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Gas Natural-Endesa Deal Hits Trouble

Posted on: Monday, 16 January 2006, 09:00 CST

By Richard Orange

SOMETIMES governments have to bend the rules. But Spanish President Luis Zapateros approval for Barcelona-based gas company Gas Naturals E22bn (Pounds 15.0bn, $26.7bn) bid for Madrid-based power rival Endesa is looking messy.

Last week, Zapatero gave a clear pointer that the bid, Europes largest utility merger, would get the go-ahead, with a bald statement that he favoured scale in Europe over competition at home,

It was, he said, very good for our country that we have energy companies which are strong, powerful and competitive on the international stage.

But when Zapatero approves the deal (which he has until 5 February to do) he will be riding roughshod over the recommendations of Spains Competition Court, making a mockery of the Spanish governments claims that its decision on the merger would be as impartial as if the European Commission had ruled.

The court took everyone by surprise at the start of the month by making a blanket ruling against the deal rather than just putting conditions on it, making things awkward for Spains ruling socialist party. The court ruled the deals effect on competition would be so severe no remedies could suffice.

Spains power market is already essentially made up of three regional monopolies. Theres precious little competition. The only thing that threatens to disrupt the cosy arrangement is Gas Natural poaching its electricity rivals customers and vice versa.

If Gas Natural buys up one power rival, Endesa, and then shares its assets with the other, Iberdrola, which is what the deal envisages, that dynamic will be gone.

The court is spot-on, of course. Unfortunately for those pushing for genuinely competitive European energy markets, though, its ruling isnt binding.

Because Zapatero relies on the socialist party of Catalonia, Gas Naturals province, he will do everything to push the deal through. And that might mean ignoring a European court ruling as well. Luxembourgs Court of First Instance on Friday held its first hearing into the European Commissions decision that Spain, rather than European authorities, should judge on the competitive aspect of the deal.

Government sources spent the week briefing that the Economy Ministry would impose stringent conditions as the price for allowing the deal to go ahead. But, given Zapateros clear support, you can bet these conditions wont be so arduous as to make the deal impossible.

Source: Sunday Business; London (UK)

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