EC Slaps Massive Antitrust Fine on E.ON, GDF Suez

Finally, a Fine

There has been speculation since the start of the year that the EC was on the verge of fining E.ON and GDF Suez for anti-competitive practices concerning the sale of gas through the MEGAL pipeline. Yesterday the EC announced fines of 553 million euro per company. When the companies built the pipeline in 1977 they (then legally) agreed not to sell gas in each others markets, but maintained that agreement after 2000 when a European Union (EU) directive opened markets to competition, the EC said. The firms denied any wrongdoing and said they would appeal at the European Union's Court of First Instance.

In a separate case GDF Suez agreed to limit the amount of gas it imports into France to less than half by 2014 from two-thirds currently, after the EC found the group had reserved most of the country's import capacity for the long term. The EC had been separately investigating GDF Suez since 2005.

History

In 2007 the EC launched a probe into then-GdF (prior to its merger with Suez) and E.ON's alleged collusion over the marketing of gas transported through the MEGAL pipeline. In May 2008 the EC announced that it was to open formal antitrust proceedings against GdF "for a suspected breach of the EC Treaty's rules on abuse of dominant position [and] restrictive business practices". In June 2008 the EC took the next and most important step in confirming that it had sent a statement of objection to GdF and E.ON concerning alleged collusion. A statement of objection is a formal step in EC antitrust investigations in which the Commission informs, in writing, the parties concerned of the objections raised against them.

Separately, but running alongside this probe, in 2006 the EC carried out a dawn raid on GdF's headquarters. The probe was focused on unfair market dominance and was part of an ongoing inquiry into violation of competition rules within the European gas sector, which was in fact launched in 2005. Last year, the EC deepened its two-year probe into anti-competitive practices on the part of GdF by announcing a formal investigation. The import capacity GDF Suez is proposing to free up is equivalent to around 60TWh of gas consumption. The company said it would immediately start the handover of significant market capacities at the Montoir-de-Bretagne and Fos Cavaou LNG terminals and at the Taisnieres and Obergailbach gas entry points in France.

MEGAL is part of a natural gas transmission system that runs from Russia to France. It connects Waidhaus on the German/Czech border with Medelsheim on the German/French border. The 14.7-bcm/y Germany-France section of the pipeline is currently being expanded by 6 bcm/y.

The EC

Having failed to get its plans for forced unbundling through the European Council, the EC has shown that is prepared to get tough over anti-competitive practices. The fact that this has reached the stage of a fine either shows how tough the EC can be, or that the companies do not consider themselves to be in the wrong. Other antitrust probes by the EC into utilities have brought about compromise deals—such as E.ON and RWE divesting their respective gas grids—but the intransigence of the companies here is telling.

Outlook and implications

Both companies intend to appeal. E.ON Ruhrgas CEO Bernhard Reutersberg said: "The decision and particularly the high fine are incomprehensible. [The] Commission is imagining market arrangements that have never taken place between the companies, also not in the period between 2003 and 2005. Besides, it ignores the economic conditions. The competition on the European gas market has been real for a long time."

There may be some argument about exactly how real that competition is, given the heavy integration of companies such as E.ON that the EC has been seeking to eradicate. This aside, it looks as though if the EC can't get the laws in place to prevent antitrust practices occurring, then it will use the existing laws to impose heavy penalties.

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