Alexander Galendinov[1]



Historically, European gas and electricity markets used to be areas legally exempt from competition[2]. However, a progressive liberalisation took place with three legislative packages, adopted from 1996 to 2009, opening these network industries to competition. But formal liberalisation was just the first step towards a more competitive European energy market. The Commission identified many different problems that were persisting regardless of the formal liberalisation process, and that concerned both purely competition and regulatory issues. As far as the latter are concerned, the Commission emphasised the high market concentration in most national markets; the absence of transparently available market information, leading to distrust in the pricing mechanisms; the inadequate level of unbundling between network and supply interests which has negative repercussions on market functioning and investment incentives[3]. Some of the identified problems required further regulatory changes. But what appeared to be even more problematic was that often the identified problems were not due to the regulatory framework but rather to the abusive autonomous conduct of the energy incumbents. As a matter of fact, the latter continued enjoying dominant positions on their national markets, almost as strong as throughout the pre-liberalisation period, allowing them to easily abuse itwith regard to their competitors, customers or consumers. Moreover, energy incumbents were not only in position to abuse their dominance, whether on horizontal or vertical level, but they also had strong incentives to preserve their markets by colluding with each other instead of competing[4].

In order to address these various concerns Directorate-General for Competition of the European Commission (DG competition) initiated proceedings under EU competition rules, which were launched against major European energy utilities such as E.ON, RWE, GDF Suez and ENI. These investigations gave rise to significant fines[5] as well as to impressive structural changes[6]. What is more, in many cases the Commission managed to achieve objectives, under competition law, which otherwise would not have been achieved under standard regulatory tools.

Until recently, the European Commission seemed to be entirely focused on the Western European energy sector. However, as evidence by recent investigations on energy companies based in Central and Eastern Europe, this trend seems to be changing. The Commission has already finished its investigation on the Czech electricity incumbent ČEZ, and has recently opened formal proceedings against the Russian Gazprom, the Romanian power exchange operator OPCOM as well as against the Bulgarian Energy Holding (BEH). In the latter case, the Commission is investigating both BEH’s electricity and gas business practices.

Before exploring into more details the abovementioned investigations, it may be useful to recall some basic procedural aspects concerning antitrust investigations.

I. Procedures

When conducting an antitrust investigation the Commission acts within the framework of powers stemming from Regulation 1/2003[7] (hereafter “the Regulation”).

Whether acting on its own initiative or on a complaint, the Commission may decide to conduct inspections at the premises of undertakings[8]. It may also send requests for information to the undertakings concerned[9] as well as to the governments and competition authorities of the Member States[10].

On the basis of the gathered information the Commission may decide to pursue the case by formal opening of proceedings against the undertakings. It should be specified that the formal opening of proceedings is a procedural step which does not prejudge the outcome of the investigation; it only means that the Commission will treat the case as a matter of priority. Even after the formal opening of proceedings, the Commission may ultimately decide to close the investigation as it was shown by the recent example of the French water investigation where proceedings where formally opened in January 2012[11] but the case was ultimately closed by the Commission without any breach having been established[12].

Following the opening of proceedings by the Commission, competition authorities of the Member States are relieved of their authority to apply EU competition rules in the same case[13]. If a national competition authority is already acting on the same investigation, the Commission shall initiate proceedings after consulting with that authority. However, if the national authority is not already acting on the same case, the Commission must simply inform it as well as the parties concerned that proceedings are opened for this case.

When the Commission decides to pursue a case, it will most likely adopt one of the following two types of decision[14]. The first type is to formally find an infringement pursuant to Article 7 of Regulation 1/2003. In that case, the Commission may require from the company concerned to stop the infringement, impose remedies and/or impose a fine (“prohibition decision” or “Article 7 decision“). Alternatively, the Commission may take a “commitment decision” (or “Article 9 decision“) based on Article 9 of Regulation 1/2003. This provision allows the undertakings to offer commitments in order to meet the concerns expressed by the Commission in its preliminary assessment. If the Commission accepts these commitments, it adopts a commitment decision by making them legally binding onhe parties without formal finding of an infringement. Therefore, the major difference between the two types of decision is that a prohibition decision formally ‘finds that there is an infringement’ whereas a commitment decision does not. Instead of saying whether there has been or still is an infringement, a commitment decision only refers to ‘concerns expressed by the Commission’. Another difference is that in a prohibition decision the Commission can impose suitable remedies bringing the infringement to its end – and/or impose a fine – while a commitment decision is based on commitments offered by the undertakings concerned and accepted by the Commission.

Both the companies and the Commission may have an interest in pursuing the commitment route. Companies may want to avoid the impact of a prohibition decision on their reputation by avoiding a formal finding of an infringement against them. The Commission, on the other hand, may have an interest in quickly restoring undistorted conditions of competition in the markets since the procedure leading to a commitment decision is generally shorter than the one leading to a prohibition decision. Undertakings under investigation may contact the Commission at any time to discuss a possible commitment decision. Once the Commission is convinced of the undertakings’ genuine willingness to propose commitments which will effectively address the competition concerns, it drafts a preliminary assessment (PA). The latter summarises the main facts of the case and identifies the competition concerns. The PA serves as a basis for the parties to put forward appropriate commitments or to better define previously discussed commitments. The Commission then market tests the offered commitments. In this regard, a notice is published in the Official Journal of the European Union with a concise summary of the case and the main content of the commitments. Interested parties are invited to submit their observations which would enable the Commission to better assess the offered proposals and to see whether they are truly capable of addressing its anticompetitive concerns. Depending on the results of the market test, undertaking(s) may be obliged to amend their proposals before the Commission accepts them.

 II.ČEZ – Czech electricity market

A relevant example showing the application of abovementioned procedural rules is given by the Commission’s investigation on the Czech electricity market.

On 24 November 2009, Commission officials carried out unannounced inspections at the premises of ČEZ, the electricity incumbent in the Czech Republic, along with other undertakings all located in the Czech Republic[15]. The inspections were very likely based on information received from ČEZ’s rival Czech Coal[16].

Almost two years later, on 15 July 2011, the Commission opened formal proceedings to investigate whether ČEZ might have abused its dominant position on the market forgeneration andwholesale supply of electricity in the Czech Republic, by hindering the entry of competitors, in breach of Article 102 of the Treaty on the Functioning of the European Union (TFEU)[17].In particular, the Commission expressed its concerns that ČEZ may have made a pre-emptive reservationin the Czechelectricity transmission system, which it did not need at that moment and which may have resulted in hindering the entry of competitors[18]. According to ČEZ, the reservation was necessary for the electricity produced by the two electricity generation projects which the company planned to construct. However, according tothe Commission’s findings, this reservation did not correspondtogenuine generation projects.The Commission suspected that as a result of ČEZ’s reservation, the available transmissioncapacity, which could have been otherwise used by ČEZ’s competitors, was exhausted.Consequently, ČEZ’s competitors could have been prevented from access to thetransmission network. The Commission refers to an example where the Czech TSO[19] refused to connect a new competinggeneration project to the network because ofinsufficient capacity dueto the previous pre-emptive reservation madeby ČEZ [20].

Following in-depth discussions with the Commission, ČEZ preferred proposing commitments in order to address the anticompetitive concerns under Article 9 of Regulation 1/2003. ČEZ proposed commitments consisting in selling one of its generation assets in the Czech Republic, namely Pocerady, Chvaletice, Detmarovice, Melnik III together with Tisova. On 12 July 2012, the Commission published a non-confidential version of the commitments inviting comments from interested parties. .

Some of the respondents to the market test identified the Detmarovice power plant as the least suitable asset to address the Commission’s concerns and strongly opposed its divestiture. One of the respondents noted that the Detmarovice power plant, due to the high cost of its fuel (hard coal), was one of the power plants with the highest marginal costs in the Czech Republic.The respondent emphasised that the Detmarovice power plant cannot be considered as a viable or competitive business. In view of the arguments, ČEZ offered to remove the Detmarovice power plant from the commitments.

The difference between the initial commitments proposed by ČEZ and the final commitments accepted by the Commission shows how important a market test and comments from interested parties may finally be[21]. As a matter of fact, in most antitrust cases, market tests lead to some modifications of the initial proposal. Those changes may concern some rather minor issues such as the necessity of a better clarification[22], but they may also result in some substantial reconfiguration of the proposed commitments[23].

With regard to the final commitments,the Commission concluded that “given that the conduct which gave rise tothe Commission’sconcerns […]effectively prevented new entry into the Czech electricitymarket, transfer of some of CEZ’s generation capacity to a competitor represents aclear-cut solution to the identified competition concerns”[24]. In particular, the transfer of generationcapacitywould allow the buyer to establish itself on the Czech market, enabling it afterwards to gradually develop a wider portfolio of generation assets and to compete effectively with ČEZ. In this regard, the Commission finally approved the sale of the Chvaletice power plant, which was handed over to one of ČEZ’s competitors on 2 September 2013[25]. As for the Dětmarovice power plant, ČEZ has been considering selling this asset even though such a transaction is not concerned anymore by the Commission’s investigation[26].

Commission Vice-President in charge of competition policy, Joaquín Almunia commented that: ‘”More competition leads to lower prices. The divestiture of significant generation capacity will allow a new player to enter the Czech electricity market and to compete with the incumbent ČEZ. This will benefit all electricity customers”.

III.Gazprom – Central and Eastern European gas markets

The antitrust investigation against the Russian producer and supplier of natural gas Gazprom is probably one of the most high-profile cases the European Commission has ever had. In September 2011, Commission officials undertook unannounced inspections at the premises of

Gazprom’s subsidiaries[27]as well as some of its customers all basedin Central and Eastern Europe (hereafter CEE).In this regard,it should be specified that Gazprom owns different assets in different energy companies[28], throughout CEE, which are active in the supply, transmission and storage of natural gas. In most countries, it was the Commission’s first competition inspection in the energy sector or even the Commission’s first ever competition inspection.

On 4 September 2012 the Commission opened formal proceedings to investigate whether Gazprom might be hindering competition gas markets and thus abuse its dominant position in upstream gas supply markets in CEE, in breach of Article 102 of TFEU. According to the press release published for the occasion[29], the Commission is investigating three suspected anti-competitive practices. Firstly, Gazprom may have allegedly divided gas markets by hindering the free flow of gas across Member States. Secondly, Gazprom may have prevented gas supply diversifications. Finally, Gazprom may have imposed unfair prices on its customers by linking the price of gas to oil prices. Such behaviour, if established, may constitute a restriction of competition leading to higher gas prices.

This formal opening of proceedings provoked an immediate reaction from the Kremlin, which tried to shield its major source of income from the EU’s intervention by means of a presidential decree[30], making any cooperation of “strategic companies” with foreign countries, companies, and regulators dependent on the consent of the Russian government. This decree may not only influence the competition proceeding, but it could also have a direct effect on the ongoing price negotiations between Gazprom and many of its European customers who are trying to reduce prices in long-term contracts to a level closer to spot-market prices[31]. However, according to Commission officials, the Russian presidential decree will change nothing in the case[32].

As already mentioned Gazprom has been accused of three allegations. The first is that the Russian company might have hindered the free flow of gas. This allegation most probably means that the Russian giant is imposing resale prohibitions or destination clauses[33]. This was confirmed by commissioner Almunia who recently acknowledged that “the resulting large pricedifferences across Europe were maintained through territorial restrictions in gas supplyagreements and attempts to foreclose other gas suppliers”[34].By limiting the freedom of the buyer to resell the gas, these clauses enable the supplier to maintain different price areas for the same product. In addition to the price maintenance, such clauses also reduce liquidity in the energy markets, making it easier to identify individual transactions and facilitating collusion between market players[35]. Not surprisingly, such clauses are viewed by the Commission as a severe restriction of competition because they have the result to artificially partitioning the gas market while undermining the very logic of the European internal market.

If the case consisted only of destination or resale prohibition clauses, one would not exclude that the European Commission and Gazprom could undertake a settlement[36]. This was informally done on several occasions in previous years with respect to long-term supply contracts between Gazprom and its Western European customers such as the Italian ENI[37], Austrian OMV[38] or German E.ON Ruhrgas[39]. It seems that at that time, the European Commission preferred to reach informal common understanding with Gazprom as well as with other foreign gas suppliers such as the Norwegian Statoil[40], Nigerian NLNG[41] and Algerian Sonatrach[42]. The substance of the common understandings has only been made public via press releases by the Commission. It could be that the Commission preferred informal settlements for political reasons, taken within the broader context of the developmentof the European neighbourhood policy at that time and, inparticular, the negotiation of some strategicpartnerships[43] between the EU and its neighbors[44].

The second allegation concerns the prevention of gas supply diversification. According to Commissioner Almunia, the question is “whether [Gazprom] is imposing conditions relating to the use of infrastructure that prevent the diversification of sources of gas supply”[45]. These conditions may seek to impede the development of alternative gas supply projects which are not under Gazprom’s control, such as liquefied natural gas (LNG) gasification stations or proposed new pipelines[46]. Such practices would, most probably, fall under Article 102 paragraph (d) TFUE which prohibits “making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts”. The Commission’s concerns may also refer to Gazprom’s refusals to grant third-party access to pipelines which prevents any competitor of selling its gas. This could have been achieved by Gazprom’s ownership of downstream assets, or through its minority shareholdings in downstream assets combined with its market power derived from its monopoly or quasi-monopoly supply of gas[47]. Moreover, as it is known, the pipelines in Central and Eastern Europe, in general, only allow the gas to flow from Russia to the West. Allowing a bi-directional flow may lead to a significant diversification of gas supply. Therefore, it wouldn’t be surprising if Gazprom has somehow hindered the implementation of such projects[48].

The third allegation expressed by the Commission concerns the unfair pricing resulting from the linkage of gas to oil prices. While the suspected partitioning of markets and prevention of diversifying supply may appear to be rather a “classical” infringement case, the Commission’s focus on the well-established business practice of linking gas price in long-term supply contracts to oil is highly intriguing. In order to understand the question of the oil linkage in long-term gas supply contracts better, it is important to trace recent gas markets developments.

Unlike oil, which is a globally traded commodity, natural gas is priced depending on location and the arrangements under which it is sold. In Europe, gas prices were traditionally indexed to oil products, which at certain moment were considered to be substitutes to gas. The result of this oil indexation was that gas prices simply followed oil trends. This pricing model was recently put under question in the context of important changes affecting the traditional gas business structure. On one hand, new multiple sources of gas emerged, largely through the increased use of liquefied natural gas, which can be transported globally by specialized ships. Meanwhile, the liberalisation of the European gas markets allowed the emergence of gas trading “hubs” where prices are based on the market principle of supply and demand, without any oil linkage. At the same time, the unprecedented economic downturn in Europe had the result of reducing its needs for natural gas. Finally, the production of shale gas in the United States obliged the LNG exporters to seek new markets redirecting their supplies towards Asia and Europe. Because of this combination of weak demand and surplus supply, European hub prices fell dramatically and the spread between hub prices and the oil-indexed prices of many long-term contracts grew. However, while some realignment between hub prices and long-term contract prices could be observed since 2009, a gap between them still remains[49].

In this context, the European Commission started exploring the question whether Gazprom’s oil-indexed gas prices may be regarded as “unfair”.

The notion of “unfair price” appears in Article 102 TFUE which provides, in paragraph (a), that an abuse of dominant position may, in particular, consist in “directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions”. In United Brands[50], the Court of Justice (hereafter “CJ”) provided a definition of what may constitute an excessive or unfair pricing. In paragraph 250 of the judgment it is stated that “charging a price which is excessive because it has no reasonable relation to the economic value of the product supplied would be such an abuse”. Therefore, the decisive test in Brands focuses on the economic value of the product. The Court did not specifically set out how the economic value of a product should be determined, although it stated in paragraph 251 of its judgment that the “excess could, inter alia, be determined objectively if it were possible for it to be calculated by making a comparison between the selling price of the product in question and its cost of production, which would disclose the amount of the profit margin”. The Court further stated, in paragraph 252, that the “questions therefore to be determined are whether the difference between the costs actually incurred and the price actually charged is excessive, and, if the answer to this question is in the affirmative, whether a price has been imposed which is either unfair in itself or when compared to competing products”.

Based on the Court’s judgment, the Commission could assess[51] the costs of production actually incurred by the company in dominant position and make a comparison with the prices actually charged. However, assessing the cost of production of Russian gas may be a difficult task. As the Commission acknowledges “while a comparison of prices and costs, which reveals the profit margin, of a particular company may serve as a first step in the analysis (if at all possible to calculate), this in itself cannot be conclusive as regards the existence of an abuse under Article [102]”. Therefore, since such a comparison in itself cannot be conclusive as regards the existence of an abuse, the Commission will also focus on comparing the prices charged to other users or by other companies or when compared to other relevant benchmarks. As commissioner Almunia stated recently “One of the key issues in this case is that Gazprom mayhave imposed unfairly high prices on its customers in Central and Eastern Europe whencompared to costs or to competitive benchmarks”[52].

Regarding the comparison between different users, it is well-known that prices for Russian gas vary between the European countries. Such differences could be justified by objective reasons such as the difference in transport costs. However, the fact remains that rather different prices may be observed even between geographically similar countries, such as the Baltic countries. But these differences would be considered as a discrimination rather than unfair pricing resulting from oil indexation. If that is the case, then such practices should probably be assessed under Article 102 paragraph (c) prohibiting the “[application] of dissimilar conditions to equivalent transactions with other trading parties, placing them at a competitive disadvantage”. However, even if an argument concerning a discriminatory practice is further developed by the Commission, which may perfectly be the case, this will not mean that Gazprom’s prices are unfair because of their oil indexation.

Probably this is the reason why one should refer to the last element of comparison which consists in comparing the prices charged by other companies. In particular, the Commission considers that in a market which is open to competition the normal test to be applied would be to compare the price of the dominant operator with the prices charged by competitors[53]. One may object that due to the existence of Gazprom’s wide-ranging monopoly on upstream gas markets, such a price comparison would not be possible. However, a more careful look may reveal that, although Gazprom is the largest supplier of natural gas in Central and Eastern Europe, it may still not be the only supplier. In particular, a careful analysis of prices for gas, bought on a Western European hub but supplied to an Eastern European gas market[54], may reveal an important difference compared to Gazprom’s oil-indexed prices for the same country, thus constituting a relevant benchmark for comparison.

Whatever the final outcome of the Gazprom investigation will be, it will definitely have a huge impact not only in Central and Eastern Europe, but also in Western Europe where traditional foreign suppliers, like the Algerian gas company Sonatrach, firmly defend the oil linking in the long-term gas contracts. Moreover, the case may also have an important impact on the gas trade in Asia, where gas prices are exclusively based on oil indexation[55]

IV.OPCOM S.A. – Romanian power exchange

Another recent investigation conducted by the Commission in Eastern Europe concerns the Romanian power exchange. On 11 December 2013, proceedings were opened against OPCOMS.A. (hereafter OPCOM) which is a subsidiary of the Romanian Transmission System Operator – Transelectrica S.A. and fully owned by it. OPCOM is the operator of the only power exchange in Romania. On 30 May 2013 the Commission sent a Statement of Objections to OPCOM and its parent company[56].

The Commission is concerned that OPCOM requests from all members of the power exchange spot markets to have a Romanian VAT registration. This requirement consequently leads to the necessity of establishing business premises in Romania and operate from there. The Commission considers that OPCOM’s business practice is increasing the costs for foreign traders for doing business on the Romanian power exchange as well as deterring them from entering the Romanian electricity wholesale market. Therefore, according to the Commission, this requirement discriminates foreign traders and inhibits competition on the Romanian electricity market, in breach of Article 102 TFEU. Moreover, according to the Commission, such practice reduces liquidity and efficiency of electricity markets.

One might have expected in this case that the VAT registration requirement is rather the result of legislative or regulatory provision adopted by the relevant public authority. If that were the case, the national measure could have been challenged as non-compatible with the liberty of establishment or the liberty to provide services. However, since the VAT registration requirement is the result of the undertaking’s autonomous conduct, it falls within the scope of EU competition rules, and within the scope of Article 102 TFEU, in particular.

V. Bulgarian Energy Holding – Bulgarian electricity market

On 3 December 2012, just before the formal opening of proceedings against the Romanian OPCOM, the European Commission opened proceedings against the Bulgarian Energy Holding (BEH)[57] making it the first antitrust investigation conducted by the Commission against a Bulgarian undertaking.

According to the press release,the Commission is investigating whether Bulgarian Energy Holding might be abusing its dominant market position in the wholesale electricity market in Bulgaria. The Commission seems to be concerned about certain provisions in electricity supply agreementsconcluded by BEH’s subsidiaries, namely Kozloduy nuclear power plant, the National Electricity Company (NEK) as well as Maritsa East II thermal power plant[58]. Apparently the Commission takes the view that BEH and its subsidiaries form a single economic entity. This approach seems to diverge from the decisional practice of the Bulgarian Competition Authority according to which BEH’s subsidiaries are actually independent undertakings with an autonomous conduct on the market[59]. In this regard, it should be recalled that according to settled case-law of the Court of Justice, it suffices for the Commission to demonstrate 100 % ownership to create the rebuttable presumption that the parent company exercised decisive influence over the commercial policy of the subsidiary and that the parent company can therefore be held jointly and severally liable together with the subsidiary that was directly involved in the anticompetitive behaviour. Nothing more than the 100 % shareholding needs to be shown[60]. Therefore, considering that BEH has a 100% shareholding in its subsidiaries[61], the Commission can “presume that the parent exercises a decisive influence over the commercial policy of the subsidiary”[62]. On the other hand, it is rare that the Commission relies exclusively, even if it can, on the presumption of liability created by a 100 % shareholding. In addition to the 100% shareholding, the Commission will also seek specific indicia that the subsidiary was actually influenced by its parent company[63].

Concerning the nature of the alleged abuse, the Commission considers that BEH and its subsidiaries may be hindering competition on wholesale electricity markets in Bulgaria and neighbouring Member States through territorial restrictions. More specifically, BEH and its subsidiaries may be limiting their partners’ freedom to deliver electricity supplied by BEH by prescribing where the electricity has to be delivered. According to these clauses, electricity supplied by BEH may, for example, be resold only within Bulgaria without being exported. Similarly to Gazprom case, such contractual clauses may constitute territorial restrictions and may have the effect of distorting the allocation of electricity within the internal market and partitioning electricity markets along national lines. As mentioned earlier, in relation to the destination clauses in gas contracts, such a practice would both hinder competition and undermine the integration of EU electricity markets.

An example of such territorial restrictions may be found in the electricity tender invitations, publicly available on the websites of some of the companies concerned. For instance, Kozloduy’s tender invitation for electricity sales, for the period February – April 2013, stipulates that the electricity is intended for “realisation on the external market”, as to say, the electricity is to be exported[64]. Other tender invitations state that the electricity is intended for the “domestic market”[65]. It is well known that such clauses, by their very nature, constitute a restriction on competition since their purpose is to isolate a part of the market[66]. Such type of restrictive clauses may also be found in NEK’s tender invitations. In some cases, the tender invitation starts with a specification that the “Tender documents [are] for selection of buyers of electric energy allocated for export”[67]. Moreover, the tender documentation also contains a resale prohibition combined with a sanction mechanism. For example, in case “that the Buyer does not export the negotiated electric energy quantities, either in total or a part, and sells them directly or through other trader to a final consumer in Bulgaria, the Buyer shall pay to the Seller additional penalty amounting to 50% from the value of the non-exported electric energy quantity”[68].

It is very interesting to see what the final outcome of the investigation will be, especially considering BEH’s difficult financial situation. Moreover, in the light of the recent social tensions concerning high utility prices, one may be legitimately interested in the impact of Commission’s investigation on electricity prices.

On the one hand, it should be emphasised that the investigation concerns the free wholesale market and, therefore, it should not have any impact on prices for household customers, which are part of the regulated segment of the market. More specifically, on the regulated market, NEK purchases electricity under quota obligation at regulated prices from NPP Kozloduy and other generators. The electricity under quota obligation is sold to NEK on State-regulated prices which are lower than the market prices. Afterwards, NEK resells the electricity to the electricity distribution companies (ČEZ, Energo Pro, EVN Bulgaria) which, on their turn, supply the household customers.

Nevertheless, it could be that the electricity supplied under quota obligations may appear to be insufficient because of increased electricity demand during the winter period. This may oblige electricity distribution companies to secure additional electricity on the free wholesale market, where prices may be influenced by the Commission’s investigation. However, that situation remains highly hypothetical. In order to meet the unexpected increase in demand, the State may simply increase the quantities supplied under the quota obligation. But even if the State does not intervene, the price increase would be, in principle, insignificant since the bulk of demand would be still satisfied with electricity supplied under the quota obligation.

One may also be curious to know whether due to the specific structure of the Bulgarian electricity market and BEH’s practices could not fall within the scope of Article 106 paragraph 2 TFUE pursuant to which “undertakings entrusted with the operation of services of general economic interest [SGEI] or having the character of a revenue-producing monopoly shall be subject to the rules contained in the Treaties, in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them”. However, according to the case-law of the Court in order to be qualified as an SGEI, the service has to satisfy certain minimum criteria, namely the mission has to be universal and compulsory[69].

Finally, it should be noted that since the formal opening of proceedings BEH’s subsidiaries have amended their tender invitations, which do not include any more destination clauses or control mechanisms[70].

VI. Bulgarian Energy Holding – Bulgarian gas market

In parallel with its electricity market investigation, the European Commission seems to be also interested in the Bulgarian natural gas market. Formal proceedings were opened on 5 July 2013 against the Bulgarian Energy Holding (BEH). The Commission investigates whether BEH together with its gas supply subsidiary Bulgargaz and gas infrastructure subsidiary Bulgartransgaz, might be hindering competitors from accessing key gas infrastructures in Bulgaria[71]. Proceedings were formally opened in July but that was no surprise since the existence of the investigation was first acknowledged in September 2013. In a speech[72] given on 19 September 2012, Commissioner Joaquín Almunia confirmed that the Commission has been investigating a potential foreclosure of the Bulgarian gas market by the “national company BEH” making it the Commission’s fifth gas foreclosure investigation[73].

According to the press release, the Commission is concerned that BEH’s gas subsidiaries may be preventing potential competitors from accessing the gas transmission network and the gas storage facility[74] by explicitly or tacitly refusing or delaying access to third parties. In addition, these companies may be preventing competitors from accessing the main gas import pipeline by reserving capacity that is consistently unused, without releasing it on the market. Not surprisingly, the Commission considers that with no access to this key infrastructure, it is impossible for any companies to compete with Bulgargaz. Therefore, such practices, if established, restrict competition and may lead to less choice and worse gas supply conditions, by ultimately harming the Bulgarian consumers.

Concerning Bulgargaz’s unused capacity bookings, it should be specified that according to the Commission’s decisional practice, gas transmission networks are considered to be essential facilities. Access to gas transmission networks is, on the one hand, objectively necessary in order to carry out any business in the gas supply markets[75]. On the other hand, reproducing the transport infrastructure is not a realistic alternative for gas suppliers, because of the high investment costs, the planning risk and the duration of the construction of a gas pipeline[76]. At the same time, transport capacity on a transmission network is a necessary input for gas suppliers to transport gas to their actual or potential customers.

All these considerations seem to be fully applicable to BEH’s gas pipeline infrastructure in Bulgaria. Therefore, if the Commission finds that Bulgartransgaz explicitly or tacitly refuses or delays to grant access to its gas pipelines, such business practice could be regarded as a refusal to supply an essential input and might constitute an abuse of a dominant position[77].

Concerning the Commission’s allegations that Bulgargaz has booked capacity that is consistently unused, without releasing it on the market that could also be regarded, according to Commission’s previous decisional practice, as refusal to supplyunder Article 102 TFEU which, to the detriment of competitors and consumers[78].

However, it should be noted that all previous gas foreclosure investigations were closed following Article 9 commitment decisions. Therefore, it will not be surprising if the investigation against BEH also ends with a commitment decision. The only question is what kind of commitment will best address the Commission’s concerns? In some of the previous cases, commitments consisted in releasing significant capacities back to the market[79] as well as in reducing the incumbent’s overall share in the capacity bookings to a maximum of 50%[80].

Whether there will be a commitment or a prohibition decision, it is certain that the Bulgarian gas market will become more competitive since more gas suppliers will be able to operate on the market. On the other hand, the final outcome of the investigation may also result in reinforcing Gazprom’s positions on the Bulgarian gas market[81] which, in itself, may not be problematic though surprising considering that DG Competition “fights” against Gazprom on one front (the Gazprom investigation) while potentially contributing to its interests on the other (BEH gas case). Probably this is where one could best understand the words of Commissioner Joaquín Almunia according to who “The status of a competition enforcer rests on excellence, independence, and impeccable work on the merit of each case; irrespective of the national flag carried by a firm, the location of its headquarters, or the identity of its shareholders”[82].

VI. Conclusion

The Commission’s recent investigations show that at the wholesale level, gas and electricity markets in Central and Eastern Europe remain rather national in scope, and generally maintain the high level of concentration of the pre-liberalisation period. This situation may enable energy incumbents to abuse their market power thus preventing “energy users and consumers from reaping the full benefit of the liberalisation process”[83] among which, but not only, lower energy prices.

On the other hand, the Commission’s investigations reflect some of the most problematic aspects of the energy markets in Central and Eastern Europe which is that the latter remain largely dependent on the good will of foreign suppliers whose interests may diverge from the interests of the European consumers and may even be, regarding certain issues, in direct confrontation with EU’s energy goals, as shown by the Gazprom investigation.

Finally, whether the proceedings concern European or foreign energy companies, one may easily perceive that EU competition law may be used, just as it was used on the Western European gas and electricity markets, as a powerful tool in achieving goals which the formal liberalisation in Central and Eastern Europe didn’t always manage to achieve.


[1] Law graduate from University Paris 1 Panthéon-Sorbonne. The views and opinions expressed in this article are those of the author and do not reflect the official policy or position of any public or private entity. All the examples performed within this article are based on publicly available sources of information. The author would be grateful for any comments or suggestions which are welcome at: galendinov@gmail.com.

[2] Prof. Dr. Thomas von Danwitz, “REGULATION AND LIBERALISATION OF THE EUROPEAN ELECTRICITY MARKET – A GERMAN VIEW”, Energy Law Journal, Vol. 27:423 2006

[3] DG Competition report on energy sector inquiry, 10 January 2007

[4] Case COMP/39.401 – E.ON/GDF collusion, 8 July 2009

[5] In case COMP/39.401, the Commission imposed a fine of 553 000 000 euros to each of the parties involved.

[6] Cases COMP/39.388 — German Electricity Wholesale Market, 26 November 2008. In this case E.ON had to divest a significant generation capacityaswellasto sell its electricity transmission system in Germany.

[7] Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty , Official Journal L 1, 04.01.2003, p.1-25

[8] Article 20(1) of the Regulation

[9]Article 18 paragraph 1 of the Regulation

[10] Article 18(6) of the Regulation

[11] Commission press release, “Antitrust: Commission opens proceedings against companies in French water sector”, (IP/12/26), 18 January 2012

[12] Bloomberg, ‘EU Ends French Water Market Probe on Lack of Evidence’ by Stephanie Bodoni, 30 April 2013

[13]Article 11 paragraph 6 of the Regulation

[14] Commission notice, “Antitrust: commitment decisions – frequently asked questions”, (MEMO/13/189), 8 March 2013

[15] Commission press release, “Antitrust: Commission confirms inspections in Czech electricity sector”, (MEMO/09/518), 24 November 2009

[16] CEZ press release, “European Commission Cleared ČEZ of Accusations of Price Manipulation and Alleged Cartel Practices. Only the bilateral dispute with Czech Coal for coal supply remains to be resolved.”, 15 July 2011

[17] Commission press release, “Antitrust: Commission opens formal proceedings against Czech electricity incumbent CEZ”, (IP/11/891), 15 July 2011

[18] Case AT.39727, ČEZ, 10 April 2013, point 1 (1)

[19] Transmission System Operator, which is an independent entity responsible for the management of the electricity network.

[20] Case AT.39727, ČEZ, 10 April 2013, point 31

[21] Céline Gauer, « Les tests de marché dans les procédures d’engagement en droit européen des ententes et des abus de position dominante », Concurrences N°1-2013

[22] Case COMP/B-1/37966, Distrigaz, 11 October 2007

[23] Cases COMP/39.388 — German Electricity Wholesale Market, 26 November 2008

[24] Case AT.39727, ČEZ, 10 April 2013, point 79

[25] CEZ press release, “European Commission sanctioned the sale of Chvaletice”, 2 August 2013

[26] Ibid.

[27] Gazprom’s press release, ‘Statement of GAZPROM regarding inspections (Dawn Raids) by the European Commission’, 28 September 2011

[28] For instance, Gazprom owns shares in Hungarian ‘Panrusgaz’; Czech ‘Vemex s.r.o.’; Estonian ‘Eesti Gaas’; Latvian ‘Latvijas Gāze‘; Lithuanian ‘Lietuvos Dujos’.

[29] Commission press release, “Antitrust : Commission opens proceedings against Gazprom”, (IP/12/937), 4 September 2012

[30] “Executive order on Measures to Protect Russian Federation Interests in Russian Legal Entities’ Foreign Economic Activities”, N°1285, from 11 September 2012

[31] Ulrich Scholz and Stephan Purps, “The Application of EU Competition Law in the Energy Sector”, Journal of European Competition Law & Practice, 2013, Vol. 4, N°1

[32] ‘Moscow decree changes nothing in Gazprom probe’, Eubusiness, 24 September 2012

[33]Alan Riley, “Commission v. Gazprom: The antitrust clash of the decade?”, CEPS POLICY BRIEF N°. 285, 31 October 2012, Point 4.1

[34] Joaquín Almunia, “Abuse of dominance: a view from the EU”, New York, (Speech/13/758), 27 September 2013

[35] Kim Talus, “Vertical Natural Gas Transportation Capacity, Upstream Commodity Contracts and EU Competition Law”, 2011, Point 4.6.5

[36] Alan Riley, “Commission v. Gazprom: The antitrust clash of the decade?”, CEPS POLICY BRIEF N°. 285, 31 October 2012, Point 4.2

[37] Commission press release, “Commission reaches breakthrough with Gazprom and ENI on territorial restriction clauses”, (IP/03/1345), 6 October 2003

[38] Commission press release, “Competition: Commissions secures improvements to gas supply contracts between OMV and Gazprom”, (IP/05/195), 17 February 2005

[39] Commission press release, “Competition: Commission secures changes to gas supply contracts between E.ON Ruhrgas and Gazprom”, (IP/05/710), 10 June 2005

[40] Commission press release, «Commission successfully settles GFU case with Norwegian gas producers» (IP/02/1084), 17 July 2002

[41] Commission press release, «Commission settles investigation into territorial sales restrictions with Nigerian gas companyNLNG», (IP/02/1869), 12December 2002

[42]Commission press release, “Commission and Algeria reach agreement on territorial restrictions and alternative clauses in gas supply contracts”, (IP/07/1074), 11 July 2007

[43]Such as the strategic partnership betweenthe EU and Algeria in the field of energy, which was in process of negotiation since 2002 and finally signed in July 2013.

[44]Eleonora WÄKTARE, “Territorial restrictions and profit sharing mechanismsin the gas sector: the Algeriancase”, Competition Policy Newsletter, Number 3 — 2007

[45] Joaquín Almunia, “Perspective from the European Commission : Competition as a tool for sustainable recovery”, Washington, (Speech/12/620), 19 September 2012

[46] Alan Riley, “Commission v. Gazprom: The antitrust clash of the decade?”, CEPS POLICY BRIEF N°. 285, 31 October 2012, Point 4.2

[47] Ibid.

[48] Ulrich Scholz and Stephan Purps, “The Application of EU Competition Law in the Energy Sector”, Journal of European Competition Law & Practice, 2013, Vol. 4, N°1

[49] Jonathan Stern and Howard Rogers, “The Transition to Hub-Based Gas Pricing in Continental Europe”, The Oxford Institute for Energy Studies, March 2011

[50] Judgment of the Court, 14 February 1978, United Brands and United Brands Continentaal/Commission, 27/76, European Court Reports 1978, page 207, point 249

[51] Case COMP/A.36.568/D3 – Scandlines Sverige AB v Port of Helsingborg. paragraph 103

[52] Joaquín Almunia, “Abuse of dominance: a view from the EU”, New York, (Speech/13/758), 27 September 2013

[53] Case COMP/C-1/36.915 — Deutsche Post AG — Interception of cross-border mail, paragraph 159

[54] For instance, gas bought at a German gas hub but supplied to Slovakia through the Czech Republic.

[55] For example the JCC indexation (Japan Crude Cocktail), which is the most commonly used index in long-term LNG contracts in Japan, Korea and Taiwan.

[56] Commission press release, “Antitrust: Commission sends Statement of Objections to Romanian Power Exchange OPCOM”, (IP/13/486), 30 May 2013

[57] Commission press release, “Antitrust: Commission opens proceedings against Bulgarian Energy Holding”, (IP/12/1307), 3 December 2012

[58] BEH’s website: www.bgenh.com

[59] Commission for Protection of Competition, ‘КЗК счита, че създаването на Български енергиен холдинг не   представлява концентрация на стопанска дейност’, 7 January 2008

[60] Judgment of the Court, 10 September 2010, Akzo Nobel NV and Others v Commission, C-97/08, European Court Reports 2009, page I-08237

[61] According to BEH’s website: www.bgenh.com

[62] Judgment of the Court, 10 September 2010, Akzo Nobel NV and Others v Commission, C-97/08, European Court Reports 2009, page I-08237, point 61

[63] Better known as standard of proof ‘100% plus X’. Opinion of Advocate General Kokott delivered on 23 April 2009, Akzo Nobel NV, Case C‑97/08, point 49  

[64] Tender invitation taken on the grounds of Order N°AD-154/21.01.2013; publicly available on NPP Kozloduy’s website www.kznpp.org

[65] Tender invitation taken on the grounds of Order N°1801/15.06.2011; publicly available on NPP Kozloduy’s website www.kznpp.org

[66] Case 19/77 Miller International Schallplatten GmbH v Commission of the European Communities [1978] ECR-00131, paragraph 7

[67] Tender documentation with reference number 12TE8100058, 20 September 2012, publicly available on Nek’s website www.nek.bg

[68] Ibid. point 3.2 of the Tender Invitation

[69] Judgment of the General, 12 February 2008, British United Provident Association Ltd (BUPA), T-289/03, European Court Reports 208, page II‑81, points 188.

[70] NPP Kozloduy’s Tender for electricity sale for the month of October 2013, publicly available on NPP Kozloduy’s website www.kznpp.org

[71] Commission press release, ‘Antitrust: Commission opens proceedings against Bulgarian Energy Holding and its subsidiaries Bulgargaz and Bulgartransgaz’, (IP/13/656), 5 July 2013

[72] “Joaquín Almunia, “Perspective from the European Commission : Competition as a tool for sustainable recovery”, Washington, (Speech/12/620), 19 September 2012

[73] Case COMP/39.316 – Gaz de France of 3 December 2009; Case COMP/39.402 – RWE Gas Foreclosure of 18 March 2009; Case COMP/39.317 – E.ON Gas of 4 April 2010; Case COMP/39.315 – ENI of 29 September 2010

[74] “Chiren” underground gas storage facility, which is the only gas storage facility in Bulgaria

[75] Case COMP/39.402 – RWE Gas Foreclosure of 18 March 2009 point 22; Case COMP/39.317 – E.ON Gas of 4 April 2010, point 32

[76] Case COMP/39.317 – E.ON Gas of 4 April 2010, points 33 and 34

[77] Case COMP/39.316 – Gaz de France of 3 December 2009, point 36

[78] Ibid. points 38, 40 and 41

[79] Case COMP/39.317 – E.ON Gas of 4 April 2010, point 44

[80] Ibid. point 47

[81] The investigation will mostly benefit BEH’s main competitor – Overgas Inc. However, it is common knowledge that Overgas Inc. is a joint-stock company, with 0,49% of its shares held directly by Gazprom and 50% held by Gazprom Export, which on its turn is wholly owned subsidiary of Gazprom.The information is publicly available on Gazprom’s website: www.gazprom.ru/about/subsidiaries/list-items/

as well as on Gazprom Export’s website: www.gazpromexport.ru/en/partners/bulgaria/

[82] Joaquín Almunia, “Perspective from the European Commission : Competition as a tool for sustainable recovery”, Washington, (Speech/12/620), 19 September 2012.

[83] Inquiry pursuant to Article 17 of Regulation (EC) No 1/2003 into the European gas and electricity sectors (Final Report) SEC(2006) 1724, paragraph 73.