The General Authority for Competition (“GAC”) in the Kingdom of Saudi Arabia (“KSA”) has recently released its comprehensive annual report for the year 2022 (“GAC Report”). This eagerly anticipated report not only highlights the diligent efforts and innovative initiatives undertaken by GAC during the year but also provides an intricate analysis of the competition landscape. Furthermore, the GAC Report delves into the specifics of economic concentration filings, offering valuable insights into the regulatory measures and strategies implemented by the GAC.

This article provides a closer look at the key highlights and essential details presented in the GAC Report, shedding light on the significant developments within the realm of competition in KSA and the economic concentration demographics and trends.

GAC’s Board of Directors (“Board”):

The Board is the supreme authority of GAC, assuming the crucial role of overseeing its operational framework and the formulation of strategic plans that guide its functions. It is vested with the responsibility of monitoring the enforcement of regulations and curtailing unlawful monopolistic activities. The Board has the right to take what actions it deems necessary to achieve GAC’s objectives and protect and encourage fair competition.

Throughout the year 2022, the Board concluded 5 meetings and issued 93 decisions, with some of the highlights being:

1. The initiative of KSA regarding the draft Gulf Competition Law.
2. The one economic concentration application rejection for 2022 which was in relation to the application for acquisition submitted by the National Gas and Industrialization Company (“GASCO”) of 55% of Alnaqel Alafdal Gas Company (“Alnaqel Alafdal”).

A. The Gulf Competition Law draft:

Recognizing the significance of economic integration among the Gulf Cooperation Council (“GCC”) countries and the desire to strengthen the economy of the GCC countries in light of global economic developments, there has become an urgent need for a concerted effort towards a cohesive economic unity.

An initial draft law of 29 articles was produced covering the following provisions:

• General provisions;
• Competent authority;
• Practices;
• Economic concentration;
• Precautionary measures;
• Exemption, settlement, reconciliation;
• Lawsuits and sanctions;
• Receiving complaints and reports;
• Final provisions.

Perhaps the GCC as a whole would adopt a final version of this proposed GCC Competition Law at some point in the foreseeable future. This would be a positive step but raises some logistical concerns with respect to implementation. A few questions come to mind, such as, will there be a shared database between the GCC merger control regulators? Would there be an avenue for global entities that are involved in multiple jurisdictions to file one comprehensive application? How will the filing fees for the multi-jurisdictional applications be handled?

We would hope that this law would not only address the economic concerns with respect to unfair competition but would also create an efficient process for parties involved in economic concentrations to quickly file their applications (especially in multi-jurisdictional transactions) and obtain clearances. The number one major issue parties face when attempting to close a multi-jurisdictional transaction is obtaining clearances from the relevant merger control regulators prior to concluding closing. Establishing a GCC Competition Law that creates a streamlined economic concentration application process to clearance would incentivize commercial transactions in the region, thus boosting these economies.

B. The Board’s rejection of GASCO’s acquisition request:

In the year 2022, GAC received 316 applications for economic concentration. It issued 176 no-objection decisions, achieving the highest rate of decisions issued by GAC in one year. It processed 128 applications as non-reportable applications and rejected 1 application, while 11 applications are still under review.

GASCO had announced the signing of a share purchase agreement with Mohammed bin Manahi bin Munir Al-Buqami to acquire 55% of Alnaqel Alafdal. The total value of the transaction amounted to 29.1225 million Saudi Riyals. The signing of the share purchase agreement and the announcement did not imply the completion of the transaction, as it is contingent upon the approval of GAC. However, GAC issued its decision rejecting the transaction.

Through its interviews and investigations with competing third parties in relation to Alnaqel Alafdal, GAC concluded the existence of significant concerns regarding the potential consequences of completing this transaction. Competition authorities are committed to maintaining a vibrant competitive landscape in markets and reducing barriers to entry. In its analysis of entry barriers resulting from the execution of the economic concentration transaction, GAC arrived at two conclusions:

First:  GAC believed that the ownership by GASCO of competitors’ data obtained from competitor retailers of Alnaqel Alafdal, such as their (locations, capacity, financial and operational capabilities, and more), could potentially lead to the exploitation of this data being used to limit the growth and expansion of competing companies to the acquired Alnaqel Alafdal, or being proactive and reacting quickly to any shift in the business model undertaken by any of this company’s competitors.

Second: GAC believed that the creation of a dominant and vertically integrated entity in most stages of the supply chain as a result of this transaction would make it more difficult for new competitors or investors to enter the gas supply market. This could make it difficult for the Ministry of Energy to succeed in the near future to open competition in supply chains.

Conclusion

In summary, the year 2022 marked a significant chapter for KSA and the GAC. Through its dynamic initiatives, regulatory endeavors, and pivotal decisions, GAC showcased its dedication to fostering fair competition and curbing monopolistic practices within the market.

As we conclude this first part of our overview, we’ve delved into key highlights and initiatives. Stay tuned for our upcoming articles, where we will continue to unveil and shed further light on the ever-evolving competition landscape in KSA.

Authors:  Asad Ahmad, Senior Associate, and Salma Farouq, Associate.

For further information, please contact Alex Saleh (alex.saleh@glaco.com) and Asad Ahmad (asad.ahmad@glaco.com).