EU Moves to Bar 'protective' Mergers

Neelie Kroes, the EU's controversial new competition commissioner, yesterday signalled to the French authorities that she would block any attempt to protect France's energy market by engineering a merger between its state-owned electricity and gas groups.

In her first high-profile decision Ms Kroes, a Dutch liberal, threw out a planned takeover by Electricidade de Portugal and Italy's ENI of state-owned Gas de Portugal - the commission's first ban on a merger for almost three years.

Aides to the commissioner said the move sent a clear message to France and others that protective national mergers designed to prevent foreign takeovers would be ruled out.

Her decision, accompanied by clear warnings that the interests of consumers would be paramount in such cases, is an effective green light for foreign takeovers of national incumbents in domestic EU energy markets - a longstanding demand of British players such as Centrica, owner of British Gas.

Ms Kroes, who has been accused by her critics of being a lame duck commissioner because of conflicts of interest caused by her extensive business background, hit back by insisting she was no "pussy cat" and would blow the whistle on corporate activity she considers inimical to competition. She set out a policy of "zero tolerance" towards cartels by imposing fines of €66.34m (£45.9m) on Akzo Nobel, BASF and Belgium's UCB for operating a cartel in the market for an animal feed vitamin known as choline chloride.

But it is her ban on the Portuguese merger, the first since her predecessor, Mario Monti, beat a retreat after the European court of justice rescinded three of his vetoes on such transactions in 2002, that underlines the new commission's tougher attitude towards anti-competitive corporate behaviour.

EDP planned to take 51% and ENI 49% of GDP but Ms Kroes said the takeover would have undermined the benefits of energy liberalisation, due to be completed throughout the EU later this decade, excluded new entrants, meant higher prices for retail and business consumers and eroded the competitive position of Portuguese industry.

Alvaro Barreto, Portugal's economic affairs minister, said he would back any court appeal against the commission, arguing that the deal would help firms compete in a wider Iberian market. But Ms Kroes, who said she had held repeated talks with Mr Barreto, said there was no evidence an Iberian market with Spain would emerge "on a short to medium-term basis".

France, which wants to part-privatise EDF and GDF, its electricity and gas groups, next year, has considered a "Franco-French" merger between the two to prevent any foreign bid for either.

She said: "Effective competition on their home market also ensures that suppliers are efficient and better able to penetrate other markets. Ensuring effective competition in newly-liberalised markets such as energy is a priority for me - to prevent companies clubbing together to neutralise the effects of new market access."

Ms Kroes did, however, wave through the acquisition of British cement-producer RMC by Mexico's Cemex.