Revocation of ANP authorization due to antitrust conviction and the guarantee of national fuel supply

Introduction

In an earlier article, we examined in depth the possibility of revocation of authorization by Brazil's National Petroleum, Natural Gas and Biofuels Agency (ANP) in the case of an economic agent found to have committed a competition-law infringement recognized by CADE (Brazil's antitrust authority) or by a court decision. On that occasion, we concluded that there is a conflict between this penalty and the principle of business preservation, without, however, answering whether that principle alone would authorize the ANP to set aside the application of revocation in a specific case.

The ANP has already faced this question: through Board Resolution 96/2018, the agency decided not to apply automatic revocation to a liquid-fuels distributor, despite having been notified by CADE, given the conflict between the rule in Article 10, item V, of Law 9,847/99 and Article 8, item I, of Law 9,478/97, due to the risk of undersupply.

This decision raises a question: can the regulatory agency adopt one understanding for a company — because its revocation could put national or regional supply at risk — while declining to apply the same understanding to a smaller company, whose revocation would not affect supply? Under the 1988 Constitution, the principle of equality holds the status of a fundamental guarantee (Article 5, caput), an entrenched constitutional clause. Does this require uniform interpretation and application of the legislation?

Revocation of authorization versus the guarantee of national supply

Article 10, item V, of Law 9,847/99 (Brazil's Oil Sector Penalties Law) provides that the penalty of revocation of authorization will be applied when the authorized legal entity, in the course of activities related to national fuel supply, commits an infringement of the economic order recognized by CADE or by a court decision. As discussed in the previous article, this is the most severe penalty in this sector-specific sanctioning micro-system — which makes it unquestionable that, in applying it, the ANP must, at a minimum, carry out a technical-regulatory assessment of its consequences.

Under Article 7 of Law 9,478/97 (Brazil's Petroleum Law), the ANP was established as the regulatory body for the oil, natural gas and biofuels industry, tasked with regulating, contracting and overseeing these activities. Chapter I of that law sets out the objectives of the National Energy Policy, among them: protecting consumer interests as to price, quality and supply; guaranteeing the supply of petroleum products throughout the national territory (Article 177, § 2, of the Federal Constitution); and promoting free competition.

It is Article 8, item I, of the Petroleum Law that requires the ANP, in implementing national policy, to place emphasis on guaranteeing supply and protecting consumer interests. The ANP must, therefore, whenever possible, reconcile the promotion of free competition with the guarantee of supply.

In applying the law to a specific conflict between norms — on one hand, the Petroleum Law pointing toward guaranteeing supply, on the other, the Penalties Law requiring revocation of the competition-law infringer's authorization — a weighing of the vectors at play is required, to extract the prevailing normative force. In our view, the principle of equality prevents the solution of setting aside revocation from receiving different treatment in similar cases: the correct path is to take a firm position on the applicability of Article 10, item V, of Law 9,847/99 for any and all cases — under penalty of a divergent decision resulting in unconstitutionality, in violation of Article 5 of the Federal Constitution.

The constitutional vector of guaranteed supply

Article 177, items I to IV and § 2, item I, of the Federal Constitution establishes the guarantee of petroleum-product supply throughout the national territory as a constitutional vector for the interpretation and application of any legislation affecting the sector. Legislation aimed at protecting free competition also enjoys constitutional backing — Article 170, item IV (free competition as a general principle of economic activity) and Article 173, § 4 (repression of abuse of economic power).

From none of these provisions, however, can Article 10, item V, of Law 9,847/99 be extracted as a logical corollary. At the same constitutional level lie other vectors that favor setting aside automatic revocation: the principles of valuing human labor and free enterprise, the social function of property, consumer protection, the pursuit of full employment, and the guarantee of free exercise of economic activity (Article 170, caput and items, of the Federal Constitution).

Given this conflict between provisions of equal legal hierarchy, and considering that the guarantee of national supply enjoys express constitutional support, we understand that the ANP should, in weighing these interests, refrain from applying Article 10, item V, of the Penalties Law, in favor of Article 8, item I, of the Petroleum Law, read together with Article 177, § 2, of the Constitution.

Can the ANP set aside applicability on grounds of unconstitutionality?

The ANP clearly cannot, in the abstract, declare a law unconstitutional — that is the exclusive competence of the Judiciary. The agency should, in specific cases, decide whether or not to apply automatic revocation, always providing reasoning that justifies, in that specific case, that setting revocation aside is warranted because it would put supply at risk.

On the administrative non-application of normative acts contrary to the Constitution, Hely Lopes Meirelles's classic teaching is instructive: the Executive is not obliged to comply with legislative norms contrary to the Constitution, since "whoever fails to comply with an unconstitutional law commits no illegality, because they are complying with the Constitution." The Brazilian Supreme Federal Court itself has already recognized, in favor of the National Council of Justice, the competence to set aside, on grounds of unconstitutionality, the application of a law underlying an administrative act under its oversight (Pet 4656, Rapporteur Justice Cármen Lúcia, Full Court, decided 12/19/2016).

This understanding aligns with Peter Häberle's ideal of the open society of interpreters, according to which constitutional interpretation is an element of open society, involving all public powers participating in the social process.

It follows, therefore, that the ANP may choose to set aside the applicability of Article 10, item V, of Law 9,847/99, on grounds of unconstitutionality — basing the decision, among other things, on the provision's dissonance with Articles 5, caput, and 177, § 2, of the Constitution. This choice does not grant the ANP the competence to declare unconstitutionality with erga omnes effect, nor does it result in the annulment or repeal of the law, which remains in force — there is merely an affirmation that, administratively, the law, being tainted by unconstitutionality, is inapplicable.

The principle of equal treatment and the need for standardization

Once the ANP adopts, in a specific case, the setting aside of automatic revocation — even under justification of a concrete risk to supply based on the circumstances of that case — the principle of equal treatment is triggered with respect to any and every other decision in which the same provision would apply. If the ANP were to decide differently for companies in factually similar situations, the constitutional principle of equal treatment would be violated, raising the suspicion that regulated agents deserving uniform treatment are being treated differently.

Given this, the most advisable course would be for the ANP to initiate a regulatory process — with technical and legal opinions and public consultation, through a genuine Regulatory Impact Analysis — culminating in the issuance of a general normative act (an ANP Resolution) defining, in a standardized and uniform manner, the inapplicability of Article 10, item V, of Law 9,847/99.

Article originally published on August 24, 2022, under the author's individual professional practice. Republished in this publications library with updated formatting.