News Merger

On June 22, the Competition Council (the CC) decided to allow “Eesti Gaas” AS to acquire a decisive influence over “Gaso” AS. The CC did not find any significant harm to competition and therefore decided to allow the transaction.

Eesti Gaas” AS group companies sell pipeline natural gas, compressed natural gas (CNG), compressed biomethane (CBM) and liquefied natural gas (LNG) to their customers and operate the largest gas distribution network in Estonia. “Eesti Gaas” AS group is active in international gas wholesale. The group is also active in the production and sale of solar energy and in the retail sale of electricity.

“Elenger” SIA, the subsidiary of “Eesti Gaas” AS, sells natural gas and electricity to households and corporate customers in Latvia. In addition, “Elenger” SIA and “Elenger Marine” OÜ offer off-grid LNG solutions to corporate customers. In addition, other companies of “Eesti Gaas” AS group, e.g. its parent company, “Infortar” AS, operate in Latvia, and their activities are related to electricity generation, among others.

“Gaso” AS is the only natural gas distribution system operator in Latvia, supplying natural gas from the transmission system to end consumers. “Gaso” AS ensures the development of the distribution infrastructure, the construction of natural gas connections, the operation of the system and accounting of natural gas, as well as the operation of the emergency service.

Given that “Gaso” AS and “Elenger Latvija” SIA, the subsidiary of “Eesti Gaas” AS, operate in two successive stages of the natural gas supply and distribution process, the merging parties' markets are vertically connected.

When assessing the vertical integration of “Eesti Gaas” AS and “Gaso” AS, it is necessary to take into account that the laws and regulations affecting the activities of the companies, for example the Energy Law and the laws and regulations derived therefrom, do not provide for the right of natural gas traders to participate in the actual provision of natural gas distribution system services or natural gas supply. Similarly, Section 45(1)(1) of the Energy Law provides only for certain cases when the distribution system operator is entitled to participate in trading of natural gas – procurement of natural gas from suppliers or trading of natural gas to users. Thus, under the current regulatory framework, the scope and functions of the natural gas trader and the natural gas distribution system operator are strictly separated. At the same time, the Energy Law requires the natural gas distribution system operator to take appropriate measures to ensure that the persons responsible for the management of the natural gas distribution system operator are able to act independently.

As a result, the vertical integration of “Eesti Gaas” AS and “Gaso” AS in the merger cannot in fact be carried out, i.e. the merging parties will not be able to benefit from vertical integration.

Evaluating the information provided by the undertakings and at the disposal of the CC, the CC concludes that the merger will not result in a significant change in the market structure, reduce competition, or create or strengthen a dominant position on the affected markets in Latvia, and that the merger is therefore allowed.

To prevent a significant reduction of competition because of a merger, merger transactions that comply with the criteria specified in the Competition Law require the permission of the Competition Council. Thus, the Competition Council ensures state control over the concentration of markets so that no structural changes occur that would result in the restriction of consumers' choices in the long run or the purchase of goods and services at uncompetitive prices.