CRITICALLY ANALYZE THE APPLICATION OF ARTICLE 102 TFEU WITH RESPECT TO THE EUROPEAN COMMISSION DECISION CASE AT.39849 – BEH GAS OF 17 DECEMBER 2018. (Essay Sample)

CRITICALLY ANALYZE THE APPLICATION OF ARTICLE 102 TFEU WITH RESPECT TO THE EUROPEAN COMMISSION DECISION CASE AT.39849 – BEH GAS OF 17 DECEMBER 2018. Student’s Name Class Information Date In determining the case brought against the Bulgarian Energy Holding EAD (BEH) AT.39849, the European Commission (commission) based its ruling on Article 102 of the Treaty on the Functioning of the European Union (TFEU). The TFEU establishes the rules and regulations which member states should adhere to when engaging with other members within the Union. The mandate of the commission is to ensure that member states abide by the set principles to promote the economic and social progress of all individuals living within Europe. The Treaty established guidelines that protect the freedom of movement of goods, services, capital, and people within member states, through the creation of a single European Union Customs. This paper will critically analyze the application of Article 102 TFEU with respect to the European Commission Decision CASE AT.39849 – BEH Gas of 17 December 2018. The paper will document in detail the relevant clauses in Article 102 TFEU that are applicable to the case and its implications. Moreover, the background of the BEH organizational structure and dominance position will be studied. Finally, the European Commission Decision CASE AT.39849 – BEH Gas of 17 December 2018 will be examined closely to establish its applicability to Article 102 TFEU.[TFEU, “Consolidated Version of the Treaty on the Functioning of the European Union” (2016) C 202 Official EN Journal of the European Union.] Article 102 TFEU (Treaty on Functioning of the European Union) In the preamble of the TFEU, the European Council (council) resolved to establish the fundamental underpinnings that would govern the relationships of all the population living within the borders of Europe. Article 1, Clause 1 of the Treaty asserts the authority of the Treaty by outlining the areas of jurisdiction as well as those under the mandate of member states. All the member states are bound by the declarations thereof and are required to abide by them without fail. Deviations from the set through violation of any part of the Treaty can lead to judicial proceedings being instituted against the guilty party at the commission. In making a determination, the commission provides all the concerned parties with an equal opportunity to advance their arguments and counter-arguments advanced against them. The commission relies on case-laws, which can be considered as judicial precedent in the common law. The case-laws have judicial authority since previous rulings are taken into consideration for the purposes of comparative analysis. The rulings and judgements of the commission are legally binding since there is no path to seek legal redress on any matter that has been heard and determined by the commission.[Ibid, Preamble.] [TFEU, “Consolidated Version of the Treaty on the Functioning of the European Union” (2016) C 202 Official EN Journal of the European Union, Art. 1 clause 1.] Article 102 of TFEU 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 as incompatible with the internal market in so far as it may affect trade between Member States.” The article further outlines specific incidents that may occasion an action to be deemed an abuse of dominance. The direct or indirect imposition of exorbitantly high purchase and selling prices as well as other discriminatory trading constraints constitutes an abuse of a dominant position by an undertaking. Specific instances of abuse of dominance include restricting production, technical development, or markets that disenfranchise consumers; application of discriminatory trading conditions to equivalent dealings with different business parties, which renders them noncompetitive; and coercing other parties to accept terms of the contract that include unrelated supplementary obligations in order to conclude the subject contract. Since dominant players have the capability to set prices that are exorbitant in nature and non-corresponding to the actual quality of the final products, it is imperative to ensure that mechanisms exist to control their actions.[Ibid, Article 102.] [Ibid, clause a.] [TFEU, “Consolidated Version of the Treaty on the Functioning of the European Union” (2016) C 202 Official EN Journal of the European Union, Article 102, clause d.] The contents and wording of Article 102 of TFEU are what formed the basis of the judgement of the European Commission Decision CASE AT.39849 – BEH Gas of 17 December 2018. The applicability of Article 102 of TFEU to the case should be examined thoroughly to determine whether the commission, in fact, erred in its judgment or it applied the correct interpretation of the law. The commission advanced several legal arguments that formed the basis of their judgment. Since Article 102 of TFEU can only be applied categorically to dominant market players who abuse their positions, it is imperative to determine whether Bulgarian Energy Holding EAD (BEH) actually was a dominant player at the time. The commission adopted the definition of dominance, which it advanced in issuing a ruling in the United Brands, C-27/76, EU:C:1978:22. Dominance is defined as a status of economic power that a particular undertaking enjoys, “which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of consumers.” The concept of independence inherent in dominance relates to the level of influence the undertaking has on prices and supply without the input of competitors or market forces of supply and demand. Nonetheless, dominance cannot be equated to monopoly since, in the former, other entities exist that compete with the dominant organization. However, the concerned company enjoys significant power to determine the circumstances under which competition thrives.[The European Commission Decision on CASE AT.39849 - BEH Gas of 17 December 2018, section 6.2.3.] [United Brands, C-27/76, EU:C:1978:22, para 65.] [The European Commission, section 6.2.3, recital 416.] The parties subject to the decision of the commission were Bulgarian Energy Holding EAD (‘BEH’), and its wholly-owned subsidiaries Bulgargaz EAD (‘Bulgargaz’) and Bulgartransgaz EAD (‘Bulgartransgaz’), which were termed collectively as the BEH group. BEH is the largest player in the Bulgarian energy sector including the natural gas and electricity subsectors. The undertaking enjoys state backing and controls the entire value chain from power generation, production of the brown coal, as well as the transportation, storage, and distribution of natural gas and electricity. BEH has 100 percent stake in its wholly owned subsidiaries Bulgargaz and Bulgartransgaz, which it used to trade in the natural gas subsector. In 2014, BEH was valued at 7.9 billion euros with annual turnover of 3.2 billion euros. In 2015, BEH was estimated to be worth 8.9 billion euros with annual turnover of 6.7 billion euros.[The European Commission, recital 1.] [Ibid, recital 5.] [Ibid.] [Ibid, recital 6.] [Ibid.] In making the determination, the Commission reasoned that “the BEH group forms a single economic unit in which BEH determined the strategy undertaken by the group.” The established case law defines an undertaking as “economic units which consist of a unitary organization of personal, tangible and intangible elements which pursues a specific economic aim on a long-term basis and can contribute to the commission of an infringement” of articles 101. The Commission ruled that the same criteria are applicable when considering Article 102. In order to apply the provisions of Art. 102 TFEU, the Commission had to prove without reasonable doubt that the BEH group formed a solitary economic unit. The Commission opined that it found BEH together with its wholly owned subsidiaries formed a single economic unit since BEH controlled the blueprint of Bulgargaz and Bulgartransgaz. It demonstrated that BEH had a stronghold of its subsidiaries including controlling their specific activities with the potential of influencing the group’s strategy. It is imperative for the claimant to show that BEH constitute a single economic unit.[Ibid, recital 360.] [The European Commission, recital 361.] [The European Commission, recital 365.] BEH was incorporated under the Bulgarian law as a joint-stock venture. The Republic of Bulgaria is listed as the sole owner of the undertaking, with the Minister of Economy the trustee of its rights. The venture’s operations are streamlined through its Articles of Association. The top decision making organs of the undertaking with final authority are the General Assembly and the Board of Directors. The Board of Directors is made up of three individuals who are also members of the General Assembly. The decision making organs of Bulgargaz and Bulgartransgaz mirror that of BEH. Moreover, in its public confession, Bulgartransgaz admitted that it was a subsidiary of Bulgargaz. The organizational structure of BEH and its wholly owned subsidiaries pointed to the fact that the group was indeed a unitary economic unit. All the major decisions including group strategy were determined from a central unit in the BEH control room.[Ibid, recital 369.] [Ibid.] [Ibid.] [Ibid.] [Ibid.] [Ibid, recital 373.] [The European Commission, recital 365.] BEH directly participates in the management affairs of its wholly owned subsidiaries as stipulated in its Articles of Association. The venture is responsible for the appointment and dismissal of Bulgargaz’s Board of Directors. Moreover, until March 2013, the tradition was for BEH to appoint and dismiss the Board of Directors of Bu...