European Commission fines E.On and GDF Suez over EUR 1 billion for anti-competitive agreement

01 October 2009

Jeremy Robinson

On 8 July 2009, the European Commission announced that it had fined each of E.On (including its subsidiary E.On Ruhrgas) and GDF Suez EUR 553 million for operating a market-sharing agreement.  Under this agreement, first concluded in 1975, each party agreed not to supply gas in the other’s home territory.  The agreement continued even after the liberalisation of European gas markets.  The Commission found that this amounted to a very serious infringement of competition law. 

This is one of several high-profile energy investigations to have begun after the Commission’s investigation of the energy sector concluded in 2005, and this shows the value of sector inquiries to the Commission for spotting anti-competitive behaviour, and the risk to market participants that unlawful activity will be uncovered and penalised. 

The case was settled by fines rather than commitments, unlike other recent energy sector cases (e.g. in February 2009, the Commission accepted binding commitments from E.On in relation to allegations that E.On had abused its dominant position in the German electricity wholesale and balancing markets, and in March 2009, the Commission accepted binding commitments from RWE in relation to allegations that RWE had abused its dominant position in the gas transport market).  This indicates that the Commission may not always be willing to accept commitments where it is in a position to impose a substantial fine.  Moreover, the issue of a formal infringement decision facilitates third parties claiming damages before national courts in “follow-on” actions, where the Commission decision is proof that the unlawful behaviour took place.

The background to this case is as follows.  In 1975, Ruhrgas and Gaz de France (GDF) agreed to build the “MEGAL” pipeline which would bring gas from Russia to France and Germany.  By an exchange of letters, they agreed that each would not sell gas in to each other’s territory – i.e. a market-sharing arrangement.  At the time, there were other legal or de facto barriers to market entry, for example GDF had a legal monopoly to import natural gas in France until 2000, and Ruhrgas belonged to a network of demarcation agreements with other German suppliers until 1998.

The parties maintained the market-sharing even after the other legal or de facto barriers to entry had been removed, until the end of September 2005, when the prohibition on GDF from supplying gas to Germany over the MEGAL pipeline was lifted.  The Commission however conceded in its press release that the parties had declared in August 2004 that they had long regarded the 1975 letters as “null and void.”  Nonetheless, the Commission found that the parties maintained contact with each other after 1999, at various levels within the organisations, discussed how to implement the agreement in newly-liberalised gas markets, and monitored each other’s behaviour.  This is despite evidence, according to the Commission, that the parties were aware of the illegality of the 1975 agreement.

E.On purchased Ruhrgas in 2003, and GDF merged with Suez in 2008, to become GDF Suez.

Under Article 81(1) of the EC Treaty, an agreement between two or more undertakings that may affect trade between Member States and that has as its object or effect the prevention restriction or distortion of competition in the common market, is prohibited.  The Commission found that the market-sharing between E.On and GDF Suez infringed Article 81(1) by helping the parties maintain strong positions in the German and French gas markets when they were being liberalised, thus denying consumers more price competition and more choice of supplier.

The Commission is empowered to levy fines of up to 10% of the undertaking’s annual worldwide turnover, however it also noted that under the fining guidelines that were then in force (the 2006 guidelines), the starting point was a fine of up to 30% of turnover in markets affected by the infringement, multiplied by the number of years of participation in the infringement.

The Commission’s investigation took a little over three years from dawn raid (May 2006), through Statement of Objections (June 2008) to decision (July 2009). The Commission’s decision is now subject to an appeal by the parties to the Court of First Instance.

Source:

European Commission Press Release, 8 July 2009