In a historic ruling, the General Court (GC) has upended a significant European Commission (Commission) Decision, accusing the BEH Group of leveraging its dominant position in Bulgaria’s gas supply market. This landmark gas market case is unprecedented as it represents a full annulment of Article 102 TFEU decision, underscoring the meticulous scrutiny applied by the GC in its assessment of competition law matters.
At the heart of this legal saga is the Bulgarian Energy Holding (BEH), a state-owned entity boasting key subsidiaries like Bulgargaz and Bulgartransgaz, which play pivotal roles in Bulgaria’s energy sector. These two entities were the central figures in this complex dispute.
This case (T‑136/19) starts with a complaint from Overgas, a gas company formerly jointly controlled by Gazprom, against a Bulgarian public service entity during Gazprom’s dominance. In its Decision dated December 17, 2018, the Commission accused BEH of abusing its dominant position. It did so by impeding access to critical gas infrastructures. The focal point of contention was Bulgargaz’s exclusive use of the Romanian Pipeline 1, despite not being its outright owner. Thereby, it established a dominant market position.
The GC recognized BEH’s exclusionary practices, and confirmed their dominant position, but ruled that the Commission failed to convincingly demonstrate that Bulgargaz‘s conduct, specifically regarding the Romanian Pipeline 1, was the root cause of the difficulties faced by third parties seeking access. Underlining the pipeline’s status as an essential facility with no available alternatives, the court emphasized that any irregularity by Bulgartransgaz could not breach competition rules, given that entry into the Bulgarian gas market hinged on access to the Romanian Pipeline 1.
Whenever it comes to essential facilities, the Bronner (C-7/97) conditions are essential. According to these, the refusal by an undertaking in a dominant position will constitute an infringement of Article 102 TFEU. This necessitates meeting the following three cumulative conditions (See paras 254-256 of the Judgement):
Since there were no viable alternatives, the GC confirmed that the pipeline was essential. For reference, see RTE and ITP v Commission, C-241/91 P, and AstraZeneca v Commission, C-457/10 P. However, regarding the elimination of competition criteria, the GC had different findings, which we discuss below.
The GC also highlighted that it is necessary to show restraint when imposing the obligation to conclude a contract with a competitor on dominant undertakings in abuse cases, since it is “especially detrimental to the freedom of contract and the right to property of the dominant undertaking, since an undertaking, even if dominant, remains, in principle, free to refuse to conclude contracts and to use the infrastructure it has developed for its own needs” (See para 257 of the Judgement) relying on Slovak Telekom v Commission (C-165/19 P).
The GC also gave insight into what constitutes a refusal of access prohibited by Article 102, distinguishing between absence of access with a refusal, stating that Overgas’s letter of complaint about the restrictions does not prove a refusal.
The GC further elaborated on what constitutes a refusal, stating that “the Commission must also prove that the request for access reflects that project sufficiently precisely for the dominant undertaking to be in a position to assess whether it is required to respond to it, failing which it might be exposed to the risk of an abusive refusal of access” and that “a purely exploratory approach on the part of a third party to the dominant undertaking controlling access to the infrastructure in question cannot constitute a request for access, to which the dominant undertaking would be required to respond” (See para 282 of the Judgement). Not only has the Commission failed to prove this, but the GC also found that Bulgargaz had a constructive attitude in its communication with Overgas (See para 359 of the Judgement).
The issue of causality/attributability is generally marginal. However, in abuse cases it becomes a core issue. It is necessary to prove a causal link between the conduct of the undertaking and their anticompetitive effects. In other words, the anticompetitive effects (according to the Bronner criteria) must be attributable to the conduct of an undertaking.
In order for an undertaking’s conduct to be able to eliminate all competition in a neighboring market, there needs to be “proof that the potential competitor has, at the very least, a sufficiently advanced project to enter the market in question within such a period of time as would impose competitive pressure on the operators already present“ (See para 281 of the Judgement) GC found, relying on Generics (C‑307/18), and Lundbeck v Commission (C‑591/16 P).
The GC further stated that the Commission had to determine the competitor’s “sufficiently precise and serious request”, “tangible project”, “capacity”, “preparatory steps”, and “firm determination”. The Commission didn’t do this (See paras 445-456 of the Judgement). Note that determination of what is sufficient, tangible, and enough, will be on a case-by-case basis.
If the competitor didn’t plan to enter the market, then the effective competition couldn’t have been eliminated. Even when BEH acted anticompetitively and restricted competitors’ access to the pipeline, there was no restriction of competition. Their competitors lacked access to essential facilities due to “reasons which are not attributable to proven abusive conduct”. Purely hypothetical restrictions of competition cannot have exclusionary effects. Therefore, these cannot constitute an abuse of dominant position (See para 953 of the Judgement).
Importantly, due to barriers in the gas industry, it is generally more difficult to prove one’s status as a competitor. This is because “tangible project”, “capacity”, and “preparatory steps” require expensive investments.
Another interesting and rare occurrence in this gas market case is the application of state action defense. Companies invoke state action defense when they engaged in anticompetitive conduct, due to the conditions from national legislation. This is also the case when there has been irresistible pressure from national authorities.
State action defense will succeed if an undertaking was not autonomous to act in accordance with competition rules. Also, if it had to act anticompetitively because of the national legislation or irresistible pressure from national authorities. For reference, see Polskie Górnictwo Naftowe i Gazownictwo v Commission, T‑399/19. See also, Commission and France v Ladbroke Racing, Cases C-359/95 P and C-379/95 P. Interestingly, state action defense may even apply to third-state actions (See Polskie Górnictwo Naftowe i Gazownictwo v Commission, T‑399/19). However, even if the state action defense is successful it will generally result in a fine reduction, and not annulment.
In this gas market case, the GC found that it was legitimate “for Bulgargaz to seek to protect its commercial interests and to take such reasonable steps as it deemed appropriate to protect its commercial interests”, and that “since it was bound by public supply obligations under Bulgarian law, Bulgargaz was also obliged to continue to assume its public supply obligations, which allowed it to obtain reserved capacity on that pipeline corresponding to the forecasts of the needs of the customers which it was required to supply”. Here, the GC made two important observations. One is that dominant undertakings have the right to reasonably protect their commercial interests. In addition, state action can in fact exclude anticompetitive behavior (See paras 616, and 625 of the Judgement).
Due to all mentioned above, the judgment (See paras 1259, and 1260 of the Judgement) unequivocally stated:
“Since both the fourth plea, alleging an incorrect finding of abuse of a dominant position, and the first plea, alleging infringement of the rights of the defence, have been upheld, the contested decision must be annulled in its entirety, without it being necessary to rule on the other pleas in law relied on.” Consequently, there is no need to grant the applicants’ applications for measures of organisation of procedure or measures of enquiry.
This judgment is a great example of the interplay between national regulations and competition. The specifics, and outcome, of this gas market case have to do with geopolitics, and the nature of the industry. In this sense, it is like Ruhrgas (T‑360/09) which was annulled on similar grounds. However, the decision is important due to its standards. These are relevant for the assessment of causality, refusal of access, and state action defense.
