State Oil Company of Azerbaijan Republic (SOCAR) will likely have to propose remedies before the European Commission approves its proposed takeover of Greek network operator DESFA, according to legal experts.
On 5 November, the commission announced it had opened an in-depth investigationto assess whether the proposed acquisition is in line with EU merger regulations. SOCAR notified Brussels on 1 October that it intends to buy 66% of DESFA’s shares for around $500 million.
The commission is concerned the merged entity may make it difficult for SOCAR’s competitors to access the Greek gas network. It said the merged company could potentially hinder access by strategically limiting investments in future expansions of import capacity.
Such investments could include expanding capacity at Greece’s only LNG terminal at Revithoussa, owned by DESFA, and connecting the Trans-Adriatic Pipeline(TAP) with DESFA’s network. SOCAR owns 20% of the shares in TAP, which is expected to bring Caspian gas from the Shah Deniz 2project offshore Azerbaijan to Europe from 2018 by transiting Greece.
The commission also has concerns the merged entity could restrict flows of gas into Greece by managing the gas network in a discriminatory way – favouring SOCAR’s supplies over its competitors.
"The commission is now investigating whether the proposed merger would have the ability and the incentive to hinder competing upstream gas suppliers from accessing the Greek transmission system, to reduce competition on the upstream wholesale gas market in Greece,” a commission source told Interfax.
Legal experts told InterfaxSOCAR would likely propose remedies to get the proposed takeover approved by Brussels. It will be up to SOCAR and DESFA to propose solutions, and for the commission to assess their suitability. Potential remedies could include guarantees that competitors will get access to the Greek network.
"I think the merger will get clearance, but with certain remedies. Traditional remedies include redistribution of gas to competitors, [third-party access] guarantees and safeguarding gas prices for a number of years ahead. Selling the Revithoussa LNG terminal is also a potential remedy, although this would unlikely be enough on its own,” Orestis Omran, a Brussels-based lawyer with McKenna Long & Aldridge, told Interfax.
Gazprom losing Greece
Greece gets most of its gas from Russia – around 2.7 billion cubic metres per year according to data from the International Energy Agency. However, Gazprom’s market share in Greece could be seriously jeopardised if SOCAR enters the market. Gazprom was expected to launch an official bid for DEPA, the Greek state-owned public gas corporation, in June 2013, but this never happened. DEPA was then the owner of DESFA.
"It may well have been that [Gazprom] thought Brussels would not clear the merger due to competition laws. This would have been a legitimate concern as Gazprom would have become the dominant supplier [and owner of networks] in Greece,” said Omran.
The proposed takeover is likely to be followed closely by Moscow.
"If the merger is cleared, Gazprom’s 60-70% market share in Greece may vanish. This is of course a concern for Gazprom, which sells gas to Greece at prices 30% higher than what some other EU countries pay. They risk losing out on a lucrative market for them,” said Omran.
If the takeover is cleared, however, SOCAR could become increasingly influential in EU gas markets. The company produced around 7 bcm of gas in 2013, according to information posted on its website.
"Through the proposed acquisition of DESFA, SOCAR is trying to get a foothold in the European gas market and compete with Gazprom. SOCAR has enough gas to compete on EU markets and is of course strategically positioned through its stake in TAP,” Omran added.
The commission has until 23
March 2015 to decide whether to take further action. SOCAR could not be
reached for comment.
(source:
Interfax Global Energy)
