2007/194/EC: Commission Decision of 14 November 2006 declaring a concentration compatible with the common market and the functioning of the EEA Agreement (Case COMP/M.4180 — Gaz de France/Suez) (notified under document number C(2006) 5419)
Date: 2006-11-14
Institutions: European Commission
Subjects: Belgium, France, economic concentration, electrical energy, gas, merger control, restriction on competition, thermal energy

29.3.2007

EN

Official Journal of the European Union

L 88/47

COMMISSION DECISION

of 14 November 2006

declaring a concentration compatible with the common market and the functioning of the EEA
Agreement
(Case COMP/M.4180 — Gaz de France/Suez)

(notified under document number C(2006) 5419)

(Only the French text is authentic)

(2007/194/EC)

On 14 November 2006 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 on the website of the Directorate-General for Competition, at
the following address: http://ec.europa.eu/comm/competition/index_fr.html

A. THE PARTIES

sales, mainly in France, but

(1) GDF is an energy group present across the gas chain and
related energy services and is active in exploration,
transport, storage, distribution and natural
production,
gas
also in Belgium,
the United Kingdom, Luxembourg, Hungary
Germany,
and Spain.
In Belgium, Gaz de France, along with
Centrica, exercises joint control over SPE (2), which is
present in the Belgian electricity and natural gas markets
and provides energy services.

(2)

(3)

The Suez Group is active in the utility industry and utility
services. The group is structured around four operational
business units in two areas of activity namely energy and
the environment. Suez’s main energy subsidiaries are
Electrabel
(electricity and gas), Distrigaz (gas), Fluxys
(transport and storage of gas), Elyo (renamed Suez
Energy Services in January 2006), Fabricom, GTI, Axima
and Tractebel Engineering in the energy service sector.
According to the information provided by the parties,
Suez Energie Europe holds a minority stake of 27,5 %
in Elia, manager of the electricity transmission network
in Belgium.

B. THE OPERATION

By means of the notified merger, GDF will absorb Suez,
which will cease to exist as a legal entity. The merger
(by qualified
proposal will be submitted for approval
majority)
extraordinary general
meetings and will not require the launching of a public
offer for Suez’s shares. The Boards of Directors of both

two groups’

the

at

groups have already approved the proposed merger (Suez
on 25 February 2006 and GDF on 26 February 2006).
The merger will take place by means of a one-to-one
exchange of shares.

(4)

can only take place once

the French
The merger
Parliament has amended the law of 9 August 2004,
in
order to bring the French State’s stake in GDF under
50 %.

(5)

In view of the above, the notified operation qualifies as a
concentration within the meaning of Article 3(1)(a) of
Regulation (EC) No 139/2004 (the Merger Regulation).

C. COMPETITION ANALYSIS

1. Competition concerns raised by the merger

(6)

the Commission considers

the
In the Decision,
merger would significantly impede effective competition
in four areas: gas in Belgium, gas in France, electricity in
Belgium and district heating in France.

that

Gas in Belgium

(7)

Concerning gas in Belgium, significant impediments to
effective competition are identified on the following
(nationally defined) markets for the supply of H and/or
L gas:

(1) OJ L 24, 29.1.2004, p. 1.
(2) GDF and Centrica each own 50 % of a holding company that
acquired 51 % of SPE in 2005. Together,
they exercise joint
control over SPE. The former owners of SPE, ALG and Publilum
own 49 % of SPE via another holding company, but do not exercise
control.

— to dealers (i.e. the ‘intercommunales’,

‘default suppliers’
such as ECS (Electrabel Customer Solutions) and
newcomers on the gas supply market
in Belgium
such as Essent and Nuon),

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Official Journal of the European Union

29.3.2007

— to large industrial customers,

capacity and storage reservations).

— to small industrial and commercial customers,

Gas in France

(8)

(9)

— to household customers;

the decision leaves

the
question open as to whether these markets are in
geographical terms either national or narrower (i.e.
regional,
in the form of Brussels, Flanders and
Wallonia with their respective liberalisation calendars),

— gas-fired power plants.

In all these markets, the parties would have very high
combined market shares and hold a dominant position.

The merger would remove the best-placed competitor of
the incumbent. Moreover, no other company would be
able to reproduce the same level of competitive constraint
as GDF. GDF's substantial market shares are arguably due
to a number of specific assets and advantages enjoyed by
GDF which no new entrant would possess to the same
extent. For instance, GDF is the historic operator in a
large neighbouring country, with access to a large and
including LNG; GDF has
diversified gas portfolio,
it owns L
priority access to H gas storage in Belgium;
gas storage capacity in France near
the border with
Belgium;
is co-owner of certain transit pipelines
through Belgium; and it shares control of certain entry
points with concomitant capacity reservations on entry
points. Moreover,
for L gas, new competitors on the
Belgian market like Nuon and Essent can only source
gas from Suez and GDF, who hold long-term contracts
with […] (*) and covering all […] *’s exports to Belgium
and France.

it

Finally, the Decision underlines that there are high barriers
to entry which strengthen the horizontal effects resulting
from the addition of market shares described above. The
barriers relate to access to gas (the merging parties have
access to most of the gas imported into Belgium, and they
hold almost all the long-term import contracts), access to
infrastructures (including the parties’ control over Fluxys,
the network operator, management of the transit network
network
by Distrigaz,
congestion),
in
is managed by Fluxys LNG, a
Belgium,
Suez affiliate), access to H gas storage in Belgium (the
French storage capacity, owned by GDF,
is the best
alternative outside Belgium), quality specifications and
the lack of liquidity on the Zeebrugge hub. While many
of these entry barriers pre-existed the merger, a number
of them are strengthened by it (e.g. pipeline ownership,

to LNG (the only terminal

access
in Zeebrugge,

insufficient

capacity,

entry

(*) Parts of this text have been edited to ensure that confidential infor-
mation is not disclosed; those parts are enclosed in square brackets
and marked with an asterisk.

(10) Concerning gas in France, the geographic markets taken
into account are based on the division of the country into
five balancing zones, North, West, East, South and South-
West. While the latter’s main transport network is
Infrastructure Gaz France (TIGF), a
managed by Total
wholly owned subsidiary of Total,
four are
managed by GDF Réseau Transport (GRTgaz), a wholly
owned subsidiary of GDF. According to the market inves-
tigation, the five balancing zones remain characterised by
separate competitive conditions, as illustrated particularly
by the congestions occurring between the different zones.

the first

(11) Taking into account this geographic subdivision into five
zones, the Decision identifies significant impediments to
effective competition in:

— the markets for the supply of H gas to large customers
who have exercised their right to choose their supplier
in the North, East, West and South zones, and for L
gas in the North zone,

— the markets

for

the supply of H gas

to small
customers who have exercised their rights to choose
their supplier in each of the five zones, and for L gas
in the North zone,

— the markets for the supply of H gas to local distri-
bution companies who have exercised their right to
choose their supplier in the North and East zones, and
for L gas in the North zone,

— the markets

for

supply of H gas

to household
the five
customers as of 1 July 2007 in each of
geographical zones, and for L gas in the North
zone. These markets will
for a
number of months. Nevertheless, the creation of the
new entity and the consequent disappearance of
Suez (1) as a competitor to GDF will have the effect
of discouraging other potential competitors,
thus
strengthening the already high entry barriers to this
market,

remain potential

(1) The Suez Group has built up a considerable position among large
industrial gas-supply customers (via Distrigaz) and already has
contacts with several million household customers as a water
distributor in France (via Lyonnaise des Eaux), which makes it one
of
the best-placed operators to compete against GDF once the
household customer market opens up on 1 July 2007.

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— the markets for the supply of H gas to gas-fired power
plants in the North and East zones and the supply of
L gas in the North zone. These markets are still
potential (1) but,
in the light of proposals to bring
such plants on stream within the next few years, the
operation would have the effect of removing the
operator best placed to compete against GDF.

In all these markets, GDF enjoys a dominant position. In
all cases, the disappearance of Suez (Distrigaz) from the
market strengthens the dominant player by removing one
of the best-placed and strongest competitors.

(12) As in the case of Belgium, the Decision explains how
significant barriers to entry, relating to access to gas
and infrastructures, strengthen the horizontal effects of
the merger. As far as access to gas is concerned, the
the gas
merging parties have
access
imported into France, and they hold almost all
the
long-term import contracts. As for gas infrastructure,
almost all of it (apart from infrastructure in the South-
West, which is owned and run by Total) is owned by
GDF, either directly or via its wholly owned subsidiary
GRTgaz.

to most of

— the national market for the supply of electricity to
small
industrial and commercial customers (<70kV),
in which the market share of SPE (GDF) strengthens
the already dominant position of Suez,

— the supply of electricity to household customers who
can choose their supplier, in which the parties would
secure and strengthen their dominant position on the
basis of both regional and national definitions of the
relevant geographic market.

(14)

In addition to the horizontal effects of the merger, the
Decision identifies a number of vertical effects which
strengthen the already dominant position of Suez in the
electricity markets in Belgium.

(15) Since gas

is an input

for electricity generation,

the
Decision identifies the ability of and incentives for the
parties to increase the cost of gas, and in particular to
increase the cost of the flexible supply of gas to gas-fired
power plants.

Electricity in Belgium

(13) The Decision identifies

significant

impediments

to

effective competition in the following markets:

(16) The Decision also highlights that the parties will have
access to the details of the most important cost element
of rivals’ gas-fired power plants, and hence to their pricing
and production policy.

through the merger,
absorbs

— the Belgian national market for the production and
wholesale of electricity:
the
its
Belgian incumbent Electrabel
largest competitor, whose power plants are situated
on the middle to top parts of the merit curve (2);
this further strengthens the merged entity’s capacity
to determine prices in the Belgian wholesale market
for electricity,

(Suez)

— the national market

and
for
balancing power, in which the merger combines the
only two suppliers of most of these services to the
transmission network operator Elia,

auxiliary

services

— the national market for the supply of electricity to
large commercial and industrial customers (>70kV),
in which besides Electrabel
(Suez) only RWE and
EDF are currently active (SPE (GDF) has just started
existing
operating recently);
dominant position of Electrabel
further
strengthened by the elimination of one of the only
two well-placed competitors (SPE (GDF) and EDF),

in this market,

the
is

(Suez)

(1) At the date of this Decision, GDF operated the only gas-fired elec-

tricity generating plant in France and supplied the gas for it.

(2) In a competitive market, electricity prices are set by the power plant
with the highest marginal costs producing electricity at any given
moment,
i.e. the producer at the top of the supply curve (often
called the ‘merit curve’ in the electricity sector).

(17) Since the parties are the prime suppliers of auxiliary
services and balancing power to Elia, the Decision ident-
ifies the ability of and incentives for the parties to increase
the cost of auxiliary services and balancing power to
rivals.

(18) A fourth vertical concern identified in the Decision is the
elimination of the only competitor to Suez at present
capable of making dual fuel offers (gas + electricity) to
small businesses and household customers.

(19) The Decision explains how substantial barriers to entry
relating to (i) access to electricity generation capacity, (ii)
green and CHP certificates, (iii) the illiquid nature of the
electricity trading market, and (iv) access to transmission
and distribution infrastructure strengthen the horizontal
effects of the merger.

District heating in France

are

(20) Among the several ‘energy-related services’ in which both
parties
competition
concerns for one of them: the nationally defined market
for the public service delegation of managing district
heating systems in France.

the operation raises

active,

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Official Journal of the European Union

29.3.2007

(21) Long-term contracts (12 to 24 years) to manage district
heating systems are currently granted by the munici-
palities concerned on the basis of an official tendering
process,
in which in practice only a handful of France-
based specialised companies participate. These suppliers
are: Dalkia
(Veolia Group), SES-Elyo (Suez Group),
Soccram (Thion Group) and Cogac (Cofathec-Coriance,
GDF Group). Cogac (GDF Group) has a substantial share-
holding in and arguably joint control of Soccram (Thion
Group).

(22) After the merger, the parties will be the largest player in
the market. The merger removes Cogac (GDF Group),
which has been a ‘maverick’ in the market, thus leading
to non-coordinated effects.

(23) The position of GDF as the dominant supplier of gas to
anyone participating in a tender to manage a district
heating system in France is a further factor reducing
competitive pressures in this market.

2. Commitments offered by the parties

(24)

In order to remedy the competition concerns identified by
the Commission, on 20 September 2006 the parties
submitted a package of commitments.

(25) Most answers to the market test showed that the vast
majority of
the commitments offered by the parties
were not sufficient to remove the competition concerns
raised by the notified operation.

(26) After being informed by the Commission on the results of
initial

the parties modified their

the market
commitments on 13 October 2006.

test,

The commitments proposed on 13 October 2006

(27) The commitments offered by the parties consist of five

main elements:

— the divestiture of Suez Group’s

In this context,

shareholding in
the merged entity may
Distrigaz.
request Distrigaz to supply it with gas for the needs
its electricity generating plants and of ECS's
of
customers. However,
the
since
related contracts is […] * years (from the date of the
the volumes
divestiture of Distrigaz)
concerned, those supply volumes will be limited and
decreasing in time,

the duration of

for most of

— the divestiture of Gaz de France’s 25,5 % shareholding

in SPE,

its activities.

the reorganisation of

(transport/transit, storage, Zeebrugge LNG terminal)
after
In this
scheme,
the management committee of Fluxys SA,
which will not be controlled by the parties, will be
the exclusive decision maker as regards the global
investment programmes concerning the regulated gas
infrastructures,

— a package of complementary measures concerning gas

infrastructures in Belgium and in France,

— the divestiture of Cofathec Coriance plus Cofathec
excluding Cofathec
networks,

Service’s
Coriance’s holding in Climespace and SESAS.

heating

Assessment of these commitments by the Commission

(28) On the basis of

consultation of

its assessment of

the information
in particular, of the
provided by the investigation and,
results of
the market
the previous
operators, the Commission considers that the modified
commitments proposed by the parties on 13 October
2006 are clear-cut and sufficient to remove the compe-
tition concerns
in
Belgium and in France, without
the need to run a
further market test, for the following reasons:

raised by the notified operation,

— the divestitures of Distrigaz, of GDF’s shareholding in
SPE, of Cofathec Coriance and of Cofathec Service’s
heating networks remove the overlaps between the
parties in all markets previously affected by compe-
tition concerns. These divestitures also remove vertical
foreclosure problems between gas and electricity
markets,

— the loss of control by the parties over Fluxys SA and
the remedies related to the gas infrastructures in
Belgium and in France are sufficient
to lower the
to entry to a degree that would allow
barriers
effective competition to develop.

D. CONCLUSION

a

in

number

of markets.

(29) The merger as notified would significantly impede compe-
tition
The modified
commitments offered by the parties on 13 October
2006 are sufficient to remove the competition concerns
identified. Therefore, and subject
full
compliance with the commitments made on 13 October
2006 and repeated on 6 November 2006, the Decision
concludes
compatible with the
common market.

to the parties’

the merger

that

is

— the relinquishment of any control — de facto or de
jure — over Fluxys SA, which will be the transmission
operator of all regulated gas infrastructures in Belgium

(30) The present Commission Decision therefore declares the
notified operation compatible with the common market
and the functioning of the EEA Agreement pursuant to
Article 8(2) of the Merger Regulation.