REGULATORY: EU Competition Law: Greek Public Power Company Wins EU Court Challenge

by King & Spalding
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[author: Suzanne Rab]

The EU General Court has decided in favour of the Greek state-owned power company Public Power Corporation (PPC) against a European Commission decision sanctioning the utility’s continued virtual monopoly rights over lignite or “brown coal.” The European Commission found that Greece had infringed EU law by granting PPC quasi-exclusive rights for access to lignite deposits in Greece. According to the General Court’s 20 September 2012 ruling, the European Commission had failed to identify and establish to a sufficient legal standard the resulting actual or potential abuse of a dominant position by PPC in order to support a finding of an infringement of EU competition law.

Legal Framework – Interface between Article 106 and 102 TFEU

Before considering the background to and implications of the judgment, it is useful to set out the relevant legal framework at issue. The case revolves around the juxtaposition of two key provisions of EU law and provided a relatively rare opportunity for the General Court to clarify the relationship between those provisions.

Article 106(1) of the Treaty on the Functioning of the EU (TFEU) imposes an obligation on member states not to enact nor to maintain in force measures contrary to the provisions in the Treaty. This includes, in particular, the competition rules in situations that involve public undertakings and undertakings to which member states grant “special or exclusive rights”. Where a state measure confers on a dominant public undertaking unequal advantages, it can constitute a violation of Article 106(1) in combination with the EU competition law prohibition of abuse of dominance contained in Article 102 TFEU (or Article 101 TFEU concerning restrictive agreements, although this was not in issue in the present case).

The prohibition in Article 106(1) TFEU is addressed to member states, whereas the prohibition in Article 102 TFEU (and Article 101 TFEU) is addressed to undertakings (companies). An infringement of Article 106(1) TFEU cannot be established unless the state measure in question results in an actual or potential infringement of Article 102 TFEU.

Background

Almost all lignite deposits in Greece are owned by the Greek state. Lignite has characteristics that place it somewhere between coal and peat. About 50 - 60 per cent of total electricity generated in Greece is from lignite-fired plants and it is the cheapest fuel available.

The Greek state grants exploration and exploitation rights for lignite deposits. PPC, in which Greece holds a 51 per cent interest, holds approximately 91 per cent of all such rights, by volume. PPC produces most of its electricity from lignite and is reported to be the second largest producer of brown coal in the EU. PPC is also the holder of two of the three deposits for which exploitation rights remain to be granted. Greece has about 2000 million tonnes of lignite which is not yet exploited.

On 5 March 2008, the European Commission announced a decision that the state measures adopted by Greece to grant to PPC quasi-exclusive access to lignite infringed Article 106(1) TFEU, in combination with Article 102 TFEU. The European Commission considered that the grant of such rights enabled PPC to enjoy a virtual monopoly in respect of access to lignite. The European Commission in the contested decision found that the state measures created a situation of inequality of opportunity between economic operators as regards access to the primary fuel for the purpose of generating electricity in Greece. According to the European Commission, this resulted in a potential abuse of PPC’s dominant position in the market for the supply of electricity to large industrial customers.

General Court Ruling

The General Court in annulling the European Commission’s decision made the following points of significance when considering the application of Article 106(1) TFEU in conjunction with Article 102 TFEU.

First, an abuse of a dominant position by an undertaking enjoying a special or exclusive right may either result from the possibility of exercising that right in an abusive manner or be a direct result of the grant of that right.

Second, the mere fact that an undertaking is in an advantageous situation compared with its competitors, as a result of a state measure, is not in itself sufficient to constitute an abuse of a dominant position.

Third, the General Court considered that the case law did not support that it was sufficient to establish that a state measure distorted competition by creating inequality of opportunity between economic operators without it also being necessary to identify and establish the (actual or potential) abuse of the dominant position of the relevant undertaking.

Accordingly, the General Court considered that the European Commission’s decision could not stand because it had failed to identify and establish to a sufficient legal standard to what abuse the state measure had led or could lead on the part of PPC.

The annulment of the decision appears to result from the failure of the European Commission to explore in a sufficiently explicit and well-articulated manner the nature of any actual or potential future abuse by PPC. In these circumstances, the General Court considered that it had no option but to overrule the European Commission.

In light of the General Court’s ruling and its acceptance that the mere possibility of an abuse would, if identified and established, be sufficient to find a violation of Article 106(1) in combination with Article 102, it may be asked how explicit such reasoning needs to be. On this point, the General Court reviewed and noted a few contrasting cases, amongst the following.

In Connect Austria (Case C-462/99, [2003] ECR I-051197) a public undertaking enjoying an exclusive right to operate an analogue mobile telecoms network received (at no charge) an allocation of frequencies allowing it to be the only operator to offer the complete range of mobile services that were technically available. Connect Austria, a new entrant, was granted for payment a licence for the provision of mobile communications services on the same frequency. The Court found that the state measures in question created a situation of distorted competition where inequality of opportunity could not be guaranteed. In particular, the public incumbent operator did not have to pay for access which created a situation where it could offer reduced rates which could not be matched by Connect Austria.

In Dusseldorp and Others (Case C-203/96, [1998] ECR I-4075) the Netherlands had designated the company AVR Chemie CV as the sole end-processor for the incineration of dangerous waste in a high-performance rotary furnace. Chemische Afvalstoffen Dusseldorp BV, another company, was refused authorization to export its oil filters, being dangerous waste, to Germany, on the ground that, in accordance with the Dutch national provisions, treatment of that waste was to be carried out by AVR Chemie. The Court found that the prohibition on Chemische Afvalstoffen Dusseldorp amounted, in practice, to imposing an obligation on it to deliver its waste for recovery to AVR Chemie which held the exclusive right to incinerate dangerous waste, even though the quality of processing available in another member state was comparable to that performed by the national undertaking. Distinguishing this case from the appeal before it, the General Court noted that “[t]he fact remains, however, that the Court identified the abuse to which the Netherlands statute led the undertaking holding a dominant position, namely the limitation of outlets to the detriment of consumers within the meaning of Article [102(b) TFEU]”.

Bigger Picture

For completeness, also on 20 September 2012 the General Court gave judgment on an appeal brought by PPC against a decision of the European Commission to accept commitments from Greece to ensure fair access to lignite deposits. Greece has agreed to hold public tenders to grant rights of exploitation to four lignite deposits. Since the commitments decision was based on the European Commission infringement decision, the General Court also struck down the commitments decision.

As a separate development, Greece has announced plans to scale down the operations of PPC and to dispose of a portion of its lignite operations as part of the state disposals needed to comply with the EU/ IMF bailout package. Thus, PPC will most likely sell part of its operations irrespective of the General Court ruling. Nevertheless, the judgment is important in affirming that the European Commission must identify and establish specific (actual or potential) abuses to support an infringement of Article 106 in combination with Article 102.

The European Commission can appeal the General Court’s rulings on points of law only and says that it will “carefully analyse” the verdicts. Since Article 106 (in combination with Article 102) cases tend to be relatively rare, it remains to be seen whether the European Commission will take the case further to seek to uphold its decision and reasoning. At the very least, in future cases the European Commission will likely want to explore in much greater detail any specific actual or future possible abuses that it maintains flow from a state measure, and even where it considers that potential abusive behaviours may seem self-evident.

Source: Case T-169/08, judgment of 20 September 2012.

 Suzanne Rab
 London
 +44 20 7551 7581
 srab@kslaw.com

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