A Burning Desire to Clarify(?) the Law for Public Undertakings: The Judgment in Greek Lignite (Case T-169/08)

The General Court has finally handed down the judgment in the Greek Lignite (brown coal) case. This is a long-running case resulting from a complaint (dating from 2003) concerning the exploitation of lignite in Greece. As it happens, lignite is the most abundant fuel in Greece, and access to lignite is essential for the production of (relatively) cheap electricity. Greek lignite reserves amount to approximately 4 million tonnes of which about half can be exploited by DEI, the Greek Public Power Company. No such rights have been assigned for the remaining 50% of the lignite reserves, and DEI operates all power plants in Greece that use lignite. The Commission found the exclusive rights for lignite contrary to Article 106(1) in connection with 102 TFEU in what is a broad and teleological reading of the Court’s jurisprudence in this field. The General Court, however, has a rather different reading of this case law, resulting in annulment of the Commission Decision.

Because Greece has liberalised its electricity market, all companies intending to supply electricity to the Greek wholesale market must hand in daily  price-quantity offers. By examining these offers along with the forecast demand for electricity, the network operator determines the amount of electricity needed to meet demand. This electricity is then fed into the grid. Renewable electricity receives first priority, following which conventional electricity producers get to feed their electricity into the grid, with the cheapest offer coming first and the rest following in the order of their ascending prices. The price-quantity offer quoted by the last production unit to feed into the grid will determine the market price.  In these circumstances, having access to lignite as a fuel for electricity production is required for the production of cheap electricity, which in turn is required to ensure that this electricity will actually be sold on the market.

On the basis of the above, the Commission came to the conclusion that there are two separate but neighbouring markets. One for the supply of lignite, and one for the wholesale of electricity. According to the Commission, DEI is dominant in both. 97% of all lignite extracted in Greece was used by DEI, whereas 85% of the electricity sold on the wholesale market was produced by DEI and imports represented only 7% of the electricity sold on the market. According to the Commission, the granting and maintenance of quasi-monopolistic rights to lignite exploitation to DEI has created an inequality of opportunity between electricity producers intending to supply the Greek market. This led the Commission to find that the Greek authorities  […] ‘by granting and maintaining quasi-monopolistic rights in favour of the public undertaking which is the applicant over the exploitation of lignite, [have] guaranteed the applicant privileged access to the most attractive combustible which existed in Greece for the purposes of producing electricity. [Greece] thus gave that undertaking the possibility of maintaining a dominant position on the wholesale electricity market in a situation of quasi-monopoly, excluding or hindering any new entrants. Consequently, it allowed the applicant to protect its quasi-monopolistic position on the market despite the liberalisation of the wholesale electricity market and thus maintained and reinforced its dominant position on that market’ (quoted in para. 30 of the judgment).

True as this description of the failed liberalisation of Greece’s electricity market may be, it also highlights the fundamental problem in all Article 106(1) case law. That fundamental problem follows from the fact that Article 106(1) needs to be applied in connection with another provision in the Treaties. In view of the fact that Article 106(1) concerns exclusive and special rights, the obvious candidate would be Article 102 TFEU, as an exclusive right translates into a statutory monopoly and thus dominance. Applying Article 106 in connection with 102 TFEU thus requires finding a causal connection between the state measure (the granting of an exclusive right) and the actions of the undertaking. And it is this relation between the state actions and the actions of the undertaking that is so controversial and has resulted in what is referred to as the automatic abuse doctrine. Even more fundamentally, implicit in the existence of a causal connection is the existence in the first place of abusive actions on the part of the undertaking. This problem is eloquently summarised by the Court in paras. 85 and 86:

In that respect, the difference, in this case, focuses primarily on the question whether the Commission had to identify an actual or potential abuse of the dominant position by the applicant, or whether it was sufficient for it to establish that the State measures in question distorted competition by creating an inequality of opportunities between economic operators, in favour of the applicant. On this point, the parties draw differing conclusions from the case-law of the Court of Justice interpreting Article [106(1) TFEU] in conjunction with Article [102 TFEU]

It should first be noted that the prohibitions laid down by Article [106(1) TFEU] are addressed to Member States, whereas Article [102 TFEU] is addressed to undertakings, prohibiting them from abusing a dominant position. In the case of the combined application of those two provisions, infringement of Article [106(1) TFEU] by a Member State cannot be established unless the State measure is contrary to Article [102 TFEU]. The question therefore arises as to the extent to which an abuse, even if only potential, of the dominant position by an undertaking must be identified, that abuse having a link with the State measure.

It is at this point in the judgment that everyone’s burning desire to clarify the law becomes clear. Of course the non-granting of lignite exploitation rights to competitors of DEI cannot be attributed to DEI as it is a pure state measure. In the framework of the paragraphs set out above, DEI has not done anything apart from combusting lignite and selling the electricity. This can hardly be called abusive behaviour subject to Article 102 TFEU, as the Commission itself in fact argues in paragraph 92.

At the same time, anyone with an interest in liberalising markets, e.g. the complainant and the Commission, cannot be blamed for trying to ‘clarify’ the law so that this unsatisfying situation is brought within the scope of EU competition law. This allows the General Court to explain the Court’s case law on this issue.  Firstly, it explains Raso and MOTOE because of the conflict of interest that results from putting a public undertaking in the position where it is active on a market and also controls access to that market by third parties (paras. 96, 97). Of course there is a good chance that the power to control market access will be abused to protect the market activities of the public undertaking. Secondly, the General Court explains Höfner and Elser and Job Centre on the basis of the manifest inability to meet demand doctrine. This holds that blocking access to a market, by means of enforcing an exclusive right, where the undertaking is unable to meet demand violates Article 106(1) in connection with 102 TFEU. Finally, Merci Convenzionali is explained as the simple ‘blatant abuse’ doctrine that it is. The statutory monopoly in this case resulted in what is quite simply the worst nightmare for any consumer (para. 102). The conclusion is that merely being in an advantageous position is not enough, there needs to be actual abuse on the part of the public undertaking, following from an abusive exercise of the exclusive right or a direct consequence of that right (para. 103). The Commission, however, argues that EU competition law seeks to bring about equal conditions of competition, leading to the conclusion that just maintaining inequality in the conditions of competition suffices for a violation of Article 106(1) in connection with 102 TFEU. The General Court, however, finds that the Commission has relied on those formulations in isolation without taking into account their context (para. 104).

This, in turn, forces the General Court to clarify GB-Inno-BM, Connect Austria, France v. Commission and – a personal favourite – Dusseldorp.  GB-Inno-BM and France v. Commission are again, though implicitly, explained using the conflict of interests doctrine (paras. 109 and 113). Connect Austria is clarified as a case where the grant by the Austrian authorities – at a possibly reduced price – of a mobile telecoms licence to the public undertaking could lead that undertaking to abuse resulting from the ability to pass on the reduced prices to its customers (para. 111). Dusseldorp, finally, is explained as a case where the exclusive right enabled the public undertaking to abuse its dominant position (para. 117).

This explanation by the General Court does very little to actually bring light to the Court’s gnomic case law. As the General Court has noted itself in the first sentence of para. 117, the public undertaking in Dusseldorp was not engaged in any abusive behaviour. It was just doing its job adequately (not manifestly unable to meet demand) and the abuse, the restriction of outlets, was the result of the Ministry’s refusal to grant an export permit to Dusseldorp. Replace ‘export permit’ with ‘exploitation permit’ and the analogy with Greek Lignite is clear. I’m left with similar feelings of confusion reading the General Court’s explanation of Connect Austria. Here the Court found it sufficient that the grant of the licence at a possibly reduced price would enable the public undertaking to outcompete others. Doesn’t the grant of a license at differentiated prices to the public undertaking and its competitors have similar (albeit less far-reaching) effects to not granting such a licence to competitors at all? Again, replace ‘more expensive licence’ with ‘no licence at all’ and the analogy with Greek Lignite is apparent. In all three cases the state and the state alone uses its authority concerning inputs (lignite, the ability to export and a telecoms licence) to the effect that the public undertaking is protected from too much competition. The take-home message would be that the Commission had better use the freedom of establishment or free movement of capital to open up this market.

In light of the continuing ‘clear obscurity’ of Article 106 TFEU, the Commission should appeal, so that the Court itself can clarify its own case law. Whether the Commission will actually do so probably depends on politics, as much as the Greek decision not to grant exploitation licences to competitors of DEI is undoubtedly motivated by the political desire to protect a national champion. Here we have the Commissioner responsible for competition pursuing a political agenda to liberalise markets, using competition law where the legislative process is insufficient. At the same time, he will have to agree with the Commissioner responsible for Economic and monetary affairs and the Euro (Olli Rehn), who will be pleased to see that DEI’s shares were up by 6.6%; a nice example of failed competition law resulting in economic growth. That may well be what both the Greek government and Olli Rehn are looking for. Whether it’s also to the liking of the Energy and Competition Commissioners is yet to be seen.