Commission Decision of 9 December 2004 declaring a concentration incompatible with the common market pursuant to Article 8(3) of the Council Regulation (EEC) No 4064/89 (Merger Regulation (ECMR)) (Case No COMP/M.3440 — EDP/ENI/GDP) (notified under document number C(2004) 4715) (Only the English version is authentic) (Text with EEA relevance) (2005/801/EC)

1. Introductory Text

2. I. THE PARTIES

   1. (1) Energias de Portugal, SA (EDP) is the incumbent electricity company...

      1. Energias de Portugal, SA (EDP) is the incumbent electricity company...

   2. (2) ENI SpA (ENI) is active in the exploration and production...

      1. ENI SpA (ENI) is active in the exploration and production...

   3. (3) Gás de Portugal, SGPS, SA, (GDP) is the incumbent gas...

      1. Gás de Portugal, SGPS, SA, (GDP) is the incumbent gas...

   4. (4) Rede Eléctrica Nacional SA (REN) is not a notifying party...

      1. Rede Eléctrica Nacional SA (REN) is not a notifying party...

3. II. THE OPERATION

   1. (5) The present case concerns a concentration by which EDP and...

      1. The present case concerns a concentration by which EDP and...

   2. (6) According to the second gas directive and the derogation granted...

      1. According to the second gas directive and the derogation granted...

4. III. RELEVANT MARKET

   1. A. RELEVANT ELECTRICITY MARKET

      1. 1. RELEVANT PRODUCT MARKET

         1. (7) Taking into consideration the specifics of the Portuguese markets and...

            1. wholesale supply of electricity, provision of regulating/balancing power services, transmission...

         2. (8) The National Electric System is organised in two co-existing systems,...

            1. The National Electric System is organised in two co-existing systems,...

         3. (9) SEP is a regulated system that covers generation and distribution....

            1. SEP is a regulated system that covers generation and distribution....

         4. (10) Under the PPAs, bound generators undertake to supply electricity to...

            1. Under the PPAs, bound generators undertake to supply electricity to...

         5. (11) The electricity acquired by REN is then sold to the...

            1. The electricity acquired by REN is then sold to the...

         6. (12) The independent system (SEI) is composed of the unbound system...

            1. The independent system (SEI) is composed of the unbound system...

         7. (13) Eligible customers are free to choose their electricity supplier and...

            1. Eligible customers are free to choose their electricity supplier and...

         8. (14) (The existing regulatory framework is currently being amended.

            1. (The existing regulatory framework is currently being amended.

         9. Wholesale electricity

            1. (15) Wholesale electricity encompasses the production of electricity at power stations...

               1. Wholesale electricity encompasses the production of electricity at power stations...

            2. (16) The Commission considers that, as from the termination of the...

               1. The Commission considers that, as from the termination of the...

         10. Balancing power and ancillary services

             1. (17) There is a technical necessity for such service as the...

                1. There is a technical necessity for such service as the...

             2. (18) This service needs to be paid for and there will...

                1. This service needs to be paid for and there will...

             3. (19) Currently, in Portugal, this service, as well as other similar...

                1. Currently, in Portugal, this service, as well as other similar...

         11. Transmission and distribution

             1. (20) These markets are not affected by the proposed operation. In...

                1. These markets are not affected by the proposed operation. In...

         12. Retail supply of electricity

             1. (21) The following electricity retail markets will be considered for the...

                1. The following electricity retail markets will be considered for the...

             2. (22) HV/MV customers and LV customers are very different as regards...

                1. HV/MV customers and LV customers are very different as regards...

      2. 2. GEOGRAPHICAL MARKETS IN ELECTRICITY

         1. (23) In past Commission decisions, the relevant geographic market for the...

            1. In past Commission decisions, the relevant geographic market for the...

         2. (24) The parties argued that an Iberian trading market called MIBEL...

            1. many important regulatory barriers still have to be removed for...

   2. B. RELEVANT NATURAL GAS MARKETS

      1. 1. PRODUCT MARKET

         1. (25) The Commission has identified four distinct gas product markets which...

            1. supply of gas to power producers (CCGTs); supply of gas...

         2. (26) Six local distribution companies (LDCs) distribute and supply most end-customers...

            1. Six local distribution companies (LDCs) distribute and supply most end-customers...

         3. (27) The market of gas supply to power producers will be...

            1. The market of gas supply to power producers will be...

      2. 2. GEOGRAPHICAL MARKET

         1. (28) On each relevant gas market, the Commission and the parties...

            1. On each relevant gas market, the Commission and the parties...

5. IV. COMPETITIVE ASSESSMENT

   1. A. ELECTRICITY MARKETS

      1. 1. WHOLESALE MARKET

         1. (a) EDP holds a dominant position on the wholesale market for...

            1. (29) Following the Commission’s in-depth investigation, it appears that EDP holds...

               1. Following the Commission’s in-depth investigation, it appears that EDP holds...

            2. (30) Indeed, in 2003, in the wholesale market, EDP holds 70 %...

               1. Indeed, in 2003, in the wholesale market, EDP holds 70 %...

            3. (31) On the demand side, EDP holds close to 100 % of...

               1. On the demand side, EDP holds close to 100 % of...

            4. (32) On the supply side, the addition of EDP’s new gas...

               1. On the supply side, the addition of EDP’s new gas...

         2. (b) The operation will strengthen EDP’s dominant position, due to both...

            1. Horizontal effects: removal of a significant competitor

               1. (33) As for the horizontal effects, the Commission came to the...

                  1. As for the horizontal effects, the Commission came to the...

               2. (34) This significant potential competition would be lost after the merger,...

                  1. This significant potential competition would be lost after the merger,...

            2. Non-horizontal effects: raising rivals’ costs

               1. Privileged and preferential access to the Portuguese gas infrastructure (Sines...

                  1. (35) Further to the proposed transaction, EDP will have the ability...

                     1. Further to the proposed transaction, EDP will have the ability...

                  2. (36) High-pressure gas network further to the merger EDP will be...

                     1. High-pressure gas network further to the merger EDP will be...

                  3. (37) GDP’s international pipeline the merged entity would be in a...

                     1. GDP’s international pipeline the merged entity would be in a...

                  4. (38) GDP’s Sines terminal the LNG terminal located in Sines is...

                     1. GDP’s Sines terminal the LNG terminal located in Sines is...

                  5. (39) Carriço underground storage further to the merger, EDP will also...

                     1. Carriço underground storage further to the merger, EDP will also...

                  6. (40) Further to the operation as notified, EDP acquires a significant...

                     1. Further to the operation as notified, EDP acquires a significant...

               2. Ability to manage the constraints in the gas supply to...

                  1. (41) The high uncertainties as to the effectiveness of the transfer...

                     1. The high uncertainties as to the effectiveness of the transfer...

               3. Ability and incentive to control gas price and raise rivals’...

                  1. (42) Further to the merger, EDP will have the ability and...

                     1. Further to the merger, EDP will have the ability and...

               4. Access to proprietary information about EDP competitors’ costs, conferring it...

                  1. (43) The merged entity will be armed with the knowledge of...

                     1. The merged entity will be armed with the knowledge of...

               5. Access to the daily gas nomination of its main proprietary...

                  1. (44) Further to the merger, EDP will also have access to...

                     1. Further to the merger, EDP will also have access to...

                  2. (45) The abovementioned horizontal and vertical effects, considered individually or together,...

                     1. The abovementioned horizontal and vertical effects, considered individually or together,...

      2. 2. ANCILLARY SERVICES

         1. (46) The present operation will remove GDP as a likely entrant...

            1. The present operation will remove GDP as a likely entrant...

      3. 3. RETAIL MARKETS FOR ELECTRICITY IN PORTUGAL

         1. (a) EDP holds a dominant position on the retail markets for...

            1. (47) The market for supply of electricity to large industrial customers...

               1. The market for supply of electricity to large industrial customers...

            2. (48) The small customer market only began to be opened in...

               1. The small customer market only began to be opened in...

         2. (b) Strengthening of EDP’ dominant position on the retail market for...

            1. (49) The proposed operation will strengthen EDP’s dominant positions since it...

               1. The proposed operation will strengthen EDP’s dominant positions since it...

            2. (50) Moreover, the merger will raise further barriers to entry as...

               1. Moreover, the merger will raise further barriers to entry as...

   2. B. GAS MARKETS

      1. 1. GDP HAS A DOMINANT POSITION ON THE PORTUGUESE GAS MARKETS...

         1. (51) Due to its current position of legal monopolist, GDP holds...

            1. Due to its current position of legal monopolist, GDP holds...

         2. (52) GDP enjoys and will keep enjoying after the opening of...

            1. GDP enjoys and will keep enjoying after the opening of...

      2. 2. STRENGTHENING OF GDP’S DOMINANT POSITION ON THE PORTUGUESE GAS MARKETS...

         1. (a) Gas supply to power producers (CCGTs)

            1. (53) As regards the supply of gas to CCGTs, the notified...

               1. As regards the supply of gas to CCGTs, the notified...

         2. (b) Gas supply to LDCs (local distribution company)

            1. (54) The notified operation will foreclose the gas demand of the...

               1. The notified operation will foreclose the gas demand of the...

         3. (c) Supply to gas to LICs (large industrial customers)

            1. (55) The investigation has shown that EDP would have been the...

               1. The investigation has shown that EDP would have been the...

            2. (56) EDP appears to be the most likely potential entrant in...

               1. EDP appears to be the most likely potential entrant in...

            3. (57) The loss of EDP’s potential competition strengthens GDP’s dominant position...

               1. The loss of EDP’s potential competition strengthens GDP’s dominant position...

         4. (d) Gas supply to small customers

            1. (58) The Commission has come to the conclusion that, absent the...

               1. The Commission has come to the conclusion that, absent the...

            2. (59) EDP’s advantages can be grouped in three main bundles of...

               1. EDP’s advantages can be grouped in three main bundles of...

            3. (60) EDP’s will to enter the gas markets is further evidenced...

               1. EDP’s will to enter the gas markets is further evidenced...

            4. (61) On the basis of the abovementioned elements, the concentration would...

               1. On the basis of the abovementioned elements, the concentration would...

6. V. COMMITMENTS PROPOSED BY THE NOTIFYING PARTIES

   1. (62) The parties have submitted commitments on 28 October 2004 and...

      1. EDP.1 Reduction of EDP’s shares in REN from 30 % to...

7. VI. ASSESSMENT OF THE COMMITMENTS PROPOSED

   1. A. COMMITMENTS ON ELECTRICITY

      1. 1. WHOLESALE ELECTRICITY MARKET

         1. (a) Horizontal effects of the operation (removal of GDP as the...

            1. (63) The parties’ proposal consists in a combination of measures aimed...

               1. The parties’ proposal consists in a combination of measures aimed...

            2. (64) Respondents to the Commission’s market test considered these proposals as...

               1. Respondents to the Commission’s market test considered these proposals as...

            3. (65) The lease of production capacity from TER is equivalent to...

               1. The lease of production capacity from TER is equivalent to...

            4. (66) Given the review clause attached to the proposed moratorium, the...

               1. Given the review clause attached to the proposed moratorium, the...

            5. (67) In addition, the parties propose to divest EDP’s 10 % share...

               1. In addition, the parties propose to divest EDP’s 10 % share...

            6. (68) The parties have also proposed to suspend EDP’s voting rights...

               1. The parties have also proposed to suspend EDP’s voting rights...

         2. (b) Non-horizontal effects (raising rival costs)

            1. EDP’s privileged and preferential access to the Portuguese gas infrastructure...

               1. (69) The sale of the Sines LNG terminal and the Carriço...

                  1. The sale of the Sines LNG terminal and the Carriço...

               2. (70) The parties also proposed to make capacity available in the...

                  1. The parties also proposed to make capacity available in the...

               3. (71) The commitments on natural gas infrastructures are therefore likely to...

                  1. The commitments on natural gas infrastructures are therefore likely to...

            2. Other vertical impacts of the merger

               1. (72) As regards the other vertical competition concerns raised by the...

                  1. As regards the other vertical competition concerns raised by the...

      2. 2. MARKET FOR ANCILLARY SERVICES

         1. (73) The lease of production capacity, as provided for by commitments,...

            1. The lease of production capacity, as provided for by commitments,...

         2. (74) As explained above, the commitments do not ensure with a...

            1. As explained above, the commitments do not ensure with a...

      3. 3. RETAIL SUPPLY OF ELECTRICITY

         1. (75) The only remedy which relates directly to the retail supply...

            1. The only remedy which relates directly to the retail supply...

         2. (76) Other remedies may indirectly positively affect the retail electricity market...

            1. Other remedies may indirectly positively affect the retail electricity market...

   2. B. NATURAL GAS MARKETS

      1. 1. GAS SUPPLY TO POWER PRODUCERS (CUSTOMER FORECLOSURE)

         1. (77) Three commitments directly relate to this concern: (i) the elimination...

            1. Three commitments directly relate to this concern: (i) the elimination...

         2. (78) (i) Market participants have underlined that the elimination of GDP’s...

            1. (i) Market participants have underlined that the elimination of GDP’s...

      2. 2. GAS SUPPLY TO LDCS (CUSTOMER FORECLOSURE)

         1. (79) The operation forecloses the gas demand of Portgás, the only...

            1. The operation forecloses the gas demand of Portgás, the only...

      3. 3. GAS SUPPLY TO LARGE INDUSTRIAL CUSTOMERS (LICS)

         1. (80) The only remedies which directly address the concerns raised in...

            1. The only remedies which directly address the concerns raised in...

         2. (81) Nevertheless, remedies which may have an indirect impact on this...

            1. Nevertheless, remedies which may have an indirect impact on this...

      4. 4. GAS SUPPLY TO SMALL CUSTOMERS

         1. (82) The divestiture of Setgás is a structural remedy but does...

            1. The divestiture of Setgás is a structural remedy but does...

8. VII. LATE REMEDIES

   1. (83) After the expiration of the deadline set for the submission...

      1. After the expiration of the deadline set for the submission...

   2. (84) On Friday evening 3 December 2004, the parties submitted new...

      1. On Friday evening 3 December 2004, the parties submitted new...

9. VIII. CONCLUSION

   1. (85) For the reasons outlined above, considered individually or together, the...

      1. For the reasons outlined above, considered individually or together, the...