In 22 July 2019, the AdC replied to a request from a group of members of the Portuguese Parliament regarding the taxation of the activity of gas distribution to consumers. The request posed a set of questions regarding the impact on competition of a legal act which determined the application of the reduced VAT rate to the fixed component of certain ranges of consumption of electricity and natural gas, as of 1 July 2019, and, in particular, about the potential risk of distortion of competition arising from that legal act.
The AdC emphasized that the public measures pertaining to the VAT should respect the principle of competitive neutrality, foreseen in the european legal framework applicable to the common system of VAT, and should not lead to situations of differentiation, in the VAT rate, of competing services. The AdC assessed the possibility that the portuguese legal act could provide an advantage to (piped) natural gas distributors in relation to distributors of piped liquefied petroleum gas (LPG) and distributors of bottled LPG.
The AdC concluded that some aspects mitigated the impact of the portuguese legal act in terms of customer flows and competition, namely: (i) the extent of the geographical overlap of the different products; (ii) the product switching costs faced by consumers; and (iii) the competitive positioning of the different products, in particular the higher competitiveness, in terms of the relative price, of natural gas in relation to piped LPG and bottled LPG. Notwithstanding, the AdC highlighted that the quantification of that impact posed significant challenges, given the complexity of the analysis and the scarcity of available relevant information.
The AdC mentioned that the natural gas distribution network was located in mainland Portugal and, to a large extent, in the most populated and industrialized areas, but a significant part of the population residing in municipalities with a natural gas distribution network did not have access to or did not use natural gas.
The AdC noted that the portuguese legal act increased the disadvantage, in terms of cost for consumers, that piped LPG and bottled LPG appeared to have in relation to natural gas.
The AdC considered that the portuguese legal act: (i) in regions without a natural gas distribution network, would not have a direct or short term impact on competition and on consumer welfare, although it could stimulate an expansion of the natural gas distribution networks; and (ii) in regions with a natural gas distribution network, could change the relative competitiveness, in terms of the price, of the different gas supply options available to consumers.
The AdC concluded that it was not possible to exclude the possibility that the portuguese legal act could have some effect on the competitiveness of the different gas distribution activities, in spite of the several aspects that mitigated its impact.