"Spanish Boot" for E.ON

The Germans were allowed to absorb Endesa only if 19 conditions were met

The German energy concern E.ON on Friday overcame a difficult barrier to the takeover of the Spanish company Endesa for 29.1 billion euros. The commission of the Spanish National Energy Supervisory Authority (CNE) unanimously spoke in favor of the plans of the German concern, but put forward 19 conditions and restrictions. First of all, it is necessary to sell almost a fifth of Endesa's energy generating capacity. This circumstance may provoke a conflict between Spain and the European Commission: Brussels believes that the CNE has exceeded its authority - only the European antimonopoly authority can set conditions for the deal, and it approved it without any restrictions in the spring.

Until now, the main opponent of the deal was the Spanish government, which sought to transfer Endesa to the ownership of the local concern Gas Natural, which was willing to pay only 22.7 billion euros. The social democratic government of José Luis Zapatero fought until the very end for a “national solution” to the fate of Endesa, although back in April the European Commission regarded such an approach as unlawful political interference in free competition in the energy market. Now Madrid has agreed to the deal, explaining its concession by the desire to avoid confrontation with Brussels, which would inevitably provoke penalties, usually amounting to hundreds of millions of euros.

However, the disagreements between the Spanish government and the European Commission do not end there. CNE commissioners unanimously voted for 19 special conditions and restrictions on the deal. Thus, Endesa must remain the parent organization for its divisions in Spain for ten years, and they cannot be liquidated. The commission also prohibited the merger of subsidiaries E.ON and Endesa. Endesa's headquarters should still be in Spain. In addition, the German concern is obliged to sell Endesa's electrical power capacity for a total of more than 7,600 MW (the company's current installed capacity is about 43,000 MW), and without fail - the Asco I nuclear power plant, the only Spanish nuclear power plant that is 100% owned by Endesa . At the remaining nuclear power plants, it was ordered to remove Endesa representatives from management. The demands also include a refusal to supply electricity to the Canary and Balearic Islands and the North African exclaves of Spain - Ceuta and Melilla. “The conditions allow us to avoid risks in the supply of energy to strategic sectors of the Spanish economy, and they also provide a guarantee for the arrival of investments in the future,” CNE President Maria Teresa Costa said at a press conference. She clarified that the Spanish authorities have required mandatory approval if the controlling stake in E.ON is sold. Another condition that Ms. Costa put forward: E.ON must guarantee the supply of natural gas to the Spanish market and inform CNE about the flow of inward investment into Endesa. "E.ON will be required to properly capitalize Endesa," she said. All these conditions are reminiscent of the “Spanish boot” - a medieval specific instrument of torture during the Inquisition.

E.ON's view of the current state of affairs is far from peaceful. “After receiving the CNE decision, we will check all the provisions of the conditions individually, however, we do not see the validity of the already known conditions and restrictions and reserve the right to take legal steps,” said E.ON headquarters in Düsseldorf. The position of the European Commission gives confidence to the management of E.ON. After all, Brussels regarded the consideration of the merger case between E.ON and Endesa by the government commission CNE as an unjustified expansion of its competence. EU Competition Commissioner Neeli Cruz noted that the debate around E.ON and Endesa is an example of the occasional debate over “national champions” or “economic patriotism”, but there is no economic argument that protectionism leads to the emergence of strong, competitive enterprises. “A monopoly position and a lack of competitive pressure in the national market are not a recipe for international competitiveness,” she emphasized during her recent trip to Germany, “first of all, they harm the national consumer.”

CNE only had to check whether the upcoming deal threatened Spain’s energy security and whether the potential buyer was financially strong enough to carry out the takeover, the European Commission believes. E.ON gave no reason for doubt about this. And the conditions and restrictions put forward by the CNE are a “political decision,” Brussels is confident. Back in the spring, the European Commission gave its consent to the takeover of Endesa by a German concern without any preconditions. And now, experts say, Brussels is unlikely to allow Spain to torpedo its concept of developing a transnational energy market.

However, experts, pointing to the harshness of the conditions put forward, are convinced that the German concern can fulfill them. “With these conditions, E.ON can easily move on,” said Theo Kitz from the investment company Merck Fink. “The German energy giant intends to enter the Spanish market in any case and is ready to make significant sacrifices.” The investment bank Dresdner Kleinwort analyzes the current situation around the E.ON-Endesa deal in approximately the same tone.

Yuri Shpakov, Berlin