Strategic Underinvestment and Gas Network Foreclosure – the ENI Case

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.