The European Commission has opened an in-depth investigation to assess whether the proposed acquisition of the Greek gas transmission system operator DESFA by the State Oil Company of Azerbaijan Republic (SOCAR), is in line with the EU Merger Regulation. SOCAR’s activities include the production of natural gas and the upstream wholesale sale of gas in Greece in the context of the Southern Gas Corridor (see also IP/13/623).

DESFA owns and operates Greek’s sole high-pressure gas transmission and Greece’s only LNG terminal and mainly transports gas through its network. The Commission has concerns that the transaction may reduce competition on the upstream wholesale supply market for natural gas in Greece because it could allow the merged entity to hinder SOCAR’s competitors in accessing the Greek gas transmission network. The Commission aims to ensure that the sale of DESFA, part of the Greek government privatisation programme with a view to modernise and liberalise the energy markets, does not result in competitive harm and ultimately higher gas prices for consumers in Greece. The opening of an in-depth inquiry does not prejudge the outcome of the investigation. The Commission now has 90 working days, until 23 March 2015, to take a decision.

The Commission’s initial market investigation indicated that the merged entity may have the ability and the incentive to hinder competing upstream gas suppliers from accessing the Greek transmission system, in order to reduce competition on the upstream wholesale gas market in Greece. The merged entity could restrict its competitors’ access to the Greek gas transmission network by strategically limiting investments in future expansions of the import capacity including an expansion of the LNG Terminal and an interconnection between TAP and DESFA’s network. In addition, the merged entity could restrict inflows of gas into Greece by managing the gas transmission network in a discriminatory way favouring SOCAR’s supplies over its competitors. The preliminary investigation also suggested that SOCAR may have the incentive to shut out competitors from access to the network, because it would be profitable for SOCAR. Moreover, the Greek regulatory framework would be unlikely to deter the merged entity from doing so. This could reduce the number of current and potential suppliers and the amount of natural gas in Greece and lead to higher gas prices for clients.

The Commission will now investigate the proposed transaction in-depth in order to determine whether or not these initial concerns are confirmed.

The transaction was notified to the Commission on 1 October 2014.

About the companies

SOCAR is wholly-owned by the Republic of Azerbaijan and is involved in exploring oil and gas fields, producing, processing, and transporting oil, gas, and gas condensate, marketing petroleum and petrochemical products in domestic and international markets, and supplying natural gas to industrial and residential customers in Azerbaijan.

DESFA was established in 2007 with the objective of operating, maintaining, managing, exploiting and developing the Hellenic gas transmission system. The activities of the company are overseen by a special law and subject to government supervision.