Commissie onder voorwaarden akkoord aan overname MOL door E.ON - vraag en antwoord (en)
(see also IP/05/1658)
What is the difference between this case and the EDP/GDP merger which has been prohibited by the Commission?
The E.ON/MOL transaction is very different from the EDP/GDP merger, which was prohibited by the Commission under the EU Merger Regulation in December 2004 (see IP/04/1455). First, the present case does not create a "national champion": MOL is the Hungarian oil and gas incumbent, while E.ON is a German group with a focus in gas and electricity supply in Europe.
Secondly, prior to the transaction, E.ON and MOL were not active (nor were they potential entrants) in the same gas and electricity markets in Hungary. MOL was active at the upstream level, in gas production, transmission, storage and wholesale, while E.ON was essentially active at the level of retail supply and distribution of gas and electricity, through its control of regional distribution companies. Therefore, contrary to the EDP/GDP merger, the E.ON/MOL merger did not raise any horizontal competition concerns (companies active in the same markets or elimination of potential competitors). The main competition issues were actually of a vertical nature (companies active in downstream/upstream markets).
Thirdly, E.ON offered a substantial remedy package, which the Commission considered as appropriate to remove all competition concerns, while remedies in the EDP/GDP merger were far from bringing a satisfactory solution to the concerns identified in that case.
Under the Merger Regulation, the Commission must assess each case on its own merits, taking into account the facts and market structure prevailing in the relevant product and geographic market at the time of the operation.
What is the link between this case and the on-going sector inquiry in the energy sector?
Effective competition in the energy sector is clearly a key focus of the Commission to ensure that consumers can reap the benefits of the liberalization process. To this end, the Commission launched in June 2005 an extensive sector enquiry to analyse the functioning of the gas and electricity markets in Europe and to identify evidence of competition law infringements (see IP/05/716 and MEMO/05/203). At the same time, a consolidation of the gas and electricity sector is currently taking place in Europe and several large scale mergers have been announced. It is therefore essential to ensure that these mergers do not undermine the liberalisation process by creating an oligopolistic and non-competitive market structure.
Although each merger case is assessed on its own merits, the ownership unbundling and the gas and contract release offered as remedies in the E.ON/MOL case are good examples of efficient ways to support the development of competition in a number of energy markets in Europe. The preliminary results of the ongoing sector inquiry, published on 15th November (see MEMO/05/425), indeed show that the inadequate level of unbundling between network and supply activities and the insufficient liquidity are key issues that need to be solved to promote effective competition.
What is exactly unbundling and which pro-competitive effects does it bring about?
Supplying end customers with gas or electricity involves a number of different economic activities, which constitute the gas and electricity supply chain. Gas has to be extracted from gas fields (gas production), transported over long distances through large high-pressure pipelines (gas transmission) and transported to final customers (except very large customers) over smaller medium- and low-pressure pipelines (gas distribution), as well as stored (gas storage). It is supplied to and traded by wholesalers and supplied to various types of end customers (wholesale and retail supply of gas). This also applies to electricity (except that electricity cannot be stored). These activities are either conducted by vertically integrated undertakings or by independent undertakings.
The current EU gas and electricity Directives require an accounting and legal unbundling of network activities (transmission, distribution and storage) from production and supply activities, which means that, in a vertically integrated undertaking, these activities have to be carried out by different subsidiaries and separate accounts must be established. The essential objective of such unbundling provisions is to ensure that any company can have access to the gas infrastructure (transmission and storage for instance) at the same conditions as the vertically integrated undertaking so as to be able to compete with the latter for the supply of gas to end customers.
In the E.ON/MOL case, the remedies offered by E.ON will bring about the complete ownership unbundling of the transmission of gas (retained by MOL) on the one hand and the wholesale supply of gas (acquired by E.ON) on the other hand. The remedies will also lead to full ownership unbundling between MOL Storage and MOL which, through its gas production activities, controls access to depleted gas fields that could be turned into future storage sites.
What are exactly a gas release programme and a contract release and how can they contribute to solving competition issues?
The gas release programme and the contract release aim to offer gas traders and customers in Hungary access to significant gas quantities at competitive, transparent and non-discriminatory conditions. The remedies offered by E.ON consist not only of the release of gas quantities through yearly public auctions (gas release programme), but also the assignment of half of the supply contract for the Hungarian domestic production of gas to a third party (so-called "contract release").
With the gas release programme, E.ON has committed to organise over 8 years business-to-business internet auctions for 1 billion cubic metres (bcm) of gas divided in several lots. Any undertaking interested in acquiring these gas quantities may participate into the auctions and place bids to enter into 2-year gas supply contracts with E.ON. The starting price of these auctions will be attractive, even lower than E.ON average cost of gas in Hungary, to encourage traders to participate. Similar gas release programmes have already been implemented in the UK, Spain, Italy, France, Germany and Austria.
Pursuant to the contract release remedy, a gas trader will take over half of the 10-year supply contract between MOL E&P and E.ON from July 2007 onwards. This measure will also release about 1 bcm of gas per year. This trader will thus become a sizeable competitive force on the Hungarian gas markets. Apart from a recent example in Turkey, it is the first time that a contract release is used as a means to bring gas liquidity to the markets.
Together, the gas release programme and contract release will free up gas quantities equivalent to 15% of total Hungarian gas consumption and will therefore significantly increase the liquidity of the Hungarian gas markets compared to the situation pre-merger. These remedies are in particular appropriate as most of the competition concerns in this case stemmed from MOL WMT's almost exclusive control over domestic and imported gas resources in Hungary.
The combination of gas release and full ownership unbundling will ensure that E.ON's competitors have access to both infrastructure and gas supply at competitive and non-discriminatory conditions, thereby establishing the level-playing field required for the development of a fair and undistorted competition.