Question

What were some of the anticompetitive effects of EDP and ENI acquiring GDP? Explain. List two of them and explain.

Answer 1

The European Commission has decided to prohibit the proposed acquisition of joint control over Gás de Portugal (GDP), the incumbent gas company in Portugal, by Energias de Portugal (EDP), the incumbent electricity company in Portugal, and ENI, an Italian energy company because the deal would have impeded effective competition. After an in-depth investigation, the Commission concluded that the deal would strengthen EDP's dominant position in the electricity wholesale and retail markets in Portugal and GDP's dominant position in Portuguese gas markets. The concentration would thus significantly reduce or pre-empt the effects of liberalisation of the electricity and gas markets, and increase prices for domestic and industrial customers. Remedies proposed by EDP and ENI were insufficient to satisfy the competition concerns.

Competition Commissioner Neelie Kroes stated “The Commission must ensure that consumers benefit from more effective competition, in terms of choice of supplier and lower prices, following mergers. Effective competition on their home market also ensures that suppliers are efficient and better able to penetrate other markets. Ensuring effective competition in newly-liberalised markets such as energy is a priority for me, to prevent companies clubbing together to neutralise the effects of new market access. In this specific case, the strengthening of the dominant positions of the existing electricity and gas suppliers would have resulted in higher prices for Portuguese consumers and industrial users, and so a loss of competitiveness for the Portuguese economy. In the absence of adequate remedies, the Commission was obliged to prohibit this operation”.

EDP, the incumbent electricity operator in Portugal, generates, distributes and supplies electricity in Portugal. Through its Spanish affiliates (Hidrocantabrico and Naturcorp), EDP also has substantial electricity and gas activities in Spain.

ENI is a company active internationally at all levels of the energy supply and distribution chain.

GDP, the incumbent gas operator in Portugal, is active at all levels of the gas chain in Portugal. GDP has exclusive rights for import, storage, transportation, wholesale supply of natural gas and controls five of the six Portuguese local gas distribution companies (the sixth being controlled by EDP).

Portuguese electricity markets are now fully opened to competition, and Portuguese gas markets are due to be progressively opened in accordance with the second EU gas Directive (2003/55/EC). This process is set to begin soon with the opening of supply of natural gas to power generators.

The Commission analysed the possible impact of the proposed operation on the gas and electricity supply markets in Portugal and concluded that the transaction would strengthen EDP's dominant position in the electricity wholesale and retail markets in Portugal. In particular, it would remove GDP's potential to compete in the electricity markets. Furthermore, since gas is now one of the most efficient ways to produce electricity, the concentration would have made current and possible future power producers in Portugal dependent on their main competitor, namely EDP.

The concentration would also strengthen GDP's dominant position in the relevant gas markets in Portugal, through the foreclosure of a significant part of the gas demand (controlled by EDP) and the elimination of EDP as most likely entrant in the gas markets.

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