Strategic Underinvestment and Gas Network Foreclosure – the ENI Case

EC Competition Policy Newsletter, 2011, Vol 1, 18-23

6 Pages Posted: 2 Aug 2011 Last revised: 6 May 2012

See all articles by Frank P. Maier-Rigaud

Frank P. Maier-Rigaud

ABC economics; IESEG School of Management (LEM-CNRS), Department of Economics and Quantitative Methods

Federica Manca

affiliation not provided to SSRN

Ulrich von Koppenfels

European Union - Directorate General for Competition

Date Written: August 2, 2011

Abstract

On 29 September 2010, the Commission adopted a commitment decision pursuant to Article 9 of Regulation 1/2003 against ENI Spa (ENI). With this decision the Commission made binding on ENI commitments that it had offered to address the Commission’s preliminary concerns regarding potential abuse of its dominant position in the market for gas transportation services.

The Commission’s competition case concerning ENI’s suspected abuse of a dominant position on the market for the transport of gas into Italy has its origin in the Commission’s inquiry into the gas sector carried out between 2005 and 2007. In the Final Sector Inquiry Report, the insufficient unbundling of networks from the competitive parts of the gas sector (downstream supply) was described as leading to a systemic conflict of interest. This structural conflict of interest, also at the heart of the ENI case, was identified as distorting the incentives on the network segment (for instance in giving access to capacity or investing in additional capacity) due to substantial adverse supply-side interests of the same vertically integrated undertaking.

The competition concerns in the ENI case follow this logic and indentify practices resulting in a possible anti-competitive foreclosure of competitors in the gas supply markets in Italy, by means of limiting access to transport capacity. In particular, ENI's refusal to supply transportation capacity to third-party shippers allowing the import of gas into Italy would flow from the inherent conflict of interest resulting from the vertical integration of ENI, dominant in both, the transport business and the supply of gas on the downstream markets. In order to resolve the conflict of interest and address these concerns, ENI committed to divest its shares in the three companies operating the relevant international transport pipelines, the TAG, the TENP and the Transitgas, bringing gas to Italy respectively from Russia (TAG) and the North of Europe (the TENP/Transitgas system). This structural divestment will ensure that third-party requests to access the gas pipelines will be dealt with by an independent entity unconnected to ENI.

The decision of 29 September 2010 is noteworthy as the commitments entered into by ENI consist of a structural divestiture of its international transportation activities to import gas into Italy. The rationale for this decision is to tackle competition problems on those pipelines that play a crucial role in creating a competitive single European gas market. The implementation of the commitments will bring about a substantial change in this sector and will lay the foundations for more competition in the downstream supply markets.

This article provides an overview of the facts of the case and the competition concerns that the Commission had, and explains how these concerns are addressed by the structural remedies made binding by the Commission's decision.

Keywords: structural remedies, strategic underinvestment, gas network foreclosure, unbundling, ENI, Article 102 TFEU, article 9 decision

JEL Classification: D4, K21, K23, L41

Suggested Citation

Maier-Rigaud, Frank P. and Manca, Federica and von Koppenfels, Ulrich, Strategic Underinvestment and Gas Network Foreclosure – the ENI Case (August 2, 2011). EC Competition Policy Newsletter, 2011, Vol 1, 18-23, Available at SSRN: https://ssrn.com/abstract=1903788 or http://dx.doi.org/10.2139/ssrn.1903788

Frank P. Maier-Rigaud (Contact Author)

ABC economics ( email )

Berlin, 10115
Germany
10115 (Fax)

HOME PAGE: http://www.ABCecon.com

IESEG School of Management (LEM-CNRS), Department of Economics and Quantitative Methods ( email )

Socle de la Grande Arche
1 Parvis de la Défense
Paris, La Défense Cedex, 92044
France

Federica Manca

affiliation not provided to SSRN ( email )

Ulrich Von Koppenfels

European Union - Directorate General for Competition ( email )

Place Madou, Madouplein 1
Saint-Josse-ten-Noode/Sint-Joost-ten-Noode
Brussels, B-1049
Belgium

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