Antitrust authority investigates into four Israeli gas companies

by Assaf Bergerfreund

The indictment filed in Jerusalem District Court against the 15 senior executives of Israel's four largest gas companies -- Pazgas, Amisragas, Supergas and Dorgas -- accuses them of colluding to stifle competition.
The Antitrust Authority's investigation into the cartel was initiated following an attempt by the four to reach understandings with Gasgal Jerusalem, which competed with them over the supply of propane gas in Jerusalem. Gasgal owners Ury Kissin and his son Ofer refused an offer to carve up the market between the gas companies.

The testimony, which Ury and Ofer provided to the authority and which is printed here for the first time, led to a comprehensive investigation. The investigation led to the filing of serious charges against the companies' senior executives.
In their testimony, the Kissins discuss the background of the formulation of the agreements among the gas companies, which at the time controlled 95 % of Jerusalem's gas market, and meetings with company managers at hotels in the capital where they tried to reach understandings over dividing the consumer market. During the investigation, the Kissins were suspected of having participated in the binding arrangements and were questioned under caution, but that suspicion was disproved.

Below are excerpts from Ofer Kissin's testimony from July 1999:

Question: Who initiated the division among the big companies?

Answer: "The senior executives at each company are the ones who initiated the division, and are still doing so. Currently, there is an understanding that has always been in existence among the companies that one [firm] does not approach the large contractors of the other. This holds true in nearly 100 % of the cases."

Question: Who are the executives who initiated and continue to initiate the division?

Answer: "Israel Angel of Supergas, [Isaac] Mucznik and George Dabby of Amisragas (no indictment has been filed against the latter -- A.B.), Shetkel from Amisragas' industrial department and Horowitz from Amisragas' central region, and Piki [Pinhas] Biderman of Pazgas. Modi Ben Shach of Pazgas works exclusively behind the scenes. Green was also involved in the past, but is retired now and therefore is not involved.”
"From Dorgas -- Zvi Mor, David Shazar is certainly involved, Gideon Binsky, Michael Yanovsky (against whom no charges were filed -- A.B.), and behind the scenes there is also Shmuel Dankner, who knows all about the divisions among the companies. The firms call the division `the balance of terror'."

Question: Where were these meetings at which they divided the customers among them?

Answer: "I know that these days the companies' representatives meet at the Manufacturer's Association, but they do not divide up the customers there; rather, they review only strategy -- legislation, orders, and the division of gas allocations from Israel Oil Refineries [known by its Hebrew acronym Bazan].”
"I do not think, however, that this appears in the minutes of the meetings -- the division of customers is done on a regional basis. In the Jerusalem region, the companies' representatives meet in branches, at coffee shops. In the past, they certainly met at the Pazgas branch, the Supergas branch, at the Plaza Hotel beside Liberty Bell Garden in Jerusalem... I am talking about 1995-97."

Question: Were you present at these meetings?

Answer: "I was present at one of the meetings between 1995-97; I do not remember exactly when. The purpose of the meeting in which I participated was to divide the new sections of housing units in Jerusalem among the gas companies. The division of Jerusalem's market was initiated by Pinhas Biderman of Pazgas and Israel Angel of Supergas. For sure, they were at the meeting I attended. That meeting was held at the Laromme Hotel in Jerusalem."

Question: Who invited you to the meeting at the Laromme?

Answer: "I think it was the managers of the Jerusalem branches. I think it was Dabash or Kiali who invited me. I add here that Ronnie Rotem of Supergas was also involved in the national division among the companies."

Question: What happened at this meeting?

Answer: "All those present spoke and offered us to join the arrangement of dividing up the new housing units in Jerusalem."

Question: At the meeting at the Laromme, who suggested dividing the new buildings among the companies?

Answer: "We fought aggressively with the other companies, and they wanted us to stop the big fuss so they offered us a share in the division. The initiators were Israel Angel of Supergas and Piki Biderman of Pazgas.”
"The idea was that the other companies would give us 5,000-6,000 new housing units of the division for three years, and we would stop fighting them, and therefore, they would be able to raise their prices. I figure that was in 1995 or 1996."

Question: What do you know about the orders to the branches or distributors of the gas companies to reach agreements regarding carving up the market?

Answer: "I know that there was an order by the big gas companies to their distributors and the branches to reach agreements. I know of orders regarding [building] contractors, led by Ronnie Rotem of Supergas, Horowitz of Amisragas, Gideon Binsky of Dorgas, and I do not remember the name of the man from Pazgas.”
“I know about the division of new housing units among the companies right now in the Beit Shemesh area, Kiryat Gat, Be'er Sheva, Ashdod, Rishon Letzion, Petah Tikva, Netanya, Hadera, Haifa and also Jerusalem. My assessment is that to this day there is division. You can see the division in Ma'aleh Adumim, where each company has its own contractors."

Question: We know that the national division among the gas companies was 31 % for Pazgas, 19 % for Dorgas, 26.4 % for Amisragas and 23.6 % for Supergas. What is your response to this?

Answer: "That sounds reasonable, but I don't know what the division is for sure."

Question: On what basis is the division among the companies conducted?

Answer: "More or less, according to Bazan's allocations."

Question: Did you participate in any other meetings with the representatives of the gas companies in Jerusalem?

Answer: "I remember one other meeting that was two-three months after the meeting at the Laromme... It was near Beit Shemesh... at the guest house of a kibbutz. At the meeting were: from Dorgas -- Gideon Binsky and Adam Ribovsky; from Pazgas -- Yoav Zakai and Itzik Kiali; from Supergas there were Aharon Dabash and Ronnie Rotem; from Amisragas there was Shimon Horowitz; from Gasgal there was my father and myself.”
“At that meeting, they tried to reach the agreement they had tried to reach at the previous meeting -- to convince us to agree to receiving 5,000-6,000 of the divided housing units over three years in exchange for our not taking housing units from the big companies and not interfering in the raising of prices by not taking away any of the existing housing units from them."

Question: How did you -- you and your father -- respond to this offer?

Answer: "We refused the arrangement. We continued to fight them."

Question: How did the gas companies divide the housing units in Jerusalem? How did they know which housing units to divide?

Answer: "Representatives of the gas companies would do joint tours of the neighbourhoods and divide the units. Field workers likewise would report to their managers, who would tell the competing company managers that there was a building site, and then the companies would spar [for that site].”
“The sales people are the ones who would wander around the neighbourhoods -- for example, from Amisragas it was Horowitz, who would wander around and try to close deals with the contractors."

Toward the end of the testimony, the investigator showed Kissin some documents that the authority had obtained and asked him to explain them.
"This is an authentic document of the division in the Jerusalem region, where in practice Gasgal did not get anything," Kissin said. "The meetings that I described to you with the companies at the Laromme Hotel and at the kibbutz were around the date of this document [October 1995]. This document was written between the two meetings that I recounted. This is a document that was drafted after a tour of the field in which we did not participate, but in which representatives of Pazgas, Supergas, Amisragas and Dorgas did participate.”
I don't know who was there from each company. I would like to note that the documents that you are showing me had another accompanying document of the division in percentages among the companies, which I do not remember, and which they brought to one of the meetings, at the hotel or at the kibbutz."

Kissin's testimony revealed that of 3,094 housing units, Dorgas received 34 %, Pazgas received 26 %, followed by smaller percentages to Amisragas and Supergas. Gasgal was offered the smallest portion -- 10 %.
During further testimony by Ofer Kissin a month later, the investigators asked him to continue detailing what was said at the meetings held by the companies' representatives.

Question: Who was at the meeting you attended at the Plaza?

Answer: "The meeting was in 1995; I don't remember exactly when. That meeting was attended by Pinhas Biderman, Mucznik, Israel Angel, myself, and my father. I don't remember who else was there. I don't remember if there was someone from Dorgas or if there were other participants. We sat in the lobby at the entrance to the hotel."

Question: Why did you reject the offer?

Answer: "The offer did not appeal to us. They only wanted to neutralize us; they wanted us not to compete with them... In the beginning, at a meeting that I described previously at the Moriah Plaza in Jerusalem, Angel and Biderman offered us a different quantity of units, while at the meeting at the Laromme, Dabash and Kiali changed the offer both qualitatively and quantitatively. Dabash and Kiali wanted us to receive only the new housing units and we did not agree."

Question: Did you participate in other meetings with representatives of the gas firms?

Answer: "No. The meeting at Kibbutz Harel was the last meeting of representatives of the companies in which I participated. Afterward, we embarked on strong commercial competition against them."

Question: Do you know of other meetings between the companies that you did not attend regarding the division of the market in the Jerusalem region?

Answer: "I do not know [of any], but I do know about meetings that were held to formulate the companies' strategy for fighting Gasgal."

Ury Kissin was later summoned for questioning during which he recounted the meetings he and his son held with the gas companies.
"Michael Yanovsky of Dorgas met with me," said Ury Kissin. "That was in the past few years, and was [held] because the older gas companies, including Dor, wanted to prevent us from taking their customers. I did not have a meeting with Amisragas. Pazgas did not ask to meet with me. I met with Israel Angel a few times, but I also conduct commercial business with him -- we buy gas meters from Pazgas so meetings were held for that purpose. At those meetings, Israel Angel tried to convince me not to compete against the gas companies... I would meet with Zvika Mor."

Question: During your meetings with Zvika Mor, did he also speak with you about your non-competition with the companies?

Answer: "No, he did not speak to me about it... When Gideon Binsky came, that's when this whole story began. Zvika Mor was ashamed to talk to me about the competition issue, because he took customers from me, so he sent me his minion, Gideon Binsky."

Question: Is there still a division of the market in Jerusalem or has it stopped?

Answer: "I don't know if there is a division of the market these days, or if it has stopped. They conceal everything from me. I also think that now, after your investigation, they are cautious and fearful."

Question: Some four years later, in August 2003, Ofer and Ury Kissin were questioned by the authority again, but this time, unlike the previous times, not as suspects.
In your previous testimony you said that the companies asked you to raise your prices, and that the companies wanted to give you housing units so that you would not take customers from them and raise prices. Please give us more details on that.

Answer: "We hurt them through their existing customers the moment they switched to us as a result of the lower price we offered them, and then [the companies] offered us apartments in new buildings on the condition that we raise our prices and not take away their existing customers. It is a lot more expensive to put all the pipes into a new building than into an existing building, so they were interested in giving me new apartments that would cost me more, on the condition that I did not touch their existing customers and raise my prices."

Question: When they offered you new units in exchange for not going into existing ones, was it clear that the other companies were committed among themselves not to go into existing units?
Answer: "They never clashed with one another. This was due to the agreement among them. They had an iron-clad rule not to clash with one another."

Question: What happened when Dor tried?

Answer: "In the beginning, Dor competed with them because it was new, but afterward Dor entered into an agreement with them."

Question: When did the division of the housing units among the gas companies start?

Answer: "I remember that I had a branch of Petrolgas in Herzliya in 1973-76, and I remember that even then they divided the new apartments among themselves. I do not believe they altered their ways for one minute."