CELEX: 32014M7272
Language: en
Date: 2014-08-07 00:00:00
Title: Commission Decision of 07/08/2014 declaring a concentration to be compatible with the common market (Case No COMP/M.7272 - FORTUM CORPORATION / OAO GAZPROM / AS EESTI GAAS / AS VORGUTEENUS VALDUS) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

|[pic]                             |EUROPEAN COMMISSION                                                                                      |

                                        Brussels, 7.8.2014
                                        C(2014) 5798 final

                                        [pic]

                                        |To the notifying party:                                                |                                                                       |

Dear Sir/Madam,

Subject:    Case M.7272 Fortum Corporation / OAO Gazprom / AS Eesti Gaas / AS Vörguteenus Valdus
         Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004[1]

    1) On 2/7/2014 the European Commission received the notification of a proposed concentration pursuant to Article 4 of the  Merger  Regulation
       by which the undertakings Fortum Corporation ('Fortum', of Finland) and OAO Gazprom ('Gazprom', of Russia) acquire within the  meaning  of
       Article 3(1)(b) of the  Merger Regulation joint control of the undertakings AS Eesti Gaas ('EG', of Estonia)  and  AS  Vörguteenus  Valdus
       ('Valdus', of Estonia) by way of purchase of shares[2]. Fortum and Gazprom are designated hereinafter as the 'Notifying  Parties'  and  EG
       and Valdus as the 'Targets'.

       THE PARTIES

    2) Fortum is a Finnish-based energy group, primarily active in the  Nordic  countries  and  the  Baltics,  whose  core  business  covers  the
       generation, distribution and the sale of electricity and heat, the operation and maintenance of power plants, as  well  as  energy-related
       services.

    3) Gazprom is a Russian-based energy group active in the exploration, production, transportation, refining and marketing of natural  gas  and
       petrochemical products.

    4) EG is a public limited company established in Estonia that is engaged in the import and sale of natural gas and, to a minor extent, in the
       sale of electricity.

    5) Valdus is a public limited company established in Estonia active as the gas transmission system operator (“TSO”) in Estonia.

       THE TRANSACTION AND THE CONCENTRATION

    6) EG's and Valdus' current shareholders are Gazprom 37.03%, E.ON 33.66%, Fortum 17.72 %, Itera Latvija 10% and others 1.6 %. EG  and  Valdus
       are currently under the joint control of E.ON and Gazprom.

    7) E.ON and Fortum entered into a share purchase agreement by which E.ON will sell its shares in EG and Valdus.  After  the  transaction  the
       corporate structure of the Targets will be the following: Gazprom 37.03%, Fortum 51.38%, Itera Latvija 10% and others 1.6 %.  The  Targets
       will be jointly controlled by Gazprom and Fortum.

    8) The Supervisory Board of the Targets is responsible for approving the business plan, annual budget and investment plan. In addition, it is
       responsible for supervising and appointing the Board of Directors/Management Board of the Targets.

    9) Decisions in the Supervisory Board of the Targets can be adopted only if 75% of members are present and the quorum for decisions is 75% of
       the votes. The Supervisory Board will be composed of 11 members: Gazprom 4 members (37.03% of total votes); Fortum 5  members  (51.38%  of
       total votes); Itera Latvija 1 member (10 % of total votes) and others 1 member (1.6 % of total votes). Accordingly Gazprom and Fortum will
       be capable of blocking strategic commercial decisions.

   10) By way of this transaction Fortum and Gazprom will therefore acquire joint control over the Targets.

   11) The proposed transaction therefore constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

       EU DIMENSION

   12) The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million[3] (Fortum:  EUR  6  056  million;
       Gazprom: EUR 123 941 million; Targets combined: EUR 220 million). Each of at least two  of  the  undertakings  concerned  has  an  EU-wide
       turnover in excess of EUR 250 million (Fortum: EUR […] million; Gazprom more than EUR 250 million; Targets combined: EUR 220 million), but
       they do not achieve more than two-thirds of their aggregate EU-wide turnover within one and  the  same  Member  State.  The  concentration
       therefore has an EU dimension within the meaning of Article 1(2) of the Merger Regulation.

       MARKET DEFINITION

        Downstream wholesale supply of gas

   13) Regarding the product market definition, the Commission previously defined the downstream wholesale supply of gas as an activity where gas
       wholesalers procure gas from producers for resale to other wholesalers or downstream distributors.[4]

   14) Regarding the geographic market definition, the Commission previously delineated the downstream wholesale supply  markets  along  existing
       regional grid areas.[5]

   15) The Commission considers that the exact product and  geographic  market  definition  can  be  left  open  in  this  case  as  the  present
       concentration does not raise serious doubts under any plausible market definition.

       Retail supply of gas

   16) Regarding the product market definition, the Commission previously considered that the retail  supply  of  gas  could  be  segmented  into
       separate markets: 1) retail supply of gas to gas fired power plants; 2) retail supply of gas to  large  industrial  customers;  3)  retail
       supply of gas to small industrial customers; 4) retail supply of gas to household customers.[6]

   17) As to the geographic market definition, the Commission has generally considered that the markets for retail supply of gas are national and
       the market for retail supply of gas for households is regional in scope.[7]

   18) The Commission considers that the exact product and geographic market definition can be left open in this case as the  concentration  does
       not raise serious doubts under any plausible market definition.

       District heating

   19) Regarding the product market definition, the Commission previously regarded the provision of  district  heating  services  as  a  separate
       market.[8]

   20) Regarding the geographic market, the Commission considered the market as local or limited to the relevant district heating network.[9]

   21) The Commission considers that the exact product and geographic market definition can be left open in this case as the  concentration  does
       not raise serious doubts under any plausible market definition.

       COMPETITIVE ASSESSMENT

   22) The transaction whereby Fortum replaces E.ON as a jointly controlling shareholder  with  Gazprom  in  EG  and  Valdus  leads  to  affected
       markets[10] only in Estonia. With regard to the acquisition of EG the concentration results in (1) a horizontal overlap  on  the  Estonian
       market for retail supply of gas to small industrial customers. The concentration also leads to vertical overlaps in  Estonia  between  the
       markets for (2) downstream wholesale supply of gas and the retail supply of gas to small industrial customers and (3) the retail supply of
       gas to large industrial customers and district heat facilities and district heating.

       Horizontal overlap – retail supply of gas to small industrial customers

   23) EG is active on the market for retail supply of gas to small industrial customers in Estonia. It has a market share  of  around  [70-80]%.
       Fortum resells only very small quantities of gas to […] small industrial customers in Estonia corresponding to a market share of [0-5]%.

   24) Therefore, the concentration entails only a marginal overlap and brings about a very small increment on the market for  retail  supply  of
       gas to small industrial customers in Estonia.

   25) In addition, the Commission notes that there are a number of competitors active on the market for retail supply of gas to small industrial
       customers such as Adven Eesti AS with a market share of around 20 %, Energate OU with a market share of below 10 % market share and  Gasum
       Eesti AS with a market share of less than 3 %.

   26) In view of the above, and particular the very limited increment in market shares the Commission considers that the proposed  concentration
       does not raise serious doubts as a result of the horizontal overlap on the market for retail supply of gas to small  industrial  customers
       in Estonia.

       Vertical overlap – downstream wholesale supply of gas and retail supply of gas to small industrial customers

   27) EG is active on the market for downstream wholesale supply of gas in Estonia. EG is the only wholesale supplier of gas in Estonia.  Fortum
       is active on the market for retail supply of gas to small industrial customers in Estonia. Fortum's  retail  supply  activity  represents,
       however, only [0-5]% of the market.

   28) Fortum currently purchases its gas requirements from EG. Fortum’s purchases from EG represent  around  [0-5]%  of  the  entire  downstream
       wholesale market in Estonia.

   29) In view of the above, and in particular EG's pre-existing position on the market for downstream wholesale supply of  gas  in  Estonia  and
       Fortum's negligible activity on the market for retail supply of gas in Estonia, the transaction is unlikely to lead to any form  of  input
       or customer foreclosure. The Commission therefore considers that the proposed concentration does not lead to serious doubts as a result of
       this vertical overlap.

       Vertical overlap – retail supply of gas and district heating

   30) EG is active in the retail supply of gas including the supply of gas to large industrial customers  and  district  heating  facilities  in
       Estonia. EG's market share in this segment is close to 100 %.  Fortum has two district heating plants in Estonia: Pärnu  and  Tartu.    If
       each district heating plant was considered a separate market Fortum would hold a monopoly position.

   31) The gas purchased by Fortum for the district heating plants in Pärnu and Tartu accounts for  approximately  [0-5]%  of  the  total  retail
       supply of gas in Estonia and less than [0-5]% of the total retail supply of gas to gas powered plants in Estonia.  Pre-transaction  Fortum
       purchases all gas required for its district heating plants from EG.

   32) In view of the above, and in particular the pre-existent position of Fortum as a minor buyer of gas for its district heating  plants,  the
       transaction is unlikely to lead to any form of input or customer  foreclosure.  The  Commission  therefore  considers  that  the  proposed
       concentration does not lead to serious doubts as a result of this vertical overlap.

       CONCLUSION

   33) For the above reasons, the European Commission has decided not to oppose the notified operation and to  declare  it  compatible  with  the
       internal market and with the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of the Merger Regulation.

                                        For the Commission

                                        (signed)
                                        Martine REICHERTS
                                        Member of the Commission

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[1]   OJ L 24, 29.1.2004, p. 1 ('the Merger Regulation'). With effect from 1 December 2009, the Treaty on the Functioning of the  European  Union
      ('TFEU') has introduced certain changes, such as the replacement of 'Community' by 'Union' and 'common market' by  'internal  market'.  The
      terminology of the TFEU will be used throughout this decision.

[2]   Publication in the Official Journal of the European Union No C 219, 11.7.2014, p. 10.

[3]   Turnover calculated in accordance with Article 5 of the Merger Regulation.

[4]   COMP/39.315 – ENI.

[5]   Case M.6984, EPH/Stredeoslovenska Energetika.

[6]   Case M.6984, EPH/Stredeoslovenska Energetika. Case M.6068 ENI/ACEGASAPS/JV.

[7]   Case M.6984, EPH/Stredeoslovenska Energetika. Case M.6068 ENI/ACEGASAPS/JV.

[8]   Case M.5365 IPO/ENBW/PRAHA/PT.

[9]   Case M.5365 IPO/ENBW/PRAHA/PT.

[10]  See section 6.3 of the form CO annexed to the Commission Implementing Regulation (EU) No 1269/2013  of 5 December  2013  (14.12.2013  OJ  L
      336/1).

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 In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EC)  No  139/2004
 concerning non-disclosure of business secrets and other confidential information.  The  omissions  are  shown  thus  […].  Where  possible  the
 information omitted has been replaced by ranges of figures or a general description.

                                                                  PUBLIC VERSION

                                                                 MERGER PROCEDURE