# CE2004070EN.01001002.xml

| 20.3.2004 | EN | Official Journal of the European Union | CE 70/10 |
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20.3.2004

EN

Official Journal of the European Union

CE 70/10

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(2004/C 70 E/011)

WRITTEN QUESTION E-3469/02

by Ward Beysen (NI) to the Commission

(6 December 2002)

Subject:   The concentration on the Czech electricity market in the process of enlargement

Subject:

Currently, the Czech government is preparing a concentration of competitors through an acquisition by the joint stock company CEZ a.s. of shares in eight regional electricity distribution companies from the National Property Fund. This has been published in the Commercial Bulletin on 24 July 2002.

On the one hand, this initiative will constitute a vertical integration of generation and supply of electricity on the Czech markets; on the other hand will this also create horizontal integration of the distributors. As a result, the new CEZ-Group will control more than 70 % of the generation and 2/3 of the national electricity supply.

Therefore, it is useful to clarify following questions:

| 1. | Could the proposed concentration have negative effects on the relevant markets, particularly in generation, sales and trading between Czech competitors and consumers and those from the EU? |
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1.

Could the proposed concentration have negative effects on the relevant markets, particularly in generation, sales and trading between Czech competitors and consumers and those from the EU?

| 2. | Could the proposed concentration negatively influence the competition or even reverse the benefits of liberalisation of the electricity market? Would it influence choice and prices for competitors and consumers? Would it affect the level of interest of potential and current investors? Could it eliminate the development of objective, transparent and non-discriminatory market conditions? |
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2.

Could the proposed concentration negatively influence the competition or even reverse the benefits of liberalisation of the electricity market? Would it influence choice and prices for competitors and consumers? Would it affect the level of interest of potential and current investors? Could it eliminate the development of objective, transparent and non-discriminatory market conditions?

| 3. | Is the purchase price a market price which could be obtained if the package of shares of the regional distribution companies would be sold on the basis of a public tender? If not, does the concentration represent a public subsidy in the form of a discounted sale of shares? |
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3.

Is the purchase price a market price which could be obtained if the package of shares of the regional distribution companies would be sold on the basis of a public tender? If not, does the concentration represent a public subsidy in the form of a discounted sale of shares?

| 4. | In connection with the concentration, CEZ is supposed to sell a part of its shares in CEPS, the principal Czech electricity transmission company, to the Ministry of Labour and Social Affairs and another company wholly owned by the State Property Fund. If the price to be paid for these shares to CEZ is substantially above the fair market price, does this represent a support granted to CEZ from public funds? In combination with the discounted sale mentioned under 3, does it represent a case of cross subsidy by the state? Could this affect the trade between the Czech Republic and the EU, because of the competitive advantage of CEZ? |
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4.

In connection with the concentration, CEZ is supposed to sell a part of its shares in CEPS, the principal Czech electricity transmission company, to the Ministry of Labour and Social Affairs and another company wholly owned by the State Property Fund. If the price to be paid for these shares to CEZ is substantially above the fair market price, does this represent a support granted to CEZ from public funds? In combination with the discounted sale mentioned under 3, does it represent a case of cross subsidy by the state? Could this affect the trade between the Czech Republic and the EU, because of the competitive advantage of CEZ?

| 5. | Is this concentration covered by Article 79 of the CZ-EU Association Agreement, according to which the Czech Republic has to develop the energy sector according to the rules of a market economy? Finally, does this concentration respect the ‘acquis communautaire’ and the European competition rules? |
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5.

Is this concentration covered by Article 79 of the CZ-EU Association Agreement, according to which the Czech Republic has to develop the energy sector according to the rules of a market economy? Finally, does this concentration respect the ‘acquis communautaire’ and the European competition rules?

Answer given by Mr. Verheugen on behalf of the Commission

(28 January 2003)

(28 January 2003)

The Commission continues to monitor developments in the energy sector of the Czech Republic with reference to the energy ‘acquis’ and the competition policy obligations of the Czech Republic under the Europe agreement and in the framework of the commitments made in the accession negotiations.

However, the concentration referred to by the Honourable Member is subject to the jurisdiction of the Czech competition authorities, since the Union merger regulation applies only to companies with a minimal turnover of EUR 250 million in the Community.

Subject to the above, the following remarks can be made in response to the questions which have been raised.

| 1. | It is possible that concentration of generation, sales and trading may limit the extent of competition somewhat in the national market and therefore is not ideal from that point of view. |
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1.

It is possible that concentration of generation, sales and trading may limit the extent of competition somewhat in the national market and therefore is not ideal from that point of view.

| 2. | The proposed concentration does not reverse the benefits of the ongoing liberalisation process. It should be noted that the eligible customers will retain their right to freely choose a producer. The latter is subsequently guaranteed access to the transmission and distribution network by law. Furthermore, the development of transparent and non-discriminatory market conditions remains the responsibility of the Energy Regulatory Authority which has been established in compliance with the acquis. |
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2.

The proposed concentration does not reverse the benefits of the ongoing liberalisation process. It should be noted that the eligible customers will retain their right to freely choose a producer. The latter is subsequently guaranteed access to the transmission and distribution network by law. Furthermore, the development of transparent and non-discriminatory market conditions remains the responsibility of the Energy Regulatory Authority which has been established in compliance with the acquis.

| 3. | It is the responsibility of the national competition authority to ensure that the purchase price of the shares of regional distribution companies does not represent hidden state aid. |
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3.

It is the responsibility of the national competition authority to ensure that the purchase price of the shares of regional distribution companies does not represent hidden state aid.

| 4. | Similarly, it is the responsibility of the national competition authority to ensure that the selling price of the shares of the transmission company CEPS does not represent hidden state aid. |
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4.

Similarly, it is the responsibility of the national competition authority to ensure that the selling price of the shares of the transmission company CEPS does not represent hidden state aid.

| 5. | This concentration is covered by Article 64 of the Association Agreement between the Czech Republic and the Union regarding the application of the competition acquis. |
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5.

This concentration is covered by Article 64 of the Association Agreement between the Czech Republic and the Union regarding the application of the competition acquis.

The policy pursued by the Czech government is not in contradiction with the competition/liberalisation ‘acquis’ in the Union. Some European companies in the electricity sectors are vertically integrated and the European Union liberalisation directives currently in force in these sectors only require separate management and accounts, not legal or ownership unbundling. The Commission's proposals for a new Directive on the electricity and gas markets would in addition require legal unbundling but this already exists in the Czech Republic.

The Czech electricity transmission operator is an independent legal entity, which is compatible with the Directive 96/92/EC of the Parliament and of the Council of 19 December 1996 concerning common rules for the internal market in electricity (1).

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(1)  OJ L 27, 30.1.1997.

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