European Commission to Investigate Merger of Greek and Azeri Gas Transmission Companies

The European Commission has just started an in-depth investigation in order to assess whether the proposed acquisition of Greek public gas transmission system operator DESFA by the State Oil Company of Azerbaijan Republic (SOCAR) is in accordance with the European Union’s Merger Regulations.

DESFA owns and operates Greece’s sole high-pressure gas transmission and mainly transports gas through its network, while SOCAR’s activities include the production of natural gas and the upstream wholesale sale of gas in Greece in the context of the Southern Gas Corridor.

The Commission’s investigation is based on the fact that the transaction agreement may reduce competition on the upstream wholesale supply market of natural gas in Greece, as it could allow the merged company to hinder SOCAR’s competitors in accessing the Greek gas network. The investigation’s aim is to ensure that the sale of DESFA, which was part of the Greek government’s privatization program, does not result in the harm of competitiveness or higher gas prices in the country, and will last for up to 90 working days, until March 23, 2015.

According to the Commission, the merged entity could resist its competitors’ access to the Greek gas transmission network by strategically limiting investments in possible future expansions of the import capacity, including an expansion of the LNG Pipeline terminal (owned by DESFA) and an interconnection between TAP Pipeline and DESFA’s network. Finally, the merged entity could restrict inflows of gas into Greece by managing the gas transmission network in a discriminatory way, favoring SOCAR’s supplies over its competitors. The Commission will also investigate if SOCAR has the ability to shut out its competitors from access to Greece’s network, in order to increase its own profit, as this could reduce the number of suppliers and the amount of natural gas in Greece and increase the prices for clients.