The Commission’s Bulgarian gas decision explodes

February 20, 2024
7 minutes

In October 2023, the General Court of the European Union (GC) entirely annulled the European Commission’s (Commission) 2018 decision to fine Bulgarian Energy Holding Group (Bulgarian Energy) €77 million for abusing its dominant position.  The GC held that (i) Bulgarian Energy had not abused its dominant position in the gas supply market in Bulgaria, and (ii) their rights of defence had been infringed.  This is a rare example of an appeal against a Commission decision under Article 102 TFEU (Abuse of a Dominant Position) that is successful in its entirety.

Network of players

Bulgarian Energy is a vertically integrated, state-owned energy company, licensed to act as the exclusive public supplier of gas in Bulgaria through Bulgargaz.  It also operates Bulgaria’s gas infrastructure through Bulgartransgaz.

During the investigated period, Bulgaria’s gas supply depended largely on Russian imports transported through Ukraine and Romania via the Romanian Transit Pipeline 1 (the Pipeline). From 2005 to 2016, Bulgargaz was granted exclusive use of the Pipeline, making Bulgargaz the exclusive public gas supplier in Bulgaria.  In the meantime, Bulgartransgaz operated the Bulgarian Transmission Network (the Network), distributing gas in Bulgaria, and Bulgaria’s only natural gas storage facility in Chiren (Storage Facility).

In 2010, Overgas, a private company in the Bulgarian natural gas sector, complained to the Commission about Bulgarian Energy’s allegedly anticompetitive practices.

Infrastructure of the infringement 

The Commission found that Bulgarian Energy’s operated and controlled infrastructure was “indispensable” to third parties wanting to compete on the gas supply market in Bulgaria. Bulgarian Energy was dominant in capacity-related services on the Pipeline, the Network and Storage Facility, as well as on the downstream wholesale gas market (supplied via the Network) and the retail supply of gas to customers connected to the Network. 

The Commission found that Bulgarian Energy abused this dominant position from July 2010 to January 2015 by:

  • Preventing, restricting and/or degrading access to the Network and Storage Facility;
  • Designing discriminatory access rules for storage which ensured that priority access was given to Bulgargaz; and
  • Hoarding capacity on the Pipeline.

Bulgarian Energy’s supply of compelling arguments

Bulgarian Energy appealed, and the GC annulled the Commission’s decision in its entirety, finding that the Commission had not adduced “firm, precise and consistent evidence… to establish to the requisite legal standard” that the alleged conduct constituted a refusal of access to third parties to the Pipeline, as well as to the Network.

An anticompetitive refusal requires a genuine request to supply

  • The Commission cited a refusal to supply “C Energy Group” to demonstrate Bulgargaz’s abuse of dominant position. However, the GC found that C Energy Group had not presented Bulgargaz with a “sufficiently precise and serious request”, and that C Energy Group did not yet operate in the gas sector and its plan to enter the market was “only at a preliminary, or even exploratory, stage”. There was no genuine request for Bulgargaz to respond to and thus, no refusal to supply under Article 102 TFEU.  Bulgargaz’s contractual exclusivity to the Pipeline did not in itself constitute an abuse.

The dominant company should have a reasonable period of time to respond to a request

  • The Commission found that Bulgargaz had initially refused Overgas access to the Pipeline, by delaying access and following a non-transparent and discretionary procedure. The Commission also criticised the short duration of the access granted (three months) and the uncertainty of conditions for an extension (which was later granted for nine months). 
  • The GC upheld Bulgarian Energy’s defence, including that: (i) Overgas’ earlier requests for access were made to Transgaz and could not be attributed to Bulgarian Energy, (ii) there was no delay in granting access from receipt of a request, and (iii) the initial duration of the 2013 access agreement with Overgas did not have a proven ability to produce exclusionary effects on the Bulgarian gas supply markets and was not an abuse of dominant position.
  • With regards to Bulgarian Energy’s defence that there was no delay in granting access from receipt of a request, the GC noted that while there was no contractual or regulatory deadline by which Bulgargaz had to grant access, as a dominant undertaking with control of access to the Pipeline, it should be “within a reasonable period of time”. The GC thus assessed the communications between Bulgargaz and Overgas from November 23, 2012 (when Overgas’ request was received) to January 21, 2013 (when the pipeline access agreement was signed, with retroactive effect), and noted Bulgargaz’sconstructive attitude” (which Overgas had thanked Bulgargaz for), and found that access had not been delayed.

The refusal must result in anticompetitive effects

  • With regards to the third defence, the GC found that the initial contract had no potentially anticompetitive effect on the Bulgarian gas supply markets, but rather “enabled competition to be dynamic by allowing several customers of the Bulgarian gas supply markets to change supplier”.

Intra-group business does not necessarily amount to self-preferencing

  • With regard to the Commission’s decision that Bulgartransgaz had refused access to the Storage Facility, the GC found that Bulgartransgaz had restricted competition by preventing, restricting and delaying third party access to the Storage Facility, as without storage, competitors could not manage seasonal fluctuations in gas supply and demand. However, the refusal was only capable of restricting competition between June 2012 (when a company requested access to the Storage Facility) and September 2014, not throughout the period the Commission identified.  The GC looked at the “two fundamental pillars” of the decision: (i) the anticompetitive strategy, and (ii) a single and continuous infringement. The GC found that despite Bulgartransgaz’s hindrance of access to the Storage Facility from 2012 to 2014, which did have the ability to produce anticompetitive effects on the Bulgarian gas supply market, a finding of a single and continuous infringement of Article 102 could not be justified. The Commission’s argument emphasised the “interdependence, complementarity and mutual reinforcement” of Bulgarian Energy’s conduct in relation to the Network, Pipeline and Storage Facility. Therefore, despite the conduct relating to the Storage Facility, the GC could not “without distorting the contested decision by substituting a new assessment of the facts” justify the “operative part of that decision” i.e., that there was a single and continuous infringement.
  • In addition, the Commission incorrectly disregarded the “first come, first served” principle applicable to requests for storage capacity.  This principle meant that no applicant was entitled to request storage capacity in advance (as Overgas had done).  This explains why Bulgargaz’s request for access to the Storage Facility on February 18, 2011 for the 2011/2012 storage period was granted, whereas Overgas’ earlier request of July 30, 2010 for the same storage period was denied. 
  • The inference is that engaging in legitimate ordinary course activities as a vertically integrated business, even to the detriment of rivals, does not necessarily constitute self-preferencing. The Commission appeared to have made an unjustified leap in reaching this conclusion from the facts.

A pipeline of ignored rights of defence

As discussed above, the GC found some of the Commission’s evidence not entirely accurate and representative of the full picture.  Importantly, the GC agreed with Bulgarian Energy’s plea that there had been defects in the administrative process which infringed the rights of defence, and principles of good administration and transparency.

For example, the Commission failed to record minutes of eight meetings with Overgas from 2010-2013 and 2015-2016, and to include them in the investigation file.  The judgment emphasised Article 19 of Regulation No 1/2003 which stipulates that interviews aimed at gathering information on the subject matter of the investigation must be recorded.  This obligation was also raised in the Intel and Qualcomm judgments.  In addition, while the Commission provided Bulgarian Energy with a brief summary of some meetings, it refused access to detailed confidential minutes, arguing that non-confidential notes were already provided.  However, the GC found that there was an “unjustified distinction” between the brief notes and the detailed minutes.

This demonstrates the extent to which breaches of procedural rules, notably an insufficient case file, can still cost the Commission cases.  Where possible, applicants can argue that without any procedural errors, they would have been better able to ensure their defence (this argument was successful here as in Qualcommbut not in Google Android).

Takeaways from the GC’s judgment 

  • The GC’s judgment reaffirms that exclusionary effects cannot be “hypothetical” and the Commission must establish an abuse based on evidence that is “factually accurate, reliable and consistent” and contains “all the relevant data”.
  • The judgment demonstrates the GC’s willingness and authority to place Commission decisions under a microscope, and that it requires proof that a dominant company in fact abused its dominant position on the facts of the case.
  • The Commission’s commitment to the case continues.  It announced to appeal the judgment on January 2024.

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