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MERGERS: AMO SR approved the merger of undertakings Slovenský plynárenský priemysel, a.s., and ČEZ ESCO, a.s.

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On 18 December 2020 the Antimonopoly Office of the Slovak Republic, the Division of Concentrations, (hereafter "the Office") approved a merger grounded in the creation of a fully functional joint venture (hereafter "Group ESCO JV”) by the undertakings Slovenský plynárenský priemysel, a.s., Bratislava (together with controlled undertakings, hereafter "Group SPP”) and ČEZ ESCO, a.s., the Czech Republic (together with undertakings belonging to the economic group, hereafter "Group ČEZ”).

Group ESCO JV, which will be formed by the insertion of several companies from Group ČEZ (namely: AZ KLIMA SK, s. r .o., ČEZ Distribučné sústavy a.s., ČEZ SERVIS, s. r. o., e-Dome a. s., KLF-Distribúcia, s. r. o., and SPRAVBYTKOMFORT, a. s.) and a cash contribution from Group SPP, will focus on providing the specialized services of optimizing energy consumption in order to reduce the consumption to clients in the Slovak Republic. These will include the provision of energy services, as well as a wide range of design, engineering and implementation activities, including construction, installation, renovation, operation and the maintenance of energy equipment, including cogeneration units, switchgear equipment and distribution systems, photovoltaic solutions and HVAC equipment, the realization of lighting solutions and the provision of facility management and maintenance services. The joint venture will also deal with the local production and the supply of heat and the local distribution of natural gas and electricity.
 
The main business activities of founders of Group ESCO JV, relevant for assessing the effect of concerned merger on the conditions of competition, were:
  • Group SPP: the retail supplies of natural gas and electricity to the individual types of customers,
  • Group ČEZ: the energy services of optimization of energy consumption and related services, the retail supplies of electricity and natural gas to the individual types of customers.
The Office dealt with analysing the effect of merger on the conditions of competition in relation to the following relevant markets:
  • the provision of multi-technical administration/maintenance services, including technical the so-called facility management (hereafter "FM"), including the provision of energy services (hereafter "MTSÚFME"), including also its narrower alternatives: 
    • specifically the provision of multi-technical administration/maintenance services, including technical FM,
    • specifically the provision of support and guaranteed energy services - the so-called PES and GES (eventually providing GES as the narrowest alternative) - generally known also as the so-called ESCO services,
  • the provision of natural gas retail supplies to unregulated large customers, unregulated small and medium-sized customers (hereafter "SMCs"), regulated SMCs,
  • the provision of electricity retail supplies to unregulated large customers, unregulated SMCs, regulated SMCs,
  • heat production and supply,
  • natural gas distribution and electricity distribution.
However, in order to evaluate the effect of concerned merger on the conditions of competition on the relevant market, it was not necessary to conclude precisely the identification of relevant markets.
 
Within the impacts of merger on the conditions of competition, the Office analysed the horizontal and non-horizontal unilateral effects of merger. It also dealt with the horizontal and non-horizontal coordinating effects of concerned merger, with regard to the fact that it was a merger grounded in the creation of a fully functional joint venture. In the cases of mergers of this type, it is ascertained, whether the merger has the aim or may have the consequence of coordinating the competitive behaviour of undertakings and, if so, also whether it is prohibited.
 
The horizontal unilateral effects of merger
 
With regard to the provision of alternatively identified MTSÚFME services, the Office did not identify negative horizontal effects, as the Group SPP was not active in these business activities.
 
Likewise, the Office did not identify negative effects in the area of ​​natural gas retail supplies (in segmentation by the type of customers), electricity retail supplies (in segmentation by the type of customers) nor in heat production and supplies. This was due to the fact that only one of parent companies gave up its (limited local) activities in concerned areas in the favour of Group ESCO JV. Also, regarding this scope of operation in the alleged activities carried out, the acquisition of joint control by SPP did not significantly affect its position on given relevant markets.
  
The non-horizontal unilateral effects of merger were analysed in relation to:
  • the provision of alternatively identified MTSÚFME services on one hand and on the other hand to the provision of natural gas retail supplies, as well as electricity retail supplies, within which the following were assessed: 
    • vertical effects, namely the ability to drive competitors out of the relevant market with regard to Group ESCO JV's access to distribution networks and to data on the potential customers of parent companies,
    • conglomerate effects, namely the ability to package or otherwise condition the provision of one of concerned services to the provision of other one,
       
  • natural gas retail supplies to heat production and supplies,
  • natural gas distribution to natural gas retail sale to the individual types of customers,
  • electricity distribution to electricity retail sale to the individual types of customers,
  • electricity distribution, natural gas distribution, heat production and supply to alternatively identified MTSÚFME services,
 whereas the Office did not find any negative effects on the conditions of competition in the given regard.
 
The horizontal a non-horizontal coordinating effects of merger
 
The coordination of undertakings´ conduct on a relevant market in the cases of mergers grounded in the creation of a fully functional joint venture by undertakings may take place where two or more participants to the merger, or their connected undertakings, which created the joint venture, remain on the same relevant market active substantially as a joint venture, or on a relevant market, which is a sales market, a supply market or a closely related market in relation to such a relevant market.
 
In the given case, the Office did not identify negative horizontal coordinating effects resulting from the creation of concerned joint venture, namely in the provision:
  • of alternatively identified MTSÚFME services, as: 
    • Group ESCO JV will primarily focus on a certain type of customers, where the assumption (on the basis of which it would be necessary to analyse the coordination in more detail, namely on the operation of parent companies substantially in relation to these customers) is not fulfilled,
    • with regard to other customers, the Office did not find, in particular, the ability nor the motivation for the possible coordination of conduct of concerned economic groups,
       
  • on individual relevant markets in the area of natural gas ​​retail supplies (due to a significant disproportion between revenues from the main activities of Group SPP and shared activities in the Group ESCO JV, also with regard to the asymmetry of shares of Group SPP in main business activities compared to Group ČEZ), as well as in the area of ​​electricity retail supplies to the individual types of customers.
The Office also dealt with the evaluation of non-horizontal coordinating effects in relation to several combinations of business activities of concerned economic groups, whereas it did not identify the negative effects of merger in none of possibilities.
  
After evaluating obtained documentation and information, the Office came to the conclusion that the assessed merger is in accordance with the Article 12 Paragraph 1 of the Act on Protection of Competition, as it does not significantly impede effective competition on relevant market, mainly as the result of creation or strengthening of a dominant position, and likewise it is also in accordance with the Article 12 Paragraph 2 of the Act on Protection of Competition.
 
The decision came into force on 2 January 2021.