramar facility, a minimum of two loading arms dedicated to the blending of fuel ethanol aad gasoline throughout the entire year and, in the summer months, the proper blendstock (Le., low vapour pressure ga.~oline), as long as the de.mand for such product rem~ins Mor hP.tt"1" than 'iO p=ent. of the average annual volume of fuel ethanol sold by Coastal in each year from 1997 to 1999, being • 2.5 W-; (e) provide six months' notice to the Commissioner and the independent marketers of Ultramar'& intention to cease supplying fuel ethanol; Cf) subject to force majeure, offer tO supply refined petroleum product, other than fuel ethanol, to independent marketers, at wholesale prices to be negotiated, which shall not exceed the monthly average of the domestic refiners' posted Montreal rack prices plus 0.5 cpl; provided

ll,~//~/liU l"/:14 P.Uli:·i/l!l1' that Ultramai: sh.al I not be required to otter to supply any independent marketer which is in default as a result of non-payment under any supply arrangement with illtramar;

(g) subjoot to paragraphs (d) end (e) nnd to force I!llljeure, offer to supply fuel etbunol to independent marketers at wholesale prices to be negotiated;

(h) offer for sale for relocation off site, at fair market value, any tanks ar the facility which maybe decommissioned;

(i) provide the Commissioner with a quarterly report on the operations of the facility and the Ultramar terminal, including the volume of all refined petroleum product sold to independent mRrlmters, the total volume sold during that same period, the capacity utilization of the facility and the progress being made on the refurbishing of the Ultramar terminal; and,

G) utilize the facility such that Ultramar does not cease to operate the facility. [12) The roinitn1.1m volume of refined petroleum products required to be offei:ed to independent marketers pursuant to § [11] (t) shall be:

(a) the average of the annual amounts sold to the independent marketers from the facility and by Ultramar in Ottawa in the previous three calendar years; and • (b) Ultramar shall not be in breach of this order if in any supply year its actual sales to mdependent marketers fall short of the volume of refined petroleum products requited to be offered pursuant to this order, if l.i1tramar can establish to the reasonable satisfaction of the Commissioner that the shortfall in the actual sales is attributable to force majeure, nonnal maintenmee requirements, rearrangement of the tankage at the facility and a.t the Ultmmlll' terminal in accordance with Schedule A. undetliftings or other similar circumstances.

[13] Where Ultramar seeks to invoke force majeure for any action open to it under this order, Ultramar shall give seven days' prior notice to the Commissioner, if practicable, or immediately

following the circumstance~ thil.l: load to the invocation of force majcure.

Sale [14] Ifilltramar fails to meet any of the conditions set out in§ [10], [11] and [12] within the • first five years of the term of this order, Ultramar shall be required to offer to sell the facility, including related liabilities, at fair market value in accordance with the procedure set out in § [15] to [27] as follows: (a) with the entire facility in a viable condition if the offer to sell is required within the three years after !he dare of this order; and

(b) on an "as-is" basis if the offer to sell is required during the fourth or fifth year after the date of this order.

1il17!1!111l 11:14 p illll!illl Sale Procedure [lS] Ultmmar shall notify the Commissioner within seven days after it becomes, or should re.isonably have become, aware of iu: failure to fulfil any of the conditions set out in § [10], [11] and [12]. · [16] Ultramar shall .have a period of thirty days from the date of the breach to remedy the breach to the satisfaction of the Commissioner. Ultramar shall notify the Commissioner on the thirtietli day of any failui:c to remedy a breach. In the event of a failure to remedy a breach, the facility shall be offered for sale, in a public manner, on the thlrty-fast day following a breach and in accordance with this order.

[17] Fair market value shall be determined by an independent third party appraiser, who shall lx; avvuiult:d by lhc Couuu.issio11e1 within five day$ of the Coillillissioner receiving notice of tlie failure to remedy the breach. In the event that Ultramar does not agree with the identity of the appraiser or the valuation by the appraiser, illtramar may apply to the Competition Tribunal for appropriate relief.

[18] The appraiser appointed pursuant to § [17] shall have rhin:y days from the date of appointment to submit a valuation of the facility to illtramar and the Commissioner.

[19] The Commissioner shall be responsible for the costs of the remuneration and expenses of • the independent appraiser . f20l A sale, if required shaU be: (a) conducted in such a manner as will allow an opportunity for one or more bona fide prospective purchasers to receive written notice of the proposed sale and to make an offer to acquire the facility; and · (b) on usual commercial terms for transactions of the size and nature of that contemplated in this on:ler and in the cil-culll5tances ~onteruplated by this order.

[21} Any person making a bona fide inquiry of Ultramar or its agent for the purposes of a possible purch.>"l~e of th" fa~iliry by that P"'T.'IOTI or th~r persnn's prindpal sh All he notifil'.d that the sale is being made pursuant to this order and shall be provided with a copy of this order . • [22] Any bona fide prospective purchaser shall be furnished, subject to the execution of a customacy confidentiality agreement, with all pertinent information regarding the facility being sold; such information shall be provided to tb.e Commissioner npon request. Any bona fide prospective purchaser shall be permitted, subject to the execution of a customary confidentiality agreement, to make such inspection of the facility aod of all financial, operational or other documents and information as may be relevant to the sale.

I. f, li h I. I HII \I ;; I ~ l [, h n h i! I. ii U i ~I 1111 Ii: I'.: r. Ii I I! ll ' 1 L23J Ultramar shall, upon the wntten request of the Commissioner, advise the Commissioner in writing of the progress of its efforts to accomplish the sale, including a description, with all reasonable detail, of contacts or negotiations with prospective purchasers and ind• uH.ng thl\ identity of all prospective purchasers who have come forward.

[24] Ultramar shall not, withou.t the consent of the Commissioner, provide financing for all or any rarr of the sale of the facility pun;ua11t to this order which would permit Ultr:amar to

influence or control directly or indirectly the facility after the sale.

L25] ·L 'he fac1llty must be publicly offered for sale For a minimum period of nine months or until sold in accordance with the provisions of this order, whichever is earlier. l:Jltramar shall use its best efforts to accomplish the. sale within nine months Tf a roti>.ntial purr.haser expresse.s an interest in the facility within the nine month period, then the time period for the sale may be extended a fUrcher nine months to facilitate completion of the sale, if necessary.

[26] Any sale shall he completed on the following terms: (a) at the COlll]Jletiou of the sale, Ultramar shall not have, either directly or indirectly, any remaining right, title, control or interest in the facility inconsistent with the intent of this order; nothing in this paragraph, however, shall preclude the exchange or sale of products or services or both, or J.ikA ~r:ningp,mP.ntR nf a cn.qtomary nature 81'.Ceptahle to the new owner;

(b) the facility shall be sold to :m arm's length purchaser or pun:hai;t:rs who shall w;;:e~ Ll11:: • following objective criteria: (i) will likely be able to ensure the continued operation of the business of te.rminalling and wholesale ~upply of refined petroleum product; (ii) shall have the managerial, operational and financial capability to assume the liabilities as.social:ed with the facility. without any recourse against the vendor," and to operate in the market in question; and

(iii) shall purchase the entire factlity as tt exists at that time. (27] Subject to § (28], if, after the expiry of the nine month period, no person has expressed an intei:est to purchase the facility, or if, thereafter, lherc is no potential purchaser acting in good faith who is able and willing ro complere the pun:hase of the facility, L1tramar may close or • dismantle the facility . [28] Where, in tfie Commissioner's opinion, Ultramar has failed to exercise reasonable diligence in relation to the sale of the facility, the Commissioner rnay direct Ultramar to place the facility in the hands of a trustee who will offer the facility for sale for a period of siX months at a price and other terms that are then most advantageous to IBtramar and consistent with arr.omrli~hing thP. ~alP., in thP. opinion of the tn1!1tee. Any sale conducted hy the trustee shall he

l r. Ir ! I, I II !I Ii " I I. I - -I. · h - I · I subject to the requirements of § [26]. If the faciljty remains unsold after the six month period, Ultramar may close or dismantle the facility.

[29] Ultramar shall not object to a trustee sale' on any grounds other thm the trustee's malfeasance, gross misconduct or breach of this Order.

' I [30) IBtrarnar shall hold the trustee harmless ~ainst any losses, claims. damages, liabilities. or expenses arising out of, or in connection with, t* performance of the trustee's duties, including all reasoU<tblc fees of counsel and other expct1sc8 incmred in. c01mectlon with the preparation fur, or defence of any claim, whether or not resultinglin any liability, except to the extent that such liabilities, losses, damages, claims, or expenses rl:sult from malfe'1Sance, gross negligence or bad foith hy th"" 1m~tPR.. I I I [31) All expenses reasonably and properly in~ by the trustee in the course of the ttustee sale shall be paid from the proceeds of such a saf,, as soon as possible.

Appr:o-vAI of the Sale ', i i [32] Ultramar shall provide a notice (the "sale!notice") to the Commissioner or any binding agreement t h re e a ched for the sale.. The sale notice shall set forth the details of the proposed sale including identity of the proposed purchaser. : • [33] The sale, by Ultramar or a trustee, is subject to the approval of the Commissioner, who shall, inter alia, take inio account the competitive impact of the acquisition by the proposed purchaser, and approval (except for a sale by the'trustee) shall be obtained in accordance with the procedure set out in § [32] io [37] ofthis order. · [34] Within fifteen days after receipt of the sa1e notice, the Commissioner may request additional information concerning the proposed *'le. Ultramar shall furnish the additional information within fifteen days of the receipt of lite reque.~t unless the Commissioner agrees in writing to ex:tend the time. ' I [35] Within fifteen days after receipt of the s+ notice or, if additional information is requested by the Commissioner within the time ~ified in § [34 ], within fifteen days after receipt of the additional information, the Co~ioner shMl notify UJ.traro"-' in writing of any objections he may have ta the proposed sale, on Jte ground that it does not conform to the terms • of this order and shall give detailed reasons the1or . [36] If the Coro.missioner does not object wi n the period specified in § [35] the sale may be completed. [37] Where the Comnuss1oner ObJeCts to the l.posed sale pursuant to§ L:;)j, the proposed sale shall not be completed without the approva~ the Competition Tribunal. I