2006/170/EC: Commission Decision of  6 October 2004  declaring a concentration compatible with the common market and the functioning of the EEA Agreement (Case COMP/M.3099 — Areva/Urenco)  (notified under document number C(2004) 3676)
Date: 2006-03-02
Institutions: European Commission
Subjects: economic concentration, exchange of information, merger control, nuclear industry, research and development, uranium

2.3.2006

EN

Official Journal of the European Union

L 61/11

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 6 October 2004

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

the

EEA Agreement
(Case COMP/M.3099 — Areva/Urenco)

(notified under document number C(2004) 3676)

(Only the English version is authentic)

(2006/170/EC)

On 6 October 2004 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 (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
address:
http://europa.eu.int/comm/competition/index_en.html

the Directorate-General

for Competition,

the website

following

the

at

of

I. THE JOINT REFERRAL REQUEST PURSUANT TO
ARTICLE 22 OF THE MERGER REGULATION

On 8 and 26 April 2004, the Commission received a
from the authorities of France,
joint referral request
Sweden and Germany, pursuant
to Article 22 of
Council Regulation (EEC) No 4064/89 (2), (the ‘Merger
Regulation’) to investigate a proposed concentration by
which the undertaking Société de participations du
Commissariat à l'Energie Atomique SA (‘Areva’, France)
Enrichment Technology
acquires
control of
Company Limited (‘ETC’, United Kingdom),
formerly
solely controlled by the undertaking Urenco Limited
(‘Urenco’, United Kingdom).

joint

(3)

II. THE PARTIES

l’Energie
Areva
controlled by Commissariat
Atomique (‘CEA’), which in turn is controlled by the

is

à

(1)

(2)

(1) OJ L 24, 29.1.2004, p. 1.
(2) OJ L 395, 30.12.1989, p. 1, corrigendum OJ L 257, 21.9.1990,
p. 13; Regulation as last amended by Regulation (EC) No 1310/97
(OJ L 180, 9.7.1997, p. 1, corrigendum OJ L 40, 13.2.1998,
p. 17).

It

is

in particular

French state. Areva is active in three main areas: (a) all
stages of the nuclear power business, (b) the connector
business, and (c) transportation and distribution of elec-
tricity.
active on the uranium
enrichment services market via its subsidiary, Eurodif
and it owns the largest European enrichment plant.
the outdated and
ageing and uses
The plant
expensive gas diffusion technology. Eurodif has
a
nominal capacity of 10,8 million separative work units
(‘SWU’) per year and in 2002 Eurodif made deliveries of
approximately 9 million SWU.

is

Urenco Limited was established under the umbrella of
the Treaty of Almelo which was concluded in the early
1970s between Germany, the Netherlands and the UK in
order to develop and exploit centrifuge technology for
uranium enrichment. Urenco is the holding company of
the Urenco group, which includes two main companies,
Uranium Enrichment Company (‘UEC’) and Enrichment
Technology Company (‘ETC’). UEC is active on a
worldwide level in the provision of uranium enrichment
services with the modern and efficient centrifugation
technology. ETC is involved in the development, design
and manufacturing
uranium
enrichment. The shareholders of Urenco include British
Nuclear Fuels, RWE and EON.

centrifuges

for

of

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Official Journal of the European Union

2.3.2006

(4)

(5)

(6)

(7)

III. THE CONCENTRATION

The proposed operation consists of the acquisition by
Areva of a 50 % interest in ETC which will become a
joint venture between Areva and Urenco. ETC’s activities
will be limited to the upstream research and devel-
opment,
centrifuge
equipment, while Areva and Urenco will continue their
activities on the downstream market
for uranium
enrichment.

and manufacture

design

of

Urenco has transferred to ETC all resources necessary to
design and manufacture centrifuge equipment, including
production facilities,
technology (intellectual property
rights),
resources and employees. The joint
venture has therefore been placed in a position to
perform all the functions related to its business activity.

financial

For a certain time, the joint venture will essentially sell
centrifuge equipment to its parent companies. However,
considering the particularly long lead times prevailing in
the nuclear industry, this could be regarded as an initial
period, after which other operators can be expected to
become ETC’s customers. The Commission therefore
the joint venture will perform on a
considers that
lasting basis
an autonomous
all
economic entity within the meaning of Article 3(2) of
the Merger Regulation and that the proposed operation
thus constitutes a concentration. This view is supported
by the German and French authorities.

functions of

the

IV. JURISDICTION

The concentration does not meet the turnover thresholds
in Article 1 of the Merger Regulation and so it does not
have a Community dimension. The parties notified the
concentration to the national competition authorities in
the UK, France, Germany and Sweden. The UK decided
that the concentration did not qualify for investigation
under its procedures, but the other three Member States
jointly requested the Commission to investigate the
concentration pursuant to Article 22 of the Merger Regu-
lation. The three Member States concerned believed that
the concentration threatened to create or reinforce a
dominant position by creating a structural link between
the two main European suppliers of uranium enrichment
the geographic markets were
services and that, as
considered to be at least EEA-wide, there would be an
effect on trade between Member States. The Commission
found that
the
requirements laid down in Article 22(3) of the Merger
Regulation and therefore accepted jurisdiction for the
case.

request meets

referral

joint

that

V. RELEVANT MARKETS

Relevant product markets

consists

production of energy in nuclear reactors results from
the fission or splitting of the U-235 atoms, a process
which releases energy in the form of heat. U-235 is the
main fissile isotope of uranium. Enrichment is the most
fuel.
expensive stage in the fabrication of nuclear
of
Uranium enrichment
the
increasing
fissile U235 isotopes
percentage of
in the uranium
compared to the U238 isotopes. For civil nuclear elec-
tricity generation, uranium is enriched to a 3-5 % level
In most
and is called Low Enriched Uranium (LEU).
cases,
the enrichment company provides enrichment
services or supplies enriched uranium to utilities by
transforming the uranium provided by the utility into
LEU that meets
internationally accepted standards.
However, in some cases LEU is simply sold to utilities
rather than enriched on their behalf (supply of LEU).

(9)

There are two ways to provide uranium enrichment
services: the enrichment of uranium in centrifuges or
gas diffusion plants; or the down blending of Highly
Enriched Uranium (1) (‘HEU’), resulting from the decom-
missioning of Russian nuclear weapons, where the HEU
is diluted to produce low enriched uranium (‘LEU’). The
Commission’s market investigation clearly showed that
from the demand side down blended HEU and
enriched natural uranium are substitutes.

(10) Uranium for fuel can be divided into three types of LEU:
enriched natural uranium (ENU), enriched reprocessed
uranium (ERU) and mixed oxide (MOX). The market
inter-
investigation confirmed that
changeable products
separate
product markets.

constitute

are not

these

thus

and

(11)

(12)

It can be concluded that the product market comprises
enriched natural uranium, enriched depleted uranium
and down blended HEU with a 3-6 % content of
U-235. On the basis of
their different characteristics
enriched reprocessed uranium and mixed oxide fuel
should not be included in the relevant product market.

Relevant Geographic Markets

(ii)
regions of

companies
the European market;

the market may be
There are some indications that
European wide in particular the following:
(i) stability
of market shares — in the last 13 years the two
shared constantly
European enrichment
the
approximately 80 % of
indigenous suppliers in the different
the
world in which LEU is consumed have strong positions
in their domestic markets (Russia, US, Asia) whereas in
the EU the combined shares of Asian and U.S. enrichers
(iii)
have been far below 5 % throughout that period;
there is limited constraint
in
from non-EU suppliers,
particular due to the operation of the so-called ‘Corfu
Declaration’ which has as its aim the security of supply
imports
by European enrichers and the restriction of
from Russia to a maximum 20 % threshold.

(8)

The stages concerned in the production of nuclear fuel
fabrication. The
are: conversion; enrichment; and fuel

(1) In HEU the content of U235 exceeds 20 % whereas for enriched
uranium used in civil nuclear reactors the content of U235 amounts
to approximately 3-5 %.

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(13) However, the Commission also found indications that
the Russian supplier, Tenex may exercise a certain
competitive constraint on the parties and that conditions
of competition might change in the foreseeable future as
USEC might re-direct some of its capacity to Europe. In
any case, for the purposes of the this decision, the scope
of the geographic market can be left open since the
commitments submitted by the parties on 20 August
2004 remove the Commission’s serious doubts as to
the proposed concentration with
the compatibility of
the common market, whether the market is EU-wide
or wider in scope.

(18)

VI. COMPETITIVE ASSESSMENT

(14)

The competition concerns resulting from the proposed
transaction may be grouped into the following main
elements:

the European market

European enrichment companies with approximately
80 % of
for the last 13 years,
and about 40 % at
the world level) will be able to
establish perfect coordination of capacity decisions.
This is likely to lead to upward pressure on prices in
the EU and the rest of the world.

the

capacity decisions,

Tacit coordination on supply into the EU. Over and above
the likely negative impact on prices resulting from the
joint
transaction may also
facilitate tacit coordination on supply into the EU.
than tacitly coordinating directly on price,
Rather
which appears to be difficult in this market, coordination
on supply in the form of maintaining a broad market
share division in the EU market is feasible. Ultimately,
such coordination on supply will have the effect of
raising the price level in the market (or prevent it from
falling, in the context of Areva’s costs decreasing).

(a) The joint venture enables the parties to control each
other’s decisions on adding enrichment capacity;

(b) The control on capacity levels is likely to lead to
to a more limited
higher prices in the EU and,
extent, in the rest of the world (explicit coordination
on capacity); and

(c) The joint venture facilitates tacit coordination on

supply into the EU.

centrifuges

from ETC without

Control over capacity decisions. According to the transaction
notified neither Areva nor Urenco would be able to
purchase
the prior
explicit approval of the other parent company. In other
words, both parties will be able to prevent capacity
increases by the other. The joint venture provides thus
each party with the ability to control the capacity of the
other party.

Coordination on capacity. In the field of centrifuge tech-
nology, there is a very strong link between capacity levels
and total output. From a technical viewpoint the tech-
nology mandates that the centrifuges, once they have
started spinning, should not be turned off during their
entire life time ([…]). Turning the centrifuges off and
restarting them significantly increases the risk of
the
centrifuges being damaged. In addition, the enrichment
intensive with very low
industry is highly capital
these technological and
marginal costs.
commercial
is
constraints,
therefore regularly close to capacity level.

In view of

centrifuges

output

of

(15)

(16)

(17)

Capacity (output) levels are among the main drivers of
prices in the enrichment market. As a result of the trans-
action,
in the uranium
(Areva and Urenco are the two
enrichment market

the two main competitors

(19)

The factors that make coordination on supply more
likely after the transaction than it was in the past are
(i) the centralisation of capacity decisions in ETC, (ii) the
structural link of ETC, and (iii) increased scope for infor-
mation exchange.

— Reaching a common understanding

(20) Under the hypothesis of an EU market,

it should be
noted that a common understanding has to be reached
between only two market players, Areva and Urenco.
USEC is unlikely to be a competitive threat for the fore-
seeable future, and Tenex faces regulatory constraints to
supply into the EU.

(21)

Coordination on supply is by itself not too complicated.
The number of customers in the EU market is limited.
Not bidding for a specific contract, or bidding for it at
is a way to leave a customer (or
non-attractive terms,
sales opportunity) to the other party so as to maintain a
broad market share division in the EU market. There are
only 13 European utilities (in the EU 15) that operate
nuclear power plants. The number of supply opportu-
nities, such as tenders for the supply of (part of) the
requirements of European utilities, or the opportunity
to conclude contract extensions,
is equally somewhat
limited, in the range of 10-20 per year.

— Transparency

(22)

The degree of transparency in this market appears to be
to maintain coordination on supply in the
sufficient
European market. As indicated above,
there are only
few European customers and a few supply opportunities
each year. More importantly, it requires only the coordi-
nation by two players, Areva and Urenco.

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(23)

(24)

The joint control of ETC by Areva and Urenco will
increase transparency between the parties with respect
to each other’s capacity plans and other competitive
parameters. This
is mainly due to the information
flows from ETC to its shareholders and more particularly
to the decisive role of ETC’s Board of Directors which is
appointed by the Areva and Urenco.

to Article 81(3) of

concluded with sufficient certainty that the conditions
for an exemption pursuant
the
Treaty are fulfilled. In particular, there are no indications
that any coordination between Areva and Urenco would
be likely to benefit the consumer nor that the restrictions
imposed by the agreements bringing about the proposed
operation are indispensable.

— Disciplining mechanisms

The scope for deviating and increasing sales into the EU
may be limited. In the event that either party were to
retaliation
deviate from the common understanding,
could be brought about by temporarily reverting to
intense competition. Furthermore,
that each
party is dependent on the other party for such vital
strategic decisions as capacity decisions increases the like-
lihood that the companies will adhere to a common
understanding.

the fact

VII. COMMITMENTS PROPOSED BY THE PARTIES

(29) On 20 August 2004, the parties submitted a package of
the
commitments in accordance with Article 8(2) of
Merger Regulation. These were modified by the parties
on 3 September 2004. The Commission is of the view
that
the commitments address and resolve in a
satisfactory manner the competition concerns raised by
the concentration.

that

(30)

(31)

(32)

— Reactions from competitors or customers

(25) On a hypothetical EU market,

third parties, such as
competitors or customers, may not be able to counter
coordination on supply by the two main enrichment
companies in the EU. The only two other significant
competitors in sight, Tenex and USEC, may not be in
a position to destabilise any common understanding
between two parties.

(26)

(27)

(28)

Customers,
likewise, cannot be considered to be a
position to prevent coordination on supply by the two
parties. The only exception,
is EDF. In
view of its size, it must be considered capable of main-
taining at least a certain degree of competition between
two parties. However, when the overall level of capacity
is tight for both parties, the leverage of EDF is likely to
be comparatively smaller.

if there is one,

Conclusion. In view of the foregoing, the Commission had
serious doubts and considered that the proposed trans-
action would be likely to lead to the creation of a joint
dominant position for Areva and Urenco on a possible
EU enrichment market within the meaning of Article
2(3) of the Merger Regulation.

the enhanced possibilities that

the joint
In view of
venture ETC offers the parties to coordinate downstream
on enrichment capacity and output
in the European
market, any such coordination would be causally linked
the
to the creation of
Commission considered that the participation of Areva
in the joint venture is also likely to appreciably restrict
competition in the sense of Article 81(1) of the Treaty in
combination of Article 2(4) of the Merger Regulation on
It cannot be
either a European or worldwide market.

the joint venture. Therefore,

Summary of the Commitments offered by the parties

(ii)

(i) removal of

The proposed commitments consist of the following key
the parties’ veto rights over
elements:
capacity increases;
to
reinforcement of
information flows between the parties and
prevent
between the joint venture and the parties; and (iii)
provision of
information to Euratom Supply Agency
(ESA) to enable it to monitor prices of enrichment and
allowing ESA, if necessary, to take corrective actions, e.g.
by increasing third party imports.

firewalls

(i) Removal of veto rights on capacity expansion

The initial shareholders’ agreement for the JV foresees
that the supply of centrifuges to Areva or Urenco, be
it as part of the JV’s business plan/budget or beyond that,
will require the unanimous approval of the ETC board.
As
an equal number of board members will be
nominated by Areva and Urenco, either of Areva and
Urenco would be in a position to prevent capacity
increases by the other beyond what is foreseen in the
current business plan.

the board, but will be left

In order to eliminate the Commission’s concerns the
parties committed that the shareholders agreement shall
be amended in such a way that, when it is proposed that
the JV enters into a new supply agreement for centrifuges
with one of the parties, such a decision shall not require
the approval of
to the
executives, provided that:
(a) the terms are not more
favourable than other contracts with Areva or Urenco;
(b) the contracts are conditional upon approval of the
Joint Committee and the Quadripartite Committee, or
any other required governmental regulatory approval or
the
requirements, such approvals are granted and (c)
proposed
does not
capital
additional
exceed [< 20] million.

expenditure

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(33)

(34)

(35)

The termination of the veto rights concerning the supply
of centrifuges will exclude one party’s right to veto the
expansion of capacity of the other party. The executives,
who are not members of the board, will fulfil any orders
of the parent companies on the sole basis that the order
is not contrary to the economic interest of the JV. In
addition, the independent auditors to the JV shall report
at regular intervals to the Commission on the fulfilment
of this element of the commitments.

(ii) Firewalls and related commitments

the

JV would facilitate

In order to eliminate the Commission’s concern that the
formation of
coordination
between Areva and Urenco by an increased scope for
information
parties
committed to reinforce firewalls between the parties
and ETC and between each of the parties.

exchange

through

ETC,

the

specific duties of

The firewall mechanism involves a number of individual
points directed at reducing the information flow between
ETC and the parent companies and vice versa. It includes
a provision that Areva/Urenco shall not have access to
commercially sensitive information relating to the ETC
group and vice versa, that Areva and Urenco shall not be
involved in the day to day running of ETC and that the
management structure of ETC shall be independent of
the
the parties.
It also sets out
the board of ETC who may not hold
members of
commercial
field of uranium
responsibility in the
enrichment of either of the parties. No board member
of ETC may request or receive any commercial sensitive
information not connected to reserved board matters,
that he shall not use or circulate commercially sensitive
information for any other purpose and that no board
member shall be involved in the negotiation of any
contracts with shareholders or third parties and no infor-
mation on such individual agreements shall be disclosed
to the shareholders. The board of ETC will only receive
the information necessary to enable its members to fulfil
their
the independent
auditors to the JV shall report at regular intervals to
the Commission on the fulfilment of this element of
the commitments.

fiduciary duties.

In addition,

(36)

(iii) Monitoring by the Euratom Supply Agency

the parties
To enhance the monitoring role of ESA,
further committed to supply all
relevant contractual
elements of the enrichment contracts to the ESA. This
information includes prices and payment conditions as
well as all other relevant price information required by
ESA in respect of contracts with enrichment customers,
whether located inside or outside the EU. This infor-
mation shall enable the ESA to closely monitor the
development of prices of enriched uranium charged by
each of the parties. If in future prices are raised by the
parties, this information will give ESA the basis to take
corrective actions in its supply policy to increase the

imports of non-European enriched uranium to count-
eract any unjustified price increases by the parties. The
Commission is of the view that ESA already has the
power to monitor prices of enrichment contracts and
that it has the power and discretion to adapt its supply
policy. ESA has confirmed that it is prepared to take on
such a monitoring role.

(37)

Assessment of

the Commitments offered by the

notifying parties

The termination of the veto rights concerning the supply
remove the parties’ veto rights
of centrifuges will
the other
concerning the expansion of capacity of
party. The executives, who are not members of
the
board, will fulfil any orders for the parent companies
on the sole basis that the order is not contrary to the
economic interest of the JV. The Commission considers
that
the
this commitment will remove concerns that
parties will coordinate on capacity extensions on the
basis of the rights of the board.

(38)

The Commission considers that the enhanced firewall
mechanism will
significantly reduce the information
flow between the parties and thereby reduce the trans-
parency resulting from the joint ownership of ETC.

(39)

(40)

the parties and,

By providing ESA with comprehensive contract infor-
mation, ESA will be in a position to monitor
the
if pricing is
pricing behaviour of
considered to be inconsistent with the overall devel-
opment of the enrichment market, ESA will be able to
take corrective measures in particular by increasing the
The
import
Commission expects that this will discipline the pricing
behaviour of the parties.

uranium from Russia.

enriched

of

The market test on balance indicated that, subject to
some modification, the proposed commitments may be
appropriate to remove the Commission’s concerns. In the
the
revised commitments dated 3 September 2004,
parties additionally undertook to enable the external
auditors of ETC to report to the Commission as part
of their regular annual audit, on the compliance with
relating to the
the
amendment
and
agreement
construction of firewalls.

commitments
shareholders’

elements of

the
the

of

(41) On 23 September 2004, the Advisory Committee on
Concentrations gave a favourable opinion on the draft
decision and gave approval to the adoption of the draft
decision.

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VIII. CONCLUSION

(42)

In the light of the above,
it was concluded that the
commitments proposed by the parties modify the
the
notified concentration to such an extent
serious doubts of the Commission as to the compatibility

that

that concentration with the common market are
of
removed. This is therefore declared compatible with the
common market pursuant to Article 8(2) of the Merger
Regulation and with the EEA Agreement pursuant to
to compliance with the
Article 57 thereof,
Commitments

subject