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Spain loses second energy court battle

Spain broke European Union law by insisting that mergers in its energy sector be pre-approved, the EU’s top court said on Thursday in a boost to the bloc’s effort to open up energy markets to competition.

It was Spain’s second defeat in the European Court of Justice this year over the same issue, and it may face a third appearance in front of the Luxembourg-based judges unless an outstanding battle is resolved. Spain said it would comply with the latest ruling, which will make it easier for foreign utilities to make bids for Spanish peers in future.

The principle underlying the ruling is applicable to all 27 EU states. Since 2006, some acquisitions in Spain’s energy sector have needed prior authorization from the National Energy Commission. Prior authorization was applied to German utility E.ON’s takeover offer for Spanish rival Endesa and to Acciona’s and Enel’s bid for Endesa. It was widely seen as an attempt by Spain to fend off foreign utilities taking stakes in the domestic power market.

EU Internal Market Commissioner Charlie McCreevy took Spain to the top court, accusing it of restricting the free movement of capital, a view the court backed. “By making the acquisition of shareholdings in undertakings in the energy sector and of certain of their assets subject to the prior approval of the national energy commission, Spain has infringed community law,” the European Court of Justice said. “The system constitutes a restriction on the free movement of capital in as much as it is capable of deterring investors established in other member states other than Spain from acquiring shareholdings in Spanish undertakings operating in the energy sector,” the court said. Spain’s system of prior authorization is “not proportionate” to the country’s stated objective of ensuring security of energy supply, the court added. States must comply and change its rules or face fines.

Asked about the EU ruling, Spanish Economy Minister Pedro Solbes said: “The sentence has to be accepted and complied with.” The European Commission said the ruling bolstered the bloc’s single market to allow companies to operate anywhere they want. “Commissioner McCreevy welcomes the ruling of the court, which confirms the consistent line that special rights have no place in the internal market,” his spokesman said.

In a separate case brought by Competition Commissioner Neelie Kroes, the court condemned Spain in March for refusing to withdraw conditions it placed on the failed €42 billion acquisition of Endesa by E.ON. In that case, the court backed Brussels’ insistence that it had sole authority in deciding whether the bid could go ahead. Brussels and Spain are locked in one further battle.

Kroes has sent Spain a final warning that it may take it to the top court for imposing conditions in late 2007 on plans by Italian utility Enel and Spanish building group Acciona to buy Spanish utility Iberdrola. “We are still in the process of studying the Spanish reply to the reasoned opinion we sent a few weeks ago,” Kroes’s spokesman told a regular news briefing on Thursday. (Reuters)