EU court says Spain broke law over Endesa deal

Issues

Spain violated European Union law by placing conditions on a failed €42 billion ($64.2 billion) takeover of Spanish utility Endesa, the EU’s highest court ruled on Thursday.

“Spain has infringed community law by not withdrawing the conditions for E.ON’s acquisition of Endesa,” the European Court of Justice said in a statement. Spain has continued to impose conditions on energy deals since, even in the face of adverse rulings by the Commission, executive arm of the EU. The court made it clear that from now on Spain must follow Commission rulings, even those it believes to be illegal, and cannot continue to impose such conditions. “A member state cannot plead the alleged unlawfulness of a (European Commission) decision addressed to it as a defense to an action for failure to fulfill obligations, based on non-implementation of that decision,” the court said. “In those circumstances, the argument advanced by Spain that the conditions in issue are not incompatible with community law cannot be accepted,” it added.

The court decision comes ahead of a Spanish general election on Sunday, and could be an embarrassment to the government. The case dates to 2006, after the European Commission had approved German energy company E.ON’s plan for a takeover of Endesa. The Commission said Spain’s decision to put conditions on the deal infringed Brussels’ authority, because the EU executive has sole power to rule on large mergers. When Spain refused to back down, the Commission took it to court. The Commission has the exclusive authority in the EU to decide whether large, cross-border mergers are anti-competitive, and takes a dim view of individual countries treading on its turf.

Spain had said E.ON had to divest nearly one-third of Endesa’s core Spanish business, equivalent to 7,396 megawatts of capacity, including all its interests in the Asco I nuclear power station -- the only one Endesa owned completely. The Spanish government, acting through a regulator, had said the nuclear assets must be sold off because they involved “greater risk to public security”. Spain changed its conditions after the Commission ruled them illegal, but the EU executive also found the new terms unacceptable.

The E.ON deal eventually fell apart, because Italian utility Enel and Spanish building group Acciona had snapped up too many shares. Those two companies ultimately acquired Endesa last year -- after Spain had set yet more conditions unacceptable to Brussels. It was not the first time a country had tried to set conditions on a cross-border deal. Portugal in 1999 tried to block a transaction giving Spanish bank Banco Santander Central Hispano key stakes in two local banks, triggering a legal case. But it settled with Brussels, confirming the powers of the Commission over mergers. (Reuters)

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