By October 10, Hungary will vote on the ‘MOL Law’

By skillfully merging its energy companies, France has practically closed its market, while the German energy giant last week requested its government to enact a law to protect against foreign takeovers, and Hungary is currently enacting a law that will protect its MOL from the takeover by the Austrian OMV.

Written by: Siniša Malus
www.seebiz.eu

The energy map of Europe has begun to be actively redrawn this year. The largest European energy conglomerates are very lively in the consolidation process, but it seems they would like it to go in only one direction. That is, they want to appear solely as buyers. They do not want to be targets at all. Over the leading companies from European Union countries, clouds of possible takeovers have gathered in recent months, particularly from giants from Arab countries or Russia, whose capital strength is such that they can afford previously unimaginable ‘excursions’. Gulf states have spent a record $68 billion on overseas acquisitions, as recently established by Bloomberg analysts.

This motivated the CEO of the largest German energy conglomerate E.ON, Wulf Bernotat, to request last week that German companies be legally protected from hostile takeovers from abroad. It is unacceptable, stated Bernotat, that companies enjoying state protection in their own markets buy companies in free markets like Germany. Therefore, it is quite logical that the German government is considering changes to the law on economic relations with foreign countries to take such cases into account, he adds. Berlin has decided to explore the possibility of introducing a special control procedure to ensure that national security interests are considered in problematic foreign investments. For now, E.ON believes that its high market capitalization is the ‘best protection’. Namely, E.ON’s market value is €86 billion.

Protectionist Measures

Noting that some countries have state protection in their markets, Wulf Bernotat primarily referred to Spain, where his attempt to acquire the largest Spanish electricity distributor Endesa failed, even though E.ON’s offered amount was more than satisfactory. Additionally, the European Commission almost simultaneously threatened Spain over the Endesa case, regarding the imposition of conditions that are not in accordance with European law on the free movement of capital. Besides Madrid, Italy also came under fire from the European market regulator for blocking the sale of the highway operator Autostrade. The statement from E.ON’s leadership points to a growing trend of ‘economic patriotism’, i.e., protectionist measures by which certain governments protect domestic companies from foreign takeovers.

A similar defense is being prepared by the Hungarian state due to the unwanted OMV attempt to take over MOL. Namely, the ruling party of Hungarian socialists intends to propose in parliament that the voting on the so-called MOL Law, which would prevent foreign takeovers of strategic companies, be held as soon as possible. This means that, if adopted, the law could come into force on October 10. The discussion on the draft law began the day before yesterday, and media reports suggest that all parties will likely support the new law, which will enable the Hungarian government to prevent foreign takeovers of strategic Hungarian companies in the future. Brussels is closely monitoring the developments, but the Hungarian parliament could pass the ‘lex MOL’ so quickly that the EU will not have time to prevent it. Meanwhile, Citibank has also concluded that the chances of OMV taking over MOL are very small.

Investigation Against the German-French Agreement

That European giants are not consistently inclined towards market competition is evidenced by the fact that a few weeks ago, the European Commission launched an investigation against the German energy company E.ON and the French Gaz de France (GDF), who are suspected of having agreed to divide the market and thus violated EU antitrust laws. According to the alleged agreement, E.ON committed not to sell gas in the French market, while GDF would not enter Germany in return. Although the EU energy market has been officially liberalized since July 1, meaning national markets are open to foreign competition, the implementation of this ambitious plan is more than problematic. This is a consequence of the lack of consensus on the method of implementation itself, but even more so the protectionism of large members like Germany and France, whose rigid stance encourages some smaller Union countries that support the ‘renegade’ duo. Although since 2004 economic entities have been able to choose their electricity and gas supplier, only with complete liberalization will this apply to households.

EU leaders believe that deregulation will increase efficiency across the sector, leading consumers to pay lower prices for electricity and gas, and the European Union to become the most competitive economy in the world. Although the idea has been supported by all EU members, the method of achieving the goal has not been met with enthusiasm. Many large companies like E.ON or GDF own both electricity production and supply, and some encompass both electricity and gas operations, thus the Commission demands free access to the distribution network, which should be managed by an independent operator. Germany and France have openly opposed the breakup of energy companies. The European Commission then threatened the governments of Germany, France, as well as Austria, Belgium, Estonia, Lithuania, Slovakia, Italy, and several other countries with lawsuits before the International Court of Justice if they do not stop favoring domestic electricity companies and preventing the entry of foreign competitors. However, it seems that Brussels’ threats do not concern the Germans and the French. Their leading energy companies have agreed on a market division, so imported Russian gas via the joint pipeline MEGAL will be sold exclusively in Germany by E.ON, and in France by GDF.