EU Court says Spanish blockage of energy merger illegal

The EU’s highest court ruled on 17 July that Spain broke EU internal market rules when it insisted last year that all mergers in the energy sector must be pre-approved by its national energy regulator, effectively thwarting a takeover attempt on the national energy company Endesa by Germany’s E.ON.

Commenting on the case, the European Court of Justice (ECJ) rejected Spanish justifications that its actions were based on safeguarding public interest and safety as the aim had been to preserve security of energy supply. “The Court considers that the Spanish system of prior authorisation is not proportionate to the objective of ensuring security of energy supply,” it said in a press release.

The ECJ also found that Spain had failed to fulfil its obligations under the “principles of free movement of capital and freedom of establishment”.

The ruling was welcomed by Internal Market Commissioner Charlie McCreevy’s spokesman because it confirmed the “consistent line that special rights have no place in the internal market”. 

The ruling relates to a February 2006 takeover bid of Endesa by German power company E.ON. 

While the bid was approved by the Commission, it was blocked by Spain’s National Energy Commission (NEC), which imposed a number of conditions on E.ON’s bid. 

The Commission began infringement proceedings against the NEC in April 2007 on the basis that it was infringing on the free movement of capital and freedom of establishment (EURACTIV 29/03/07). But E.ON withdrew its bid shortly thereafter. 

In a separate move, Spanish construction group Acciona SA and Italian utility Enel SpA launched a joint bid for Endesa in 2007, which the NEC also said it had to pre-approve. Both of these actions were widely regarded as protectionist measures by Spain to prevent foreign companies from taking stakes in the domestic energy sector. 

In March of this year, the ECJ ruled that the NEC’s provisions on prior authorisation of acquisitions in the energy sector was contrary to EU rules (EURACTIV 07/03/08). Despite the expiry of the E.ON bid at the time, the court ruled this did not relieve the NEC of the responsibility to remove regulatory obstacles to merger and acquisition bids from other non-Spanish firms. 

In a separate case, the EU’s Competition Commissioner Neelie Kroes has also sent Spain a final warning on restrictions placed on a bid for Spanish utility Iberdrola by Acciona SA and Enel SpA. 

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