The flag contracts of the big oil companies
Long is the problem caused by the flagging contracts of the large oil companies such as BP, REPSOL or CEPSA, among others.
What are flag contracts?
Flagship contracts are, broadly speaking, the one by which the owner of a service station signs with an oil company (called REPSOL, BP, GALP, CEPSA, etc.) and starts acting under the brand name of said company. oil company in exchange for buying the product exclusively from said oil company and under economic conditions (usually sharing the commercial margin of the liters sold).
We will not go into depth about what this type of contract means in practice, that is, being tied to exclusive purchases from an oil company (without being able to buy from operators with a better price), submitting to the discipline of an oil company or sharing the commercial margin of the sale with said oil company. Nor will we go into the advantages that this entails (being under a recognized brand or being able to benefit from the advantages of the cards of the big oil companies).
Roughly speaking, we would venture to say that the flags are ideal for service stations located on highways or dual carriageways (due to the advantages of the cards of the big oil companies) but they are not for rural service stations (where, we believe, that neither the Oil company cards represent a considerable increase in sales, where the brand of the oil company weighs less than the name of the owner of the service station, where the service station is forced to buy exclusively from the oil company and where the price has to be shared. sales margin with the oil company). We repeat, roughly.
Legal issues of flagging contracts
Before entering into the legal problems of flagging contracts, we must remember that their current duration is one year, extendable to three at the wish of the flag bearer. It is true that, due to negligence, many of the old registration contracts with long durations and tacit renewals have not been adapted to the duration of one year (extendable for three).
Where does the legal problem of flagging contracts lie?
Fundamentally on two points:
- The fixing of the prices of sale to the public to the standard-bearer and
- The long duration of such flag contracts (normally 25 years).
In both cases they have violated article 81 of the Constitutive Treaty of the European Community or TCE (current article 101 of the Treaty on the Functioning of the European Union or TFEU)
We go on to analyze one and the other point:
Pricing for sale to the public
The standard-bearer is a businessman (who despite acting under the oil company’s brand) is independent (since all the expenses of the standard-bearer service station are his).
If he had been a mere commission agent or manager of the oil company, the latter could have set the prices for sale to the public, but not being an independent businessman.
How did the oil companies solve this problem and thus be able to set the prices for sale to the public to the independent businessman?
Very easy: they went on to call the independent businessman a commission agent. As simple as renaming things…
In this way, in flagging contracts the independent businessman is called a commission agent.
This supposes the supervening ineffectiveness of such contracts as established by jurisprudence and as recognized in Law 11/2013, which established the following regarding flagging contracts:
“They may not contain exclusive clauses that, individually or jointly, fix, recommend or affect, directly or indirectly, the price of fuel to the public.”
In practice, and despite this, they continue to directly or indirectly fix or recommend prices to independent businessmen who are standard bearers.
Excessive duration of flag contracts
We have already mentioned that, as of Law 11/2013, their current duration is one year, extendable to three at the will of the flag bearer.
We have also said that, due to negligence, many of the old registration contracts with long durations and tacit renewals have not been adapted to the duration of one year (extendable for three).
Many of those contracts had a duration of 25 or 30 years.
Those who have been subject to this type of contract not only have the right to request the supervening ineffectiveness of the same as of January 1, 2002, but they also have the right to request compensation for the difference in the price paid for the purchase of fuels and the one applied by the oil company to other distributors in the area.
From our point of view, many owners of service stations in rural areas (towns) should reconsider whether they have an old flagship contract, if the brand really brings benefits, if the service station is well known for who its owner in that town and he would not need that brand of the oil company, if it pays him to buy at a higher price exclusively from that oil company instead of cheaper operators and if it pays for him to share his profit margin with the oil company.
Therefore we recommend that you observe:
- If your flag contract continues to have a duration of 25 years or if it has expired and has not been adapted to Law 11/2013
- If in your flag contract you are called a commission agent instead of an entrepreneur
- If your flag contract establishes the possibility for the oil company to set the prices for sale to the public
If so, you should know that you have the possibility of requesting the supervening ineffectiveness of that contract, disassociating yourself from it and even requesting compensation for the difference in the price paid for the purchase of fuel and that applied by the oil company to others dealers in the area.
Carlos Babot
Experto en impuestos especiales sobre los hidrocarburos
15/03/2023
