CNG Suppliers fined RMB 84 million in China for Resale Price Maintenance

On 27 July 2018, China's State Administration for Market Regulation (SAMR) released to the public an infringement decision finding that Daqing Oilfield Company Ltd and PetroChina's Daqing gas sales branch (both parties referred here as PetroChina entities) were engaged in illegal minimum price setting in the resale of compressed natural gas (CNG). The PetroChina entities were earlier fined RMB 84.06 million for the conduct.

In August 2016, the PetroChina entities were found to have met with 13 CNG retail stations in Harbin, Qiqihar and Daqing in Heilongjiang province to request for CNG resale prices to be set at not less than RMB 2.25 per cubic meter from 1 September 2016 onwards. The parties subsequently signed an agreement confirming the arrangement. Before the agreement, the retailers had independently priced CNG at RMB 1.76 to RMB 2.30 per cubic meter.

In September 2016, the PetroChina entities circulated a notice threatening to cut off CNG supplies for retailers that did not comply with the minimum price. They subsequently also requested the retailers to provide regular data on customers, sales volumes and prices; as well as set up a team to monitor the retailers on their compliance with the minimum price.

The PetroChina entities were found to have infringed Article 14 of China's Anti-Monopoly Law, which generally prohibits agreements that fix or set minimum resale prices of products to third parties.

Businesses should be alert to involvement in resale price maintenance practices and their risks and pitfalls. Sanctions imposed on retailers that do not comply with minimum or fixed prices, and measures to monitor and detect non-compliance, are factors that enhance the effectiveness of resale price maintenance, and would be viewed seriously by regulators. We have previously discussed the strict treatment of resale price maintenance practices in China and Hong Kong in our update here.