The Appeal in Greek Lignite: Clarification of the Law or Jumpstarting Article 106 TFEU?

By Hans Vedder

In October 2012 I wrote an entry about the General Court judgment that annulled the Commission decision in the Greek Lignite-saga, concerning the Greek state-owned electricity company DEI that benefitted from the exclusive right to mine for lignite (brown coal) which, according to the Commission, distorted competition. In a nutshell I found that the judgment did little to clarify the obscure clarity or clear obscurity of Article 106 TFEU, but it was certainly good news for DEI, the state-owned electricity company that benefitted from the exclusive right to mine for lignite. In that blog I wrote that the Commission should appeal so that the Court could clarify its own case law (instead of the General Court second-guessing what the Court could have meant). Well, the Commission did appeal, but I’m not sure whether the Court clarified its own case law. One thing that is for sure it that Article 106 TFEU may well have been given a new lease of life. This turns on the question whether actual abuse by the public undertaking must be shown in Article 106 TFEU-cases. This follows from the fact that Article 106 TFEU is addressed to the Member States, but is an empty norm that only gets substance when it is read in conjunction with another Treaty provision. In this regard Article 102 TFEU is by far the most popular norm to be mated to Article 106 TFEU as the exclusive right mentioned in Article 106 TFEU is easily equated to a statutory monopoly for the public undertaking and thus dominance within the meaning of that provision.

Facts and procedure

In line with the European recipe, Greece has liberalised its electricity market among others by creating a wholesale electricity market where electricity producers can bid for the right to sell a certain amount of electricity the next day. In order to submit profitable bids on this market, those producers need access to lignite, the cheapest primary fuel available in Greece. It’s with this lignite that the troubles start because the Greek authorities granted the exclusive exploitation right for lignite to DEI. In the words of the Commission:

12. […]  by granting DEI and maintaining in its favour quasi-monopolistic lignite exploration rights which ensure that it has privileged access to the most attractive fuel in Greece for the purposes of generating electricity, the Hellenic Republic thereby created inequality of opportunity between economic operators on the wholesale electricity market and thus distorted competition, maintaining or reinforcing DEI’s dominant position and excluding or hindering any new entrants, despite the liberalisation of the wholesale electricity market.

What is interesting about this quote is the presence of the word ‘dominant position’ together with the absence of the word ‘abuse’. What the Commission is essentially arguing is that a Member State infringes Article 106 in connection with 102 TFEU even in the absence of abusive behaviour by the public undertaking.

The General Court disagreed and found that the Commission was required to show abuse by the public undertaking. This was not the case as it was the (in)action of the Greek authorities that resulted in the exclusive right for DEI to mine for lignite. To put it bluntly: the failure to hand out lignite exploitation permits to potential competitors of DEI could only be attributed to the Greek authorities, not to DEI.

The Judgment of the CJEU

The outcome of the appeal is clear: the judgment by the General Court is set aside and the case is referred back to the General Court so that it can rule on the pleas that were not dealt with in the l judgment in first instance.

The way the Court arrived at this conclusion is, however, not as clear. The Court first considered that the state violates Article 106 in connection with 102 TFEU if it creates a situation in which the public undertaking just by exercising the preferential rights conferred upon it, is led to abuse its dominant position or when those rights are liable to create a situation in which that undertaking is led to commit such abuses. Such abuse does not have to actually occur, but creating a risk of abuse suffices (paras. 41, 42). This is in line with the Court’s consistent jurisprudence that includes actual as well as potential effects, whether or on trade between Member States (or on the free movement of goods) in the scope of EU law. In the light of the jurisprudence cited by the Court (GB-Inno-BM and MOTOE) to substantiate this finding, this is perfectly clear and sensible. GB-Inno-BM and MOTOE both concern cases in which the state arranged for commercial and regulatory tasks to be executed by the public undertaking. Essentially, the public undertaking in those cases was active on the market and controlled access to the market for its competitors. Obviously, even if there is no (evidence of) actual abuse, the state has created a situation that is too good to be true for the public undertaking and the risk of abuse is all but imaginary.

The Court then addresses the need to have equality of opportunity in order to ensure undistorted competition leading to the following finding:

44. It follows that if inequality of opportunity between economic operators, and thus distorted competition, is the result of a State measure, such a measure constitutes an infringement of Article 86(1) EC [now Article 106(1) TFEU] read together with Article 82 EC [now Article 102 TFEU] (see the judgment in Connect Austria, EU:C:2003:297, paragraph 84).

45. The Court has moreover had occasion to state in that regard that, although the mere fact that a Member State has created a dominant position by the grant of exclusive rights is not as such incompatible with Article 82 EC, the EC Treaty none the less requires the Member States not to adopt or maintain in force any measure which might deprive that provision of its effectiveness (judgments in ERT, C‑260/89, EU:C:1991:254, paragraph 35; Corbeau, C‑320/91, EU:C:1993:198, paragraph 11; and Deutsche Post, C‑147/97 and C‑148/97, EU:C:2000:74, paragraph 39).

46. It follows from the matters addressed in paragraphs 41 to 45 above that, as the Advocate General states in point 55 of his Opinion, infringement of Article 86(1) EC in conjunction with Article 82 EC may be established irrespective of whether any abuse actually exists. All that is necessary is for the Commission to identify a potential or actual anti‑competitive consequence liable to result from the State measure at issue.

Even though the Court avoids the word ‘effect’ but uses the synonym ‘consequence’, this is a clear choice for the effects theory, that is often contrasted to the behaviour theory in man attempt to make sense of Article 106 TFEU case law. In the effects theory, all that is required is for the state measure to result in the effects that could result from abuse. In this case DEI could have monopolised the market for lignite exploitation by extending its dominant position from electricity production to lignite mining, but it did not have to do so as the state had ascertained that no competitor would have access to lignite. Under the behaviour theory, Article 106 TFEU cases require certain behaviour on the part of the public undertaking to be the result of the state measure. A classic behaviour case would be Merci Convenzionale, where the public undertaking epitomised the worst in any public undertaking and could only get away with this because of its statutory monopoly (paras 17 – 20). In this case, the behaviour theory wouldn’t fly, simply because DEI was not found to have done anything in relation to the lignite mining permits. However, when we read on in Greek Lignite II, matters become less clear again.

The remainder of paragraph 46 reads as follows:

Such an infringement may thus be established where the State measures at issue affect the structure of the market by creating unequal conditions of competition between companies, by allowing the public undertaking […] to maintain (for example by hindering new entrants to the market), strengthen or extend its dominant position over another market, thereby restricting competition, without it being necessary to prove the existence of actual abuse.

Rephrasing the first part, the effects theory is satisfied if the structure of the market is affected by the state by creating unequal conditions of competition (which is the case in Greek Lignite). This makes good sense, as the state is perfectly capable of creating uneven playing fields, preferably to the advantage of the national companies. But then we read that the public undertaking must be allowed to maintain, strengthen or extend its dominant position. This seems to require some act of ‘monopolization’ and thus behaviour on the part of the public undertaking again. The whole idea behind the effects theory, however, is to catch those cases where the state interference in the market makes actions of the public undertaking unnecessary in the first place, as was the case in Greek Lignite.

Conclusion

So, does Greek Lignite II finally clarify the law? In my opinion it doesn’t. Even if the judgment breathes an overwhelming choice for the effects theory, the last part of paragraph 46 casts doubt on such a finding. Even more so, in the absence of clear jurisprudence, it becomes up to legal writers to identify lines of thinking and doctrines. We see this where the Advocate General refers to the effects doctrine in his opinion (para. 42) and the extensive writing on this topic. Many doctrines and theories have been found in Article 106 TFEU case, and Greek Lignite may well be the next doctrine to emerge. However, with so many doctrines and theories, that are at times subsumed by one author under one heading, whereas they are equated by another, we may wonder where legal certainty remains in all this. At the end of the day Greek Lignite II will have the effect of making it easier to apply Article 106(1) in connection with 102 TFEU. This puts the ball in the court of the Greek state that will have to prove that DEI’s exclusive right to mine for lignite is objectively justified under Article 106(2) TFEU. I expect this to be daunting task. So, we may well have a truly liberalised electricity market in Greece after all.

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