1. Introduction

This article represents an analysis of the application of Article 102 TFEU in the Case AT.39849 – BEH Gas, by which the European Commission decided that the behaviour of the Bulgarian Energy Holding group by which it refused access to other competitors to the infrastructure of transportation and storage of natural gas, thus maintaining a dominant position for the supply of gas on the markets, was anticompetitive and incompatible with the internal market (hereinafter “Commission’s Decision”).

The main aspects included in the analysis consists of the elements required by Article 102 TFEU in order for a practice to be considered as harming the internal market, the interpretation given by the case-law to the elements provided and their application to the case studied – Case AT.39849 – BEH Gas.

The topic analyzed in this article is of significant relevance to the observance of the European Union competitive principles, in order for the European Union to attain its aims of a competitive internal market, by preventing and sanctioning anticompetitive practices. The topic is relevant also from the perspective that the case at hand is pending before the General Court in case T-136/19, as the undertaking subjected to the Commission’s Decision lodged on 1 March 2019 an application for the annulment of the Commission’s Decision, raising seven pleas in law in support of the action brought on 1 March 2019 — Bulgarian Energy Holding and Others v Commission, Case T-136/19.

It is apparent that the European Commission rightfully determined that each condition required by Article 102 TFEU was fulfilled in the case and that the undertaking’s anticompetitive behaviour is incompatible with the internal market.

This article reviews each condition required by Article 102 TFEU for a practice to be deemed as incompatible with the internal market and their particular application to the case at hand: The economic unit is an undertaking (Section 2); The undertaking exercised a dominant position (Section 3); The undertaking’s dominant position exists in substantial part of internal market (Section 4); The undertaking’s behaviour constitutes an abuse (Section 5); The undertaking’s behaviour affected trade (Section 6).

2. The economic unit subject to the Commission’s Decision is an undertaking within the meaning of Article 102 TFEU

According to the ECJ case-law, the notion of undertaking involves an economic unit consisting of an unitary organization pursuing specific long-term economic aims (Judgment of 10 March 1992, Shell v Commission, Case T-11/89, EU:T:1991:38, para 311). There exists an undertaking within the meaning of Article 102 TFEU in the case of an unified conduct, even if from a legal perspective the economic unit is formally separated in several natural or legal persons (Judgment of 24 October 1996, Viho Europe BV v Commission, Case C-73/95P, EU:C:1996:405, para 50).

In the case at hand, the Bulgarian Energy Holding EAD is a main provider of natural gas transmission, supply and storage, owned solely by the Bulgarian State (hereinafter “BEH”).

According to the European Commission, for the purpose of Article 102 TFEU, BEH, Bulgargaz and Bulgartransgaz form part of the same undertaking, as BEH owns and controls the subsidiaries Bulgargaz and Bulgartransgaz, through which it exercises the main supply and transportation of natural gas in Bulgaria (hereinafter together referred to as the “Undertaking”). In their ordinary course of business, Bulgargaz and Bulgartransgaz do not have autonomy of decision.

The Undertaking’s corporate structure is built as to allow BEH to participate in the management and control of Bulgargaz and Bulgartransgaz, by appointing and dismissing the members of the management boards of the two subsidiaries, by approving their business plans through the appointed members in the management, by deciding the conclusion of contracts by its subsidiaries allowing access to the gas infrastructure. Bulgargaz and Bulgartransgaz act as the same undertaking in the dealings made between, with various exchange of information.

Moreover, BEH participated directly in the practices of refusal to the access of third parties to the gas infrastructure, fully controlling the actions of its subsidiaries, as well as in the hoarding of the gas capacity.

Under these circumstances, the Undertaking forms a single economic, thus being an undertaking within the meaning of Article 102 TFEU, considering that the subsidiaries Bulgargaz and Bulgartransgaz are engaged in economic activities under the same umbrella, with direct control from the main company – BEH –, which exercises a dominant influence over their business operations.

3. The Undertaking exercised a dominant position in the relevant markets within the meaning of Article 102 TFEU

Article 102 TFEU provides that there must exist a dominant position in order to determine its applicability. However, the concept of dominant position is not explained by Article 102 TFEU, its meaning being determined from case to case by courts. In this respect, the European Court of Justice case-law developed criteria for the interpretation of the notion of dominant position within the meaning of Article 102 TFEU.

A dominant position is a position of economic strength which creates the environment for an undertaking to behave independently of its competitors and customers, therefore enabling the undertaking to hinder the competition on the relevant market. An important factor to be taken into consideration when establishing the existence of a dominant position is the degree of possession of a significant market share on the relevant product or service market. The ECJ held that a market share around or over 50% creates a relative presumption of dominance.

The existence of a dominant position in the particular case at hand must be examined in light of the above-mentioned criteria. However, the dominant position itself is not prohibited, but renders certain restrictions to the undertakings, establishing a special responsibility not to harm competition by practices of weakening competitors or preventing potential competitors to enter the market.

As the Commission presented in the Commission’s Decision, based on the ECJ case-law, in order for a dominant position to exist, there must exist a substantial market power allowing the undertaking to exercise an “appreciable influence” on the competition.

In order to determine the relevant market, the Commission constantly held that the relevant market for supply of natural gas is separate from the market of transportation. For the purpose of the Commission’s Decision, the Commission distinguished between different relevant markets – the gas capacity of the Bulgarian transmission network, the gas capacity on the Romanian Transit Pipeline 1, gas storage capacity at the only underground gas storage facility in Bulgaria – UGS Chiren, downstream wholesale gas market and retail gas market.

In this respect, the European Commission decided that the Undertaking exercised a dominant position by the facts that (1) Bulgargaz booked the full capacity of gas on the Romanian Transit Pipeline 1, (2) the singular underground storage site in Bulgaria – UGS Chiren – was owned and controlled by Bulgartransgaz, (3) Bulgargaz was in different periods, either the only entity that imported natural gas in Bulgaria, or the entity importing over 90% of the total gas imported into Bulgaria, thus dominating the wholesale supply gas market, (4) Bulgargaz exercised a close to monopoly position by supplying almost all end customers in Bulgaria.

In the case at hand, the Undertaking argued that the Commission should have distinguished between the primary and secondary markets when assessing the relevant market in relation to the capacity services related to the Romanian Transit Pipeline 1, as it alleged that it could not have provided the unused gas to the secondary market. The Undertaking also argued that in previous cases the Commission did not refer to capacity markets, but to a mere “market for the transport of natural gas”, referring to ENI and GDF cases.

Notwithstanding the Undertaking’s arguments, the Commission held that the Undertaking was not prohibited to provide access to third parties on the secondary market and that the Undertaking had exclusive access to the pipeline by booking its complete capacity. In doing so, the Commission concluded that “the market definition needs to reflect the market reality”.

Particularly in the ENI case, the Commission held that the entirety of the infrastructure used for importing natural gas constitutes one relevant market (Commission Decision relating to a proceeding under Article 102 TFEU and Article 54 of the EEA Agreement, Case COMP/39.315 – ENI, paras 26-28).

In this context, the European Commission made a fair assessment of the existence of a dominant position, as the Undertaking possessed significant market shares in all relevant markets in which it conducted operations.

4. The Undertaking’s dominant position exists in substantial part of internal market within the meaning of Article 102 TFEU

Article 102 TFEU conditions the dominant position to exist in substantial part of the internal market. This concept is not defined by Article 102 TFEU, but it has been interpreted by the ECJ case-law. In order to determine the substantial part of the internal market, must be taken into consideration the pattern and the volume of the production and consumption of a product in a specific territory, as well as the habits and economic opportunities (Judgment of 16 December 1975, Coöperatieve Vereniging “Suiker Unie” UA and others v Commission, Joined cases 40 to 48, 50, 54 to 56, 111, 113 and 114-73, EU:C:1975:174, para 371).

If the market shares of an undertaking are large enough for a specific territory, the position is to be considered as substantial part of the internal market (Coöperatieve Vereniging “Suiker Unie” UA and others v Commission, para 375).

The Undertaking’s position covered the entire state of Bulgaria, making it difficult for third parties from other member states to join the gas supply market, thus creating the circumstances of affecting the trade.

Similarly, in the ENI case, the Commission decided that the importing gas transport and the supply markets in Italy are of particular economic importance to the entire internal market and may constitute a substantial part thereof (Commission Decision relating to a proceeding under Article 102 TFEU and Article 54 of the EEA Agreement, Case COMP/39.315 – ENI, para 38).

5. The Undertaking’s behaviour constitutes an abuse within the meaning of Article 102 TFEU

Article 102 TFEU does not define the concept of abuse, but provides with a non-exhaustive list of examples of practices that may constitute an abuse, among which the limiting of markets to the prejudice of consumers.

The concept of abuse is defined by the ECJ as a behaviour which has the effect of hindering the competition (Judgment of 13 February 1979, Hoffmann-La Roche and Co. AG v Commission, Case 85/76, EU:C:1979:36, para 91). However, there exists no requirement to demonstrate a concrete effect of the abusive conduct on the relevant market, but it is sufficient for an abuse to exist whenever the conduct of the undertaking is capable of restricting the competition (Judgment of 29 March 2012, Kingdom of Spain v Commision, Case T‑398/07, EU:T:2012:173, para 90; Judgment of 9 September 2009, Clearstream Banking AG and Clearstream International SA v Commission, Case T-301/04, EU:T:2009:317, para 144).

In the case at hand, the Undertaking restricted the competition on the internal market by refusing third parties’ access to the national transmission network, capacity and storage, by preventing other competitors to compete with the Undertaking, conduct aiming at protecting the Undertaking’s dominant position on the gas market. In doing so, the Undertaking engaged in delaying tactics such as prolonging negotiations, failing to reply to requests, posing unreasonable conditions to applicants, misinterpreting requests or misleading applicants. As a result of the Undertaking’s actions, several companies were hindered from accessing the gas infrastructure. The same conclusions were made by the Commission in the ENI case, that the behaviour to limit access to gas infrastructure has an anticompetitive effect in the gas market (Commission Decision relating to a proceeding under Article 102 TFEU and Article 54 of the EEA Agreement, Case COMP/39.315 – ENI, para 50).

Moreover, the Undertaking’s conduct was also contrary to the legislation applicable for transmission operators, which obliges TSOs to provide access to third parties to the transmission network and to storage. Regulation (EC) 715/2009 establishes requirements for non-discriminatory access to the national gas system. Directive 2009/73/EC establishes that access to transmission systems and storage should be provided to third parties in an objective, transparent and non-discriminatory manner.

The Undertaking’s arguments that the requests for access were improper and that only Bulgargaz operated as a supplier were not accepted by the Commission, as there was no model access contract that should have been respected by the competitors and there was at least another company supplying gas in Bulgaria – Overgas.

Under these circumstances, limiting third parties’ access to capacity, transmission and storage hinders competition, by creating barriers to the gas market, in the context that competitors did not have other alternatives. Article 102 TFEU provides with a non-exhaustive list pursuant to which an abuse may consist in limiting markets to the prejudice of consumers.

The Undertaking argued that its actions were objectively justified or at least taken in mitigating circumstances, due to a supplier’s practice. The Commission did not accept this argument, holding that supplier’s violation of EU law shall not justify the violation of the EU law by the Undertaking and that such conduct is not acceptable if the actual purpose of the actions is to strengthen the undertaking’s dominant position and abuse it.

The Commission could have made two steps further into the analysis.

First, the Commission could have assessed whether or not the Undertaking’s actions were a sine qua non condition for the supplier’s unfair practice against the Undertaking to stop – in other words, if the actions of the Undertaking were the only market actions that could have been taken to block the supplier’s unfair practice. Although not even in this case the Undertaking’s actions would have been justified, as it had legal mechanisms available to put an end to the supplier’s unfair practice, the mitigating circumstances could have been reconsidered in reducing the fine applied to the Undertaking.

Second, the Commission limited its argument that a behaviour is not acceptable “if” the actual purpose is to strengthen the dominant position and abuse it, without expressly assessing that the actual purpose of the Undertaking was to do so. Therefore, in this regard, the argumentation of the Commission could have been more complete.

6. The Undertaking’s behaviour affected trade within the meaning of Article 102 TFEU

Article 102 TFEU prohibits any abuse that may affect trade between Member States. From the wording of this provision it results that the affecting of trade does not have to be effective, but only potential, in order for the abuse to be prohibited. In other words, the abuse has to have a sufficient degree of probability to be capable to influence trade between Member States. However, it is established case-law that it is sufficient to determine that the behaviour of eliminating competitors will affect the competition on the internal market and it is not necessary to determine that the undertaking’s behaviour also affects trade between Member States (Judgment of 14 February 1978, United Brands Company and United Brands Continentaal BV v Commission, Case 27/76, EU:C:1978:22, para 201).

The Commission decided that the Undertaking’s behaviour was capable of impeding imports and hindering third parties’ from competing on the gas market in Bulgaria, thus affecting trade between Member States. The Commission’s Decision is in line with its precedents, by which it assessed that the practices in question represent abuses of dominant position with exclusionary effect, which form a different pattern than that of a competitive market (Commission's Decision of 11 October 2007 in Case COMP/B-1/37966 – Distrigaz; Commission's Decision of 8 July 2009 in Case COMP/39.401 - E.On/Gdf).

7. Conclusion

According to the European Commission, BEH and its subsidiaries Bulgargaz and Bulgartransgaz adopted an anticompetitive practice of third parties’ refusal to access the transportation, storage and capacity hoarding, against the general principle of establishing an internal market by ensuring competition; The BEH group represented an undertaking exercising a dominant position in a substantial part of internal market, undertaking that adopted practices constituting an abuse by which it affected trade between Member States, thus infringing Article 102 TFEU.

The case is still pending, as the BEH Group filed on 1 March 2019 an application for the annulment of the Commission’s Decision, raising seven pleas in law in support of the action brought on 1 March 2019 — Bulgarian Energy Holding and Others v Commission, Case T-136/19.

By Andrei Diaconescu