2006/622/EC: Commission Decision of 21 December 2005 declaring a concentration compatible with the common market and the functioning of the EEA Agreement (Case COMP/M.3696 — E.ON/MOL) (notified under document number C(2005) 5593)   (Text with EEA relevance)
Date: 2005-12-21
Institutions: European Commission
Subjects: Germany, Hungary, economic concentration, electrical energy, gas industry, merger control, restriction on competition

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Official Journal of the European Union

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 21 December 2005

declaring a concentration compatible with the common market and the functioning of

the

EEA Agreement
(Case COMP/M.3696 — E.ON/MOL)

(notified under document number C(2005) 5593)

(Only the English text is authentic)

(Text with EEA relevance)

(2006/622/EC)

On 21 December 2005 the Commission adopted a Decision in a merger case under Council Regulation
(EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the
EC Merger Regulation) (1), and in particular Article 8(2) of that Regulation. A non-confidential version
of the full Decision can be found in the authentic language of the case and in the working languages of
the Commission on the website of the Directorate-General for Competition, at the following address:
http://ec.europa.eu/comm/competiton/index_en.html

I. SUMMARY

(1)

company, which are

This case concerns the acquisition by E.ON (Germany) of
two subsidiaries of MOL, an integrated Hungarian oil and
in the wholesale,
gas
marketing and trading of gas, and the storage of gas.
MOL also has a put option for two years to sell its gas
transmission subsidiary to E.ON.

active

the retail
supply of gas and electricity in Hungary.
Therefore, except for the transmission and gas production
businesses of MOL, the current transaction will create a
vertically integrated entity along the gas and electricity
supply chains in Hungary.

(2) MOL already has, prior to the transaction, an almost
exclusive control over the access to gas resources and
gas infrastructures in Hungary. MOL owns the gas trans-
mission network, all Hungarian gas storage facilities and
has a quasi-monopoly position on the gas wholesale
markets. MOL is already today the ‘gatekeeper’ for gas
resources (both imports and domestic production) and
gas infrastructure. This gatekeeper position will now be
taken over by E.ON.

(3)

The essential change brought by the proposed transaction
is that E.ON, unlike MOL, has strong market positions in

(1) OJ L 24, 29.1.2004, p. 1.

(4)

The Commission’s market
investigation has established
that, owing to the new entity’s nearly exclusive control
over gas resources (mostly of Russian origin) available in
Hungary and its vertical integration in the gas and elec-
tricity markets, the transaction would lead to a serious
risk of
foreclosure of competitors on the downstream
gas and electricity markets. As mentioned, contrary to
MOL, E.ON is active downstream of the gas wholesale
market, in the retail and distribution of gas and electricity
(through its control of two out of six regional gas distri-
bution companies and of three out of six regional elec-
tricity distribution companies) as well as in the generation
of electricity. This would lead to a change of incentives of
the new entity vis-à-vis its downstream competitors. The
new entity would thus have both the ability and the
incentive to discriminate against its competitors in the
downstream markets both in the gas and in the electricity
sectors.

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(5)

In order to remove the competition concerns identified
during the procedure, E.ON submitted on 20 October
2005 a package of commitments. On 16 November
2005, E.ON submitted revised commitments. The final
commitments were submitted on 8 December 2005.
The Commission believes that the undertakings, substan-
tially improved following the market test compared to
E.ON’s initial offer, meet
the concerns expressed by
third parties as regards the need to ensure sufficient
liquidity of gas on the Hungarian wholesale gas market
at price and conditions which will allow third parties to
compete effectively with the new entity on the down-
stream gas and electricity markets in Hungary.

(6)

A clearance decision with conditions and obligations
pursuant
the Merger Regulation is
therefore proposed for adoption.

to Article 8(2) of

II. EXPLANATORY MEMORANDUM

A. THE PARTIES

(7)

E.ON Ruhrgas International AG (‘E.ON’) belongs to the
E.ON group of companies, a privately owned energy
group with a focus on the supply of electricity and gas.

(8) MOL Hungarian Oil and Gas (‘MOL’, Hungary) is an inte-
grated oil and gas group which is primarily active in
Hungary on the markets for natural gas, oils, fuels and
chemicals. It is a public company listed on the Budapest
stock exchange. The Hungarian State still owns 12 % of
share capital, plus a golden share.

B. THE OPERATION

(9)

The present case concerns a concentration by which E.ON
acquires control of MOL Földgázellátó Rt. (‘MOL WMT’)
(‘MOL Storage’). E.ON will
and MOL Földgáztároló Rt.
also acquire MOL’s shareholdings in Panrusgáz Magyar-
Orosz Gázipari Rt.
venture
company between OAO Gazprom (Russia) and MOL.

(‘Panrusgáz’),

joint

a

(10) Mol Földgázszállító Rt.

(‘MOL Transmission’), another
is not acquired by
solely-controlled subsidiary of MOL,
E.ON through the present transaction. MOL is instead
granted a put option under which MOL can require
E.ON to purchase a 25 % plus 1 share or a 75 % minus
1 share interest in MOL Transmission during the next two
years.

(11)

Finally, MOL retains control over its gas exploration and
production business (the MOL upstream gas Exploration
and Production division (‘MOL E & P’)). However, as part
of the transaction, MOL and MOL WMT have entered
into a new long-term gas supply agreement for the gas
produced by MOL E & P (the ‘Supply Agreement’).

C. RELEVANT MARKETS

RELEVANT NATURAL GAS MARKETS

(a) Relevant product markets

(12) Taking

into consideration the

the
Hungarian gas markets, the Commission has identified
the
in the gas
sector:

following relevant product markets

specificities of

(i) Transmission of gas;

(ii) Distribution of gas;

(iii) Storage of gas;

(iv) Supply of gas to traders;

(v) Supply of gas to Regional Distribution Companies

(‘RDCs’);

(vi) Supply of gas to large power plants;

(vii) Supply of gas to large industrial customers (with an
hourly consumption exceeding 500 m3/hour);

(viii) Supply of gas to small

industrial and commercial
(with an hourly consumption below

customers
500 m3/hour); and

(ix) Supply of gas to residential customers.

(13)

Since 1 July 2004, all non-residential customers have
become eligible customers free to choose their supplier
under Hungarian law. Residential customers will become
eligible on 1 July 2007 at the latest.

(14) The Hungarian natural gas sector is characterised by a
coexistence of a regulated
hybrid model, with the
‘public utility market’),
segment of
(or
the market
resulting from the old gas regime in Hungary, and a
liberalized segment of the market (or ‘open segment of
the market’). In the regulated segment of the market, the
public utility wholesaler (MOL WMT) is under an obli-
gation by law to cover the full natural gas demand for
public utility purposes of the RDCs, whereas the RDCs are
under an obligation to source their natural gas needs for
their public utility customers exclusively from the public
utility wholesaler (at regulated prices). The RDCs,
the
public utility suppliers, have in turn the exclusive right
and obligation to supply the customers situated in their
territory at regulated prices. Eligible customers have the
choice between remaining supplied within a public utility
contract by their historic gas supplier (their RDC or the
public utility wholesaler, MOL WMT if the customer was
supplied directly by MOL WMT) or terminating their
public
gas
and
requirements from a trader or importing natural gas
themselves.
this hybrid model will
It
disappear after July 2007.

is expected that

purchasing

contract

utility

their

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(15) The market investigation has confirmed that there exists a
separate product market for the supply of gas to traders
in Hungary, on which importers/producers sell gas to
for onwards
traders, and traders sell each other gas,
the market. On the
supply on the open segment of
regulated segment of the market, the RDCs have the obli-
gation to purchase gas for their public utility needs from
the public utility wholesaler (MOL WMT).

stay with their
to switch suppliers, and may thus
respective regional supplier in the context of a public
utility contract. There are however more customers that
have switched to the open segment of the market in the
electricity sector than in the gas sector. In June 2005, the
open segment represented 32 % of the total Hungarian
electricity consumption.

(b) Geographical markets

(16)

(In the present case the investigation has shown that all
affected markets are national in scope with the exception
of the markets for the distribution of gas and the supply
of gas to residential customers, which are at present sub-
national
in scope (i.e. confined to specific distribution
areas within Hungary).

(b) Geographical markets in electricity

(19)

In the present case, most of the affected markets are
national
in scope with the exception of the market for
the distribution of electricity and the retail supply of elec-
tricity to residential customers, which are at present sub-
national
in scope (i.e. confined to specific distribution
areas within Hungary).

RELEVANT ELECTRICITY MARKETS

(a) Relevant product markets

(17) Taking

into consideration the

the
Hungarian markets, the Commission has identified the
following relevant product markets
in the electricity
sector:

specificities of

(i) Transmission of electricity;

(ii) Distribution of electricity;

(iii) The provision of balancing power;

(iv) Wholesale supply of electricity to traders;

(v) Wholesale supply of electricity to the public utility

wholesaler;

(vi) Wholesale supply of electricity to RDCs;

(vii) Retail supply of electricity to medium and large

commercial and industrial customers;

(viii) Retail supply of electricity to small commercial and

industrial customers; and

(ix) Retail supply of electricity to residential customers.

(18) The Hungarian electricity sector is also characterised by a
hybrid model, including a regulated segment and an open
segment. On 1 July 2004, all non-residential customers
became eligible customers. Residential customers will
become eligible on 1 July 2007. As in the gas sector,
eligible customers have the right, but not the obligation

D. COMPETITIVE ASSESSMENT

GAS MARKETS

(a) MOL WMT holds a dominant position in the

wholesale supply of gas in Hungary

(20) Due to its previous position as legal monopolist, MOL
WMT holds a dominant position in the wholesale
supply of gas to RDCs and to traders in Hungary.
While MOL WMT retains its former monopoly rights
on the regulated segment of the market, the Commission’s
investigation has revealed the existence of significant
barriers to entry on the open segment of the Hungarian
gas market. The main barrier faced by new entrants in
Hungary is the difficulty of access to competitive sources
of gas, and the lack of liquidity of the Hungarian gas
wholesale market.

(21)

In particular, MOL WMT controls
controlling access
competitive imports.

to domestic gas

and will keep
resources and to

(22) Hungarian domestic gas production is not negligible and
amounted to approximately 3 bcm in 2004, accounting
for about 20 % of the total national gas consumption.
The investigation has also shown that Hungarian gas is
competitive compared to imported gas.

(23) Although MOL E & P is not being acquired by E.ON
under the proposed transaction, MOL E & P and MOL
WMT have entered into a 10-year supply agreement for
the domestic gas produced by MOL E & P as part of the
transaction. Under the terms of this supply agreement, the
volumes of gas to be supplied by MOL E & P to MOL
WMT are set by reference to MOL E & P’s production
forecasts. The Commission has found that no domestic
the
gas will be available for
E & P’s
contracted
correspond
production forecasts and that the quantities available for
third parties for the remainder of the contract will be at
most [27-37 %] of MOL E & P’s production forecasts.

third parties

[…], as

to MOL

volumes

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(24)

Imports account for 80 % of total gas consumption in
Hungary and are expected to increase, as domestic
production is declining. There are two entry points
from which to import gas,
the Eastern entry point
the Ukrainian border) and the Western
(Beregovo, at
entry point (HAG, at the Austrian border).

(30)

For these reasons, already prior to the transaction, MOL
WMT is dominant on the various Hungarian gas
wholesale markets (gas supply to RDCs, gas supply to
traders, gas supply to power plants).

(25) The investigation has shown that all gas imported in
Hungary — and the only competitive source of gas —
is gas from Russia (i.e., sourced from Gazprom), or gas
from a CIS country (in particular Turkmenistan) transiting
through Russia and Ukraine (i.e., via transit pipelines
under the control of Gazprom). Alternative gas sources
are not expected to be available in Hungary before 2012
when the NABUCCO pipeline (bringing gas from the
Middle East and Caspian area) becomes operational.

(26)

Prior to the liberalisation, MOL had a monopoly to
import gas into Hungary.
In order to secure its gas
supply, MOL WMT has entered into long-term supply
agreements with a duration of up to […] (until […])
with Panrusgáz, Gaz de France (‘GdF’), E.ON and Bothli-
Trade (Bothli-Trade has assigned this contract to EMFESZ,
the only new entrant so far on the Hungarian gas market).
The gas purchased by MOL WMT from E.ON and GdF,
imported through the Western entry point, is physically
Russian gas
approximately [27-37 %] more
expensive than the gas purchased from Gazprom via
Panrusgáz or from EMFESZ.

and is

(27) The market investigation has shown that it is currently
difficult for new entrants to get access to Russian gas in
parallel to MOL WMT’s existing contracts. It appears that
there would be no incentive on the part of Gazprom to
sell ‘more’ gas for exports to Hungary, other than the gas
necessary to cover the ‘supply gap’ between the future
increase in the Hungarian demand and the demand
already
long-term import
contracts of MOL WMT.

covered by

existing

the

(28) Gazprom already supplies through Panrusgáz,

its joint
venture with MOL, gas quantities covering most of the
needs of Hungary. The Commission believes that it is not
possible to purchase gas from Gazprom to compete with
MOL WMT. First, Gazprom has no incentive to sell gas to
another gas trader at a cheaper price as the quantities
would simply displace the quantities it already sells for
the Hungarian market. Secondly, any gas Gazprom would
sell at a more expensive price would not be competitive
in Hungary.

(29)

In addition, MOL WMT enjoys and will keep enjoying
significant
incumbency advantages vis-à-vis potential
new entrants in terms of security of supply, cost of trans-
mission and storage of gas, notably thanks to its large
customer base and significant volume of sales.

(b) Impact on the Hungarian gas markets

Supply of gas

— The new entity will have the ability and incentive to
foreclose access to wholesale gas to its competitors (RDCs
supply to small
and traders) on the market
industrial and commercial customers

for gas

(31) The essential change brought about by the transaction is
that E.ON, unlike MOL, is active in the retail supply of gas
to small industrial and commercial customers through its
RDCs. The merger will thus result in the creation of a
vertically integrated company, active both in gas whole-
saling and in gas retailing. Immediately after the trans-
action, the new entity is likely to have the ability and
incentive to foreclose its actual and potential competitors
on the downstream market for the supply of gas to small
industrial and commercial customers, as its competitors
would have to rely on the new entity to procure their
wholesale gas.

(32)

Following the merger, the new entity will have the ability
to foreclose access to gas and raise its rivals’ costs in
various ways.
In the regulated segment of the market,
where prices are regulated, the new entity could engage
in non-price discrimination (such as delays in supply,
reduction in quality of service, lack of flexibility, unwil-
lingness to renegotiate, etc.). In the open segment of the
market, it could directly increase the wholesale price of
gas to traders and/or engage in non-price discrimination.

(33) E.ON, through its RDCs, has a market share of around
[15-25 %] on the market
supply to small
industrial and commercial customers. The Commission’s
analysis indicates that the new entity’s incentive to raise
the costs of rivals and its optimal foreclosure strategy is
likely to evolve with the regulatory environment.

for gas

to small

(i) Immediately after the transaction: as long as both
retail prices
industrial and commercial
customers and wholesale gas prices are regulated,
the new entity will have an incentive to raise the
costs to rival RDCs through non-price discrimination.
it is likely to increase the price of
Simultaneously,
wholesale gas
to capture
to independent
customers that switch to the open segment of the
market.

traders

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(ii) In July 2007: regulated prices are expected to be
suppressed. At that point all eligible customers will
have to switch to the open segment of the market.
the new entity will have an
It
is then likely that
its downstream rivals on
incentive to foreclose all
the market for the supply of gas to small industrial
and commercial customers either by increasing the
cost of gas or by reducing the quality of supply,
whatever is optimal.

(34) As a result, competitors of the new entity are likely to be
marginalised,
thereby allowing the new entity to gain
increased market power on the downstream market for
industrial and commercial
the supply of gas to small
customers. This
also likely to
input
foreclosure
in this market as potential
discourage new entries
entrants will not expect to be in a position to contract
gas
terms and
conditions similar to those applicable to E.ON’s affiliates.
the merger will
The Commission thus considers that
significantly impede competition on the market for gas
supply to small industrial and commercial customers.

supplies with the new entity under

is

— The new entity will have the ability and incentive to
foreclose access to wholesale gas to its competitors (RDCs
and traders) on the market for gas supply to residential
customers

(35) E.ON currently has a market share of around [15-25 %]
on the market for gas supply to residential customers in
for gas supply to small
Hungary. As in the market
industrial and residential customers, the new entity will
have the ability and incentive to foreclose access to gas to
its downstream competitors on the market for gas supply
to residential customers, thereby significantly impeding
competition thereon.

(36)

In the present case,
since residential customers will
become eligible in July 2007, i.e. only 18 months after
the adoption of the present decision, the Commission
considers that the main anticompetitive effects resulting
from the merger will occur as from that date.

— The new entity will acquire a dominant position in the

supply of gas to large industrial customers

can

(38) MOL WMT and RDCs have only been indirect compe-
titors on the market for gas supply to large industrial
customers as, on the regulated segment of the market,
directly
MOL WMT
connected to the transmission network.
In addition,
RDCs are obliged to source their gas from MOL WMT.
So far few customers have been able to obtain better
offers on the open segment of the market from traders
such as EMFESZ because regulated prices have remained
quite low.

customers

supply

only

(39) As of July 2007, the hybrid model and regulated prices
will disappear for large industrial customers. Although
MOL WMT, as a gas trader, would have been able to
gain more large industrial customers connected to distri-
bution networks, the merger results in the addition of
MOL WMT’s and E.ON’s significant customer portfolios
(KÖGÁZ,
(for E.ON,
DDGÁZ) and, arguably, of FŐGÁZ, about which it has
privileged information), to the new entity will therefore
immediately gain access to a significant customer base (a
combined market share of around [40-50 %] as opposed
to its current competitor EMFESZ and to potential
entrants.

controlled RDCs

through its

(40)

For these reasons the Commission takes the view that the
significantly impede competition on the
merger will
market
supply to large industrial customers
through the creation of a dominant position.

for gas

Storage of gas

services

to storage

(41) MOL Storage is the only company able to offer gas
storage
is
in Hungary. Access
essential for any gas supplier to be active on the gas
wholesale and retail markets, essentially in order
to
manage the seasonal fluctuations in the demand of its
customers. The Commission believes that as a result of
the merger,
the new entity will have the ability and
incentive to reinforce its gas input foreclosure strategy
by adopting discriminatory behaviour in granting access
to storage, even in a scenario of fully regulated prices for
storage services (as required under the resolution of the
Hungarian Energy Office approving the transaction).

(37)

In addition to these future anticompetitive effects, the
merger is also likely to produce immediate effects by (i)
weakening rival retailers on the neighbouring and closely
industrial
related market for the supply of gas to small
and commercial customers (which are likely entrants on
the residential customer market); and (ii) discouraging
potential new entrants to prepare their entry on the
market (as market entry needs to be prepared well
in
advance).

(42) The new entity may also control the development of new
storage capacities in Hungary in view of (i) MOL Storage’s
call option to purchase depleted fields from MOL E & P;
and (ii) MOL’s incentive to favour MOL Storage in selling
depleted fields of MOL E & P due to its remaining 25 %
shareholding in MOL Storage.

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Transmission of gas

(43) MOL Transmission owns and manages the high pressure
grid in Hungary. The 25 %+1 minority shareholding that
MOL would retain in MOL WMT gives MOL Transmission
an incentive to reinforce the gas input foreclosure strategy
to the detriment of E.ON’s competitors downstream
through discriminatory behaviour in granting access to
the transmission network.

the

remaining 60 % is
Paksi nuclear power plant,
mainly generated by power plants burning hydrocarbons
(lignite, gas and coal) and by imports. The major part of
the large power plants’ capacity is booked under long-
term power purchase agreements (‘PPAs’) with MVM,
the Hungarian electricity incumbent and public utility
wholesaler. The market investigation has established that
the total capacity booked under PPAs amounted to
4 000-5 000 MW in 2005.

ELECTRICITY MARKETS

(44) The Commission’s market investigation has also identified
competition concerns on various electricity markets,
integration of MOL WMT’s
resulting from the vertical
activities in the upstream market of gas supply to large
power plants with E.ON’s activities in the downstream
markets of electricity generation/wholesale and electricity
retail.

(45) Whereas MOL is not active in the electricity markets,
E.ON has made significant investment in the electricity
sector in Hungary since 1995. The group is currently
active at the generation level with a small size gas-fired
power plant in Debrecen (95 MW), and at the wholesale
and retail supply level with ownership of three out of the
six electricity RDCs and the electricity trading company
E.ON EK. In addition, E.ON controls various companies
involved in electricity retail
supply in neighbouring
countries.

(46)

Prior to the transaction, MOL WMT is already dominant
in the market for the supply of gas to large power plants.
The fundamental change brought about by the transaction
is that the new entity not only has the ability but is now
also likely to have the incentive to exploit its position as
gatekeeper of gas resources in Hungary to foreclose its
actual and potential competitors on the downstream elec-
tricity markets of wholesale supply of electricity to
traders, retail supply of electricity to medium and large
industrial and commercial customers, retail supply of elec-
tricity to small industrial and commercial customers, and
retail supply of electricity to residential customers.

Electricity generation/wholesale

(47) Total generation capacity in Hungary is approximately
8 000 MW in 2005, to be compared with the country’s
peak load of 6 350 MW (in 2004). The Hungarian elec-
tricity generation is split between nuclear energy (1 800
MW installed capacity) and lignite, gas and coal power
plants (5 700 MW installed capacity). Almost 40 % of
electricity consumed in Hungary is generated by the

(48)

It is estimated that significant new electricity generation
capacity (5 000 MW or 60 % of current installed capacity)
will be needed in Hungary by 2020 to replace old power
plants (3 500 MW) and to satisfy the increase in demand.
Accordingly, Hungarian electricity generation capacity
should increase
from 8 000 MW to approximately
10 500 MW.

(49) The Commission’s market investigation on existing new
power plants projects in Hungary has established that gas
will be the predominant fuel for new power plants. The
Hungarian energy regulator considers that gas-fired power
plants could reach approximately 60 % of new generation
capacity.

(50) Electricity imports into Hungary are essentially made by
electricity traders for transit or to supply medium and
large customers. MVM,
the public utility wholesaler,
accounted for [30-40 %] of electricity imports in 2003.
E.ON was the second largest importer, ahead of other
electricity traders, with [10-20 %] of imports. According
to a 2005 study of MAVIR, the electricity transmission
operator, Hungarian electricity imports are expected to
decline over the next 10 years, while the total electricity
demand will continue to increase in Hungary. The share
of electricity imports in the total electricity demand would
therefore decline while the share of domestic production
would increase.

(51)

Prior
to the transaction, MOL WMT already has a
dominant position in the market for the supply of gas
to large power plants. Following the transaction, the new
entity will thus have the ability to determine its compe-
titors’ power plants gas supply conditions (prices, rules for
nomination,
interruptibility, etc.)
and to discriminate against rival power generators in
several ways.

take-or-pay penalties,

(52) The Commission’s investigation has shown that,

imme-
diately after the transaction, E.ON is likely to pursue
two strategies to strengthen its position in both electricity
generation/wholesale supply and electricity retail supply in
Hungary.

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(53) As regards new power plants, E.ON is likely to increase
the cost of gas to its competitors’ new gas-fired power
plants, with the aim to deter these rivals from building
new gas-fired power plants and to favour its own new
power plants projects. This strategy would be attractive
for E.ON in view of its strong interest in expanding signi-
ficantly its power generation capacity in Hungary. E.ON
may also discriminate against new gas-fired power plants
that do not
supply its downstream electricity retail
affiliates. This strategy would be economically rational
as it would provide E.ON with a certain degree of
control over the electricity generation/wholesale market
and additional competitive advantage on the electricity
retail market.

(54) As regards existing power plants, the new entity is likely
to implement the same foreclosure strategies with the
limiting their ability to compete on the
objective of
open segment of
the generation/wholesale market and
to eventually induce them to exit the market. Several
market players have expressed the concern that E.ON
would then seek to acquire their assets.

(55)

the market

In the future liberalized regulatory framework charac-
terized by greater power generation capacity available
(and by E.ON’s
on the open segment of
larger share in power generation), the foreclosure stra-
tegies described above will be even more effective and
therefore damaging. They would reduce the ability of
the
rival gas-fired power plants to compete and limit
scope for the development of the competitive electricity
wholesale market.

in

and

capacity

new generation

(58) E.ON’s strategy on the electricity generation/wholesale
market would significantly impede competition on all
the markets for
the retail supply of electricity. This
impact would first result of the non-competitive devel-
higher
opment
wholesale prices. Second, the new entity’s likely strategy
to link the gas supply and electricity purchase of gas-fired
power plants would reduce the ability of rival electricity
retailers
to source competitive electricity and would
increase the new entity’s already strong market power
in electricity retail. Finally, the Commission’ market inves-
tigation has indicated that dual offers (gas and electricity)
are
in Hungary.
According to the Commission, E.ON will have the
ability and incentive immediately after the transaction to
prevent any other company active in electricity retail from
developing dual offers by foreclosing access
to gas
resources to those competitors willing to pursue this
marketing strategy, thereby significantly impeding compe-
tition on the markets for the supply of electricity to small
industrial and commercial and residential customers.

likely to play an important

role

E. COMMITMENTS

(59)

the

E.ON

2005,

submitted

commitments was

In order to remove the competition concerns described
above on the gas and electricity markets, E.ON submitted
on 20 October 2005 a package of commitments. On 16
November
revised
commitments and on 8 December, the final version of
submitted. The Commission
the
believes that
the undertakings, substantially improved
following the market test compared to the parties’ initial
offer, meet the concerns expressed by third parties as
regards the need to ensure sufficient liquidity of gas on
the Hungarian wholesale gas market
and
conditions which will allow third parties to compete effec-
tively with the new entity on the downstream gas and
electricity markets in Hungary.

at price

(56) E.ON’s strategy would lead to a slower and less compe-
titive development of new generation capacity in Hungary
starting immediately after the transaction (compared to a
situation where new power plants would be built by
distinct market players) and ultimately to higher electricity
wholesale prices. It would thus impede effective compe-
tition on the market for generation/wholesale supply of
electricity to traders.

UNBUNDLING

(60)

First, pursuant to the commitments, MOL will divest its
remaining shareholdings of 25 % + 1 share in MOL
Storage and MOL WMT within six months following
to
the date of closing.
acquire direct or indirect minority stakes in MOL WMT
and MOL Storage for a period of 10 years as long as
E.ON is a majority shareholder of these companies.

In addition, MOL will not

Electricity retail

(57) E.ON is clearly the leading player in the retail supply of
electricity in Hungary. It is the only group with strong
positions in both the regulated segment (with three out of
six RDCs) and the open segment (E.ON EK is one of the
three largest electricity traders in Hungary), with a market
share around [40-50 %].

(61) The divestiture of MOL’s 25 % shareholdings in MOL
Storage and MOL WMT pursuant to the commitments
removes
stemming from the structural
links between MOL and E.ON. The market test has, to a
large extent, welcomed the severing of the structural links
between the parties.

the concerns

16.9.2006

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Official Journal of the European Union

L 253/27

(62)

Secondly, pursuant to the commitments, MOL will not
exercise the put option for the 25 % + 1 share interest
in MOL Transmission. In addition, MOL will not sell to
E.ON or any of its affiliates, for a period of 10 years as
long as E.ON is a majority shareholder of MOL WMT and
MOL Storage, a share interest in MOL Transmission that
would not result in the acquisition of sole or joint control
over MOL Transmission by E.ON.

to remove all

the competition concerns
are sufficient
resulting from the transaction. In particular, the combi-
nation of the gas release program and the contract release
will ensure that all market participants (whether gas
customers or traders) will have the ability to source
their gas needs under competitive and non-discriminatory
conditions and, for at least a significant part,
indepen-
dently from the merged entity.

(63) This remedy will provide the competent competition
authorities with the opportunity to review the creation
of any structural link between the new entity and MOL
Transmission (notably if the put option is exercised) in
the framework of the market conditions prevailing at such
time.

GAS RELEASE AND CONTRACT RELEASE

(64) E.ON undertakes to implement a gas release program in
Hungary by way of business-to-business internet auctions.
The gas release program foresees eight annual auctions of
1 bcm of gas (in 2006, 2007, 2008, 2009, 2010, 2011,
2012 and 2013) and will have a duration of nine years
until July 2015. The Hungarian Energy Office and a Moni-
toring Trustee will supervise the auctions and the imple-
mentation of the gas release program.

(65)

In addition, E.ON undertakes to assign to a third party
(the ‘Third Party’) half of the contract between MOL WMT
and MOL E & P for the supply of domestic gas (‘Supply
Contract’) within six months from the date of the closing.
Once the contract assignment becomes effective, the Third
Party will take over all the rights and obligations of MOL
WMT under the Supply Agreement for the part assigned
to it. The assignment will become effective at
the
beginning of the gas year 2007 (July 2007) and will be
valid for the whole duration of the Supply Contract, until
July 2015. The part of the Supply Contract to be assigned
represents approximately 7.6-10 bcm of gas in total, with
the volumes to be released in the first year amounting to
1.2 bcm.

(66) To assess properly whether

the gas release and the
contract release commitments submitted by the parties
are suitable to remove the competition concerns identified
during the procedure,
reviewed
existing similar programs in various European countries
and carried out a market test with Hungarian gas and
electricity operators.

the Commission has

that

(68) The Commission considers that the total volumes of gas
to be released are suitable to create sufficient liquidity of
gas on the Hungarian wholesale gas markets so as to
ensure
competition can develop and
remain sustainable on the downstream gas and electricity
markets. The total quantities of gas to be released through
in comparison to other
both remedies are significant
existing gas release programs (2 bcm on a yearly basis,
or up to 14 % of total Hungarian domestic consumption).

effective

Furthermore,

July 2015) will ensure that

(69) The duration of the gas release program and contract
release (until
sufficient
liquidity will be available for a sufficiently long time
the market structure and competitive conditions
until
have
price mechanism
changed.
foreseen for both the gas
release program and the
contract release will ensure that successful bidders will
obtain gas at the same (or possibly better in the case of
the gas release program) competitive conditions as the
this pricing
new entity. The Commission considers
mechanism is
and will
for
attractive
provide good incentives to participate actively in the gas
release program’s auctions.

third parties

the

features

that
as

its main

the program offered by the parties
regards

(70) With respect to the gas release program, the Commission
is
believes
designed,
(volumes,
duration, price mechanism) and in its more technical
flexibility
lots, duration of contracts,
features (size of
largely in line with the criteria considered to be
rules)
implementation of gas
most relevant for the successful
the effective
release programs. The detailed rules for
supply
implementation of
contracts will be elaborated by the parties under the
scrutiny of the Hungarian Energy Office, and submitted
to the Commission for its approval.

the auction and the gas

(67) The Commission has reached the conclusion that the gas
release program and the contract release as offered by the
parties, incorporating the amendments and improvements
proposed by third party respondents to the market test,

the Commission
to the contract release,
(71) With respect
the contract
the Third Party assignee of
believes that
release will constitute a sizeable and sustainable compe-
titive force in the Hungarian gas markets. It will have
sufficient long-term gas resources to develop its position
on the Hungarian gas markets and introduce liquidity on
these markets

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Official Journal of the European Union

16.9.2006

ACCESS TO STORAGE

(72) E.ON undertakes to grant access to storage capacities at
regulated prices and conditions to gas customers and
traders
that purchase gas directly through the gas
In particular,
release program or the contract release.
E.ON undertakes to offer access to sufficient storage capa-
cities for those end users and wholesalers even if they
purchase gas for the first time (for new customers) or
develop an increased demand for storage (as the current
regulatory framework only guarantees transfer to the new
supplier of
the storage capacity up to the existing
consumption of existing customers).

their
the acquired gas according to their own or
customers’ needs. The commitment on storage will
contribute to make the gas and contract release attractive
for third parties.

F. CONCLUSION

(74)

For the reasons mentioned above, considered individually
or together, the Commission has come to the conclusion
that the commitments submitted by E.ON are sufficient to
address the competition concerns raised by this concen-
tration.

(73) The Commission considers

is
sufficient
to grant an effective and non-discriminatory
access to the storage capacities for the relevant gas quan-
tities and will enable traders and customers to structure

this commitment

that

(75) The Commission’s Decision therefore has declared the
common
the EEA Agreement

notified
market and the functioning of
pursuant to Article 8(2) of the Merger Regulation.

transaction compatible with the