Earlier this year, the Commission for Protection of Competition (“CPC”) was approached with a request to authorize a concentration between a French holding company and another French joint-stock company exercising control over a number of Bulgarian companies active in the energy market.
In its decision, the CPC addressed the issue of the scope of the energy market. The production and wholesale sale/supply of energy, both as a product market and as a geographical market, is a topical issue in Bulgaria, as well as in Europe more broadly.
1. Authorization for concentration
A concentration between companies may be carried out through merger, consolidation, or acquisition of control over another company. Control, simply put, means the ability to exercise decisive influence over key decisions of an enterprise, such as market policy, asset management, composition of management bodies, and others.
The CPC must be notified in advance if certain thresholds of annual turnover among the participating companies are reached. This concerns market players with significant financial dimensions.
The reason why CPC authorization is required in such cases lies in the very purpose of the Law on Protection of Competition. The goal is to ensure a competitive environment with free economic initiative, without market “players” of such size, control, and influence that could lead to the prevention, restriction, or distortion of these principles.
2. Factors
The application of the provisions on concentration requires defining the scope of the relevant market. It is only within the boundaries of the relevant market that we can even speak of competition between economic operators. Otherwise, they would not be in a position to negatively affect the competitive environment in relation to one another.
To outline the market scope, the CPC examined it in two aspects – product-oriented and geographic.
3. The CPC’s interpretation
To determine the product scope of the market, the CPC combined several elements. These are the production of energy as well as its subsequent sale, respectively supply. This understanding is also shared by the interpretations of the European Commission (“EC”). The market thus defined includes both energy produced on the territory of Bulgaria and energy imported from abroad through interconnectors with other countries.
This leads us to the elements of sale and supply. Here, an important clarification was made – the defined product market includes the first sale, respectively supply, of energy within a given geographic territory, but not the subsequent trade of the same energy between market participants.
In its decision, the CPC does not distinguish between the different types of energy production. The same approach is taken by the EC – for example, energy produced by a gas power plant belongs to the same product market as energy produced from renewable energy sources.
Finally, the CPC also examined the geographic scope of the market. Once again in line with the EC, it accepted that the scope is national. In the case at hand, one of the participating companies owns hydroelectric power plants on the territory of Bulgaria. The energy from them, with the help of the existing energy distribution network, can be delivered practically to any point in Bulgaria. This is precisely the main factor for the CPC to equate the boundaries of the geographic market scope with the national borders of Bulgaria.
The news above is for information purposes only. It is not (binding) legal advice. For a thorough understanding of the subjects covered and prior acting on any issue discussed we kindly recommend Readers consult Ilieva, Voutcheva & Co. Law Firm attorneys at law.
