Europees Hof bevestigt verbod op fusie Portugese energiebedrijven (en)

The Court of First Instance has today approved the European Commission's decision to prohibit the proposed acquisition of Gás de Portugal (GDP), the Portuguese gas incumbent, by Energias de Portugal (EDP), the Portuguese electricity incumbent, and the Italian energy company ENI. In December 2004, the Commission prohibited the merger as it considered that the deal would significantly impede effective competition and deprive domestic and industrial customers from the benefits of competition. The Court's judgement confirms that the Commission was right to block this merger in the absence of adequate remedies.

Competition Commissioner Neelie Kroes i stated "I welcome this important ruling, which illustrates the effectiveness of EU merger control in dealing rapidly with complex transactions and in preventing mergers that would neutralise the effects of market liberalisation. The Court's judgement confirms the standard against which mergers involving energy incumbents should be assessed in Europe. This type of merger can result in higher prices for national consumers and industrial users and, thus, in a loss of competitiveness for the whole economy. It is not acceptable for customers in one Member State to pay the price for a company to become a bigger player in other Member States. The ruling shows that in these cases it is essential that companies propose adequate remedies in order to guarantee sufficient competition from other firms. Ensuring effective competition in European energy markets will remain a priority for me and the ongoing sectoral enquiry will also contribute to achieving this objective. The Commission will also take account of today's ruling in its current in-depth inquiry into the E.ON bid for MOL."

In upholding the prohibition decision of the Commission, the CFI confirmed the Commission's competitive analysis, in particular the fact that the merger would eliminate the competition that GDP would bring on the electricity markets.

The CFI's judgement indeed confirms that the Commission was right to consider that a gas incumbent such as GDP was likely to become a significant power producer competing with the electricity incumbent. The merger would have eliminated this potential for strong competition on the electricity markets.

The Court also confirmed the Commission's approach with regard to remedies. The judgement of the Court shows that companies must propose adequate remedies in due time with a view to solve fully the competition concerns identified by the Commission. In that particular case, the CFI agreed with the Commission that the lease of a power plant together with a moratorium on EDP for the construction of new power plants would not clearly solve these concerns.

Background

On 9 December 2004, the European Commission prohibited the proposed acquisition of GDP by EDP and Eni (see IP/04/1455). This merger was to take place against the background of the ongoing process of the opening of energy markets throughout the EC. In Portugal, electricity markets are now fully open to competition and gas markets are to be progressively opened. Pursuant to the second gas Directive, Portugal has a derogation that allows it to begin gas liberalisation later than other EU countries. This process is due to start at the latest in 2007 with the opening of the market for the supply of natural gas to power generators. The opening of the other gas markets is due to start in 2009 for non-residential customers and in 2010 for residential customers.

The Commission's market investigation, which lasted 5 months in total, analysed in great depth the likely impact of the proposed operation on competition in the markets for the supply of gas and electricity in Portugal.

• As regards the electricity wholesale and retail markets, the Commission concluded that the merger would have strengthened EDP's dominant position in Portugal. In particular, it would have removed potential competition from GDP in the electricity markets. Furthermore, as gas is a fuel of choice to produce electricity, the merger would have made actual and future power producers in Portugal highly dependent on their main competitor, EDP.
• On the gas markets, the Commission considered that the concentration would have strengthened GDP's dominant position in two ways. First, the merger would have de facto prevented gas companies from supplying EDP's power plants, thereby preventing competitors from supplying a significant part of the demand for Portuguese. Second, on the retail gas markets, the Commission considered that the merger would have eliminated EDP as the most likely entrant, as from the date of the opening of these markets to competition. EDP would already have some activities in this sector in particular through the control of Portgás, the second largest local gas distribution company in Portugal. EDP is also expected to expand its retail activities once the market is liberalised.

EDP and ENI proposed remedies during the proceedings, including after the deadline set out in the Merger Regulation. Those remedies were considered insufficient to solve the competition concerns raised by the operation.

On 25 February 2005, EDP brought an action before the CFI seeking to annul the Commission decision. ENI has not brought a similar action.

During the proceedings, the Commission had agreed with EDP that the case should be reviewed under a fast-track procedure to the extent that important issues of substance for the European energy sector were raised.

During the oral hearing, Gas Natural intervened before the CFI in support of the Commission's decision.