Mergers: Commission approves acquisition by E.ON of MOL’s gas business, subject to conditions
European Commission - IP/05/1658 21/12/2005
Brussels, 21st December 2005
The European Commission has approved under the EU Merger Regulation the acquisition of MOL WMT and MOL Storage, two subsidiaries of MOL, the incumbent oil and gas company in Hungary, by E.ON Ruhrgas (“E.ON”), a large integrated German energy supplier, subject to conditions and obligations. After an in-depth inquiry, the Commission initially found that the deal would have anti-competitive effects in the gas and electricity wholesale and retail markets in Hungary. These effects were due to the combination of MOL’s dominant market position in gas wholesale and storage with E.ON’s activities in gas and electricity retail. In response, E.ON offered remedies that would result in full ownership unbundling (i.e. structural separation in entirely unaffiliated companies) of the gas production and transmission activities retained by MOL and the commercial activities acquired by E.ON. In addition, the remedies will improve the liquidity of the Hungarian gas market through the release of substantial quantities of gas on the market over a 10-year period. In light of these remedies, the Commission concluded that the merger would not significantly impede competition in the European Economic Area (EEA) or any substantial part of it.
Competition Commissioner Neelie Kroes stated “I am confident that the package of remedies agreed in this case will allow competition to develop on the Hungarian gas and electricity markets. The Commission’s approach to this case reflects its commitment to ensuring that effective competition develops in the newly-liberalised energy markets. The energy sector inquiry has shown that in general these markets are still not working as they should. While the Commission supports European integration and restructuring of the energy sector, it must ensure that any competition concerns are remedied, and that consumers are protected.”
MOL, the oil and gas incumbent in Hungary, is active in gas production (MOL E&P), transmission (MOL Transmission), storage (MOL Storage) and wholesale and trading (MOL WMT).
E.ON is a large integrated German energy operator active in gas and electricity production and supply in several European countries. In Hungary, E.ON is primarily active in the retail supply of gas and electricity through its ownership of regional distribution companies.
Through the transaction, E.ON will acquire MOL WMT and MOL Storage. E.ON will take over the long-term gas supply contracts currently in MOL WMT’s portfolio, notably with Russian gas producer Gazprom.
The Commission analysed the impact of the proposed operation on gas and electricity supply in Hungary and concluded that the transaction, as notified, would significantly impede effective competition on these markets (see IP/05/881). In particular, the Commission found that after the transaction E.ON would be in a position to use its control over gas resources in Hungary to increase its ability to determine prices and other trading conditions on the downstream markets for:
- the supply of gas to industrial, commercial customers and residential customers
- the generation/wholesale supply of electricity and
- the supply of electricity to industrial, commercial customers and residential customers.
The Commission analysed the market under both the current Hungarian regulatory framework and the likely future framework, when gas and electricity markets are fully liberalised in July 2007.
To address the concerns identified by the Commission, E.ON offered comprehensive and far-reaching remedies. Most notably, the remedies will achieve full ownership unbundling of gas production and transmission activities, which are retained by MOL, from gas wholesale and storage activities which are acquired by E.ON, through the divestiture by MOL of its remaining minority interest in MOL WMT and MOL Storage.
E.ON has also undertaken to release significant volumes of gas on the market at competitive conditions. E.ON will implement an 8-year gas release programme (1 billion cubic meters (“bcm”) per year) and divest half of its 10-year gas supply contract with MOL E&P through a so-called contract release. These two measures will release 16 bcm until 2015, up to 2 bcm per year, equivalent to 14% of Hungarian consumption. This will be the most significant gas “release” ever implemented in Europe, in terms of both volume and duration. As such, it gives all current and future market participants the possibility to conclude gas supply contracts on a level-playing field.
The Commission carefully assessed the remedies on the basis of experience with previous gas release programmes at national level and detailed comments by market operators from Hungary and other Member States. The Commission concluded that the remedies will offer wholesalers and customers access to sizeable gas resources independently of E.ON at non-discriminatory and competitive conditions. The remedies are thus sufficient to remove the anticompetitive concerns stemming from the transaction and will create the conditions for the development of competition in the newly-liberalised Hungarian energy markets.
For further information on the case, see also MEMO/05/492.