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Mergers: Commission approves merger of Gaz de France and Suez, subject to conditions

European Commission - IP/06/1558   14/11/2006

Other available languages: FR DE NL

IP/06/1558

Brussels, 14th November 2006

Mergers: Commission approves merger of Gaz de France and Suez, subject to conditions

The European Commission has approved under the EU Merger Regulation the merger of Gaz de France (GDF) and the Suez group. After an in-depth investigation, the Commission initially found that the deal would have anticompetitive effects in the gas and electricity wholesale and retail markets in Belgium and in the gas markets in France (see IP/06/802 and IP/06/1109). The Commission’s concerns related mainly to the removal of the increasing competitive pressure that GDF and Suez had so far exerted (and would have exerted in the foreseeable future) on each other in both Belgium and France. Given the conditions on the markets, including the very high barriers to entry, their respective dominant positions would have been considerably strengthened by the merger. In response to these concerns, the parties offered extensive remedies including the divestiture of Distrigaz and SPE and Suez relinquishing its control of Belgian network operator Fluxys. In light of these structural 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 “The Commission has insisted on far-reaching remedies in this case so as to ensure effective competition in the Belgian and French energy markets. Our intervention in this case is part of our action to ensure that there is effective competition in the newly-liberalised energy markets to the benefit of consumers and business.” Energy Policy Commissioner Andris Piebalgs commented “This merger proves that the European Energy market is starting to become a reality. Nevertheless to make it work in an open and effective way, we still need to take concrete action, in both the competition and regulatory areas. The Commission will announce early next year a package of concrete measures to address the existing shortcomings, for the benefit of industry and consumers”.

Gaz de France is active in the gas sector at all levels, in electricity generation, electricity retail, and in energy services. It operates throughout Europe, but mainly in France and Belgium. In Belgium, Gaz de France, along with Centrica, has joint control over SPE, the second biggest player in the Belgian electricity and gas markets.

The Suez group is active in the gas and electricity sectors, in energy services and in water and environmental services, and operates mainly in Belgium and France. Suez’s main energy subsidiaries are Electrabel (electricity and gas), Distrigaz (gas) Fluxys (gas infrastructures), and (in the energy services sector) Suez Energy Services (former Elyo), Fabricom, GTI, Axima and Tractebel Engineering.

The Commission analysed the impact of the proposed operation on the gas and electricity markets in Belgium and France and concluded that, in the absence of the proposed remedies, the transaction would significantly impede effective competition. Conversely, no negative impact would arise in the other countries concerned, i.e. the UK, Luxembourg, the Netherlands and Hungary.

Belgium

The Commission found that the merger, as originally planned, would have lead to very high combined market shares in Belgium and would have removed GDF as the strongest competitor to the incumbents Distrigaz (gas) and Electrabel (electricity and to a lesser extent gas). The removal of GDF’s competitive pressure would also have raised competition concerns with regard to the supply of gas to gas-fired power generators competing with Electrabel. Moreover, in view of its specific assets and strengths, no other company would have been able to reproduce the same level of competitive pressure as GDF.

The Commission also found that high barriers to entry would have further strengthened the parties’ dominant position in the gas markets. Inter alia, the merging parties would have had access to most of the gas imported to Belgium and would have hold almost all long-term import contracts. In addition, due to the parties’ control over Fluxys, the network operator, they would have had privileged access to supply infrastructure and storage.

France

The Commission found that the merger would have strengthened GDF’s dominant position in France by removing the competitive pressure exerted by Distrigaz, one of its best placed competitors. In France too, barriers to entry, relating to access to gas and infrastructures, would have increased the horizontal effects of the merger.

Finally, competition concerns would also have arisen in the market for district heating in France, where the merger would have combined the largest player (Suez) with its second largest competitor (GDF), thus leading to a further concentration of this market.

Remedies

To address these concerns, Gaz de France and Suez offered a comprehensive and far-reaching package of remedies (see MEMO/06/424 for details). Most notably, Suez will divest Distrigaz (including its French activities) and relinquish control over Fluxys. GDF will in turn divest its shareholding in SPE and, to address the concerns in the district heating market, divest its subsidiary Cofathec Coriance. Furthermore, a series of investment projects will be carried out both in Belgium and in France with a view to increasing infrastructure capacities, thereby facilitating the entry of new competitors onto the market and fostering competition. Most notably, the functioning of the Zeebrugge hub will be enhanced through the creation of a single entry point linking all networks converging on Zeebrugge and through the operation of the hub by an independent operator, Fluxys, which will no longer be controlled by Suez.

The Commission carefully assessed the revised remedies in the light of the response by market operators to an initial package of remedies and concluded that the final package would be sufficient to remove all competition concerns in a clear-cut manner.

The remedies are consistent with the preliminary findings of the ongoing energy sector inquiry which emphasise the need for structural solutions, such as ownership unbundling and severing the link between supply and infrastructure to create pro-competitive conditions for the sustainable development of energy markets.

For further details of the remedies, see MEMO/06/424.
Further information on the decision will be available at:

http://ec.europa.eu/competition/mergers/cases/index/m83.html#m_4180


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