European brief | Dragging Greece over the coals

DEI was created in 1950, as a public undertaking, entrusted with the production and distribution of electricity in Greece. Between 1996 and 2001 it was partly privatised; but the Greek state retained 51 per cent of the shares. Meanwhile the electricity market was opened up to competition, using a complicated system administered by a state regulatory body. The basic idea of the system was to try to match the lowest-cost supplies to demand.

Greece is a major producer of a type of coal called lignite. Rights to exploit lignite have been granted to various enterprises; but the lion’s share had gone to DEI, while Greece retained very large reserves where no exploitation rights have been granted. A major use of lignite is in power stations and, in Greece, those power stations which use lignite are operated by DEI.

Here, so far as the European Commission was concerned, lay the source of the problem. It claimed that Greece was giving DEI preferential access to rights to exploit lignite. This meant, it argued, that DEI could use its favourable position in the market for the supply of lignite to produce low-cost electricity which would, in turn, support its position in the market for the supply of electricity, by reducing its costs. In 2008, it adopted a decision against Greece. It was that decision which came before the General Court in case T-169/08 DEI v Commission.

Contrasting approach

Article 102 states: “Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited”. It is directed at economic operators.

Article 106, in contrast, is directed at member states, asserting that they shall not, in the case of public undertakings “enact or maintain in force any measure contrary to the rules contained in the Treaties”, including article 102.

The most important legal issues concerned the significance of abuse. Greece said that it was insufficient for the commission to point simply to government conduct which created or strengthened DEI’s dominant position. To show an infringement of article 106, the commission needed to show that Greece’s conduct had assisted the conduct that is prohibited by article 102; and what article 102 prohibits is not dominance but the abuse of dominance. The commission, on the other hand, pointed to various decisions of the European Court of Justice which, it argued, could be read as showing that if state measures distort competition by creating inequality of opportunities between operators – in other words, if they create or strengthen a dominant position – then that is prohibited whether or not there exists some further actual or potential abuse.

The General Court’s judgment unequivocally preferred the Greek approach. Article 106, it pointed out, is not a free-standing provision. It must draw sustenance from some other prohibition. And in this case the commission had identified the relevant prohibition as article 102. That, in turn, required showing not merely dominance, but abuse; and the abuse had to be committed by the dominant undertaking. At the very least the commission needed to establish that Greece’s activities promoted potential abuse by DEI of its dominant position.
The evidence that Greece had put DEI in a favourable position in the lignite market was strong: DEI had 2.2 billion tonnes of reserves. There were two billion tonnes unallocated but, despite strong interest from other operators, nobody had managed to obtain a grant of rights to exploit the remaining deposits. Had that been DEI’s doing, it might have been abusive. But it was not: it was the Greek government that had produced that result and there was no evidence that DEI had abused the dominant position it had been handed in the lignite market. That, in turn, had given DEI a strong position in the electricity market. Again, there was no evidence that DEI itself had abused that position. It had simply been handed a favourable economic position which it had used in a rational and non-abusive way.

Favoured operator

Analysing the ECJ’s earlier case law, which is not simple, the General Court concluded that no breach of article 102 occurs wherever state action distorts competition by favouring a particular operator.

This is certainly questionable. At the very least (as the court accepted) the ECJ’s precedents seem to regard potential abuse as sufficient to trigger the application of Art 106; and it seems quick to find potential abuse. Moreover, the ECJ’s judgments in this field seem heavily influenced by the policy objective that underlies Art 102 and 106 (namely the promotion of ‘undistorted’ competition); and whatever else it did, the Greek regime hardly fulfilled that objective.

Although the Commission could not prove that DEI had actively exploited the position it found itself in, it could undoubtedly show that the playing field was far from level

The saga has already been rumbling for almost ten years. Although, in purely legal terms, it undoubtedly deserves to go further there will be obvious political sensitivity about the case. In these difficult economic times, the use of competition law to obtain free and open markets may not have as many friends as it once did.