Leiden Law Blog

Are absolute privatisation bans allowed under articles 345 TFEU jo 63 TFEU? Part two

Posted on by Jelle Nijland in Private Law
Are absolute privatisation bans allowed under articles 345 TFEU jo 63 TFEU? Part two

Earlier  I discussed the opinion of Advocate General Jaaskinen of 16 April 2013  on the preliminary questions as formulated by the Dutch Supreme Court (Hoge Raad der Nederlanden) in the cases of the State of the Netherlands versus Essent NV and Essent Netherlands BV, versus Eneco Holding NV and versus Delta NV. Jaaskinen reasoned that ‘the restrictive effects that directly and inevitably result from the regulation of public or private property’ are not subject to the fundamental freedoms enshrined in the Treaty other than those that do not directly and inevitably result from such regulation. In this particular case, he deemed the other restrictive measures concerning a group ban and a ban on secondary activities justifiable under the rules of free movement if they are appropriate to achieve the objective pursued and do not go beyond what is necessary.

On 3 October 2013 the Court of Justice of the European Union (CoJEU) ruled on the consideration of these questions referred for a preliminary ruling, namely whether or not an absolute prohibition of privatisation, a group ban and a ban on secondary activities would fall under the framework of Articles 345 and/or 63 TFEU and would be in accordance with EU law.

The rules entailing the prohibition of privatisation fall within the scope of Article 345 TFEU. The court however states that this ‘does not mean that Article 63 TFEU does not apply to provisions of national law, such as those at issue in the main proceedings, which prohibit the privatisation of electricity or gas distribution system operators or, further, which prohibit, first, ownership or control links between companies which are members of the same group as an electricity or gas distribution system operator active in the Netherlands and companies which are members of the same group as an undertaking which generates/produces, supplies, or trades in electricity or gas in the Netherlands and, secondly, engagement by such an operator and by the group of which it is a member in transactions or activities which may adversely affect the interests of the system operation.'

The court thus deviates somewhat from the opinion of the AG with regard to the application of the fundamental freedom rules to the absolute privatisation ban. However, the result is in line with the recommendations of the AG. The interest underlying the choice of the legislature in relation to the rules on the public or private ownership of the electricity or gas distribution system operator may be taken into consideration as an overriding reason in the public interest so that the restrictions on the free movement of capital caused by the prohibitions may be justifiable. The objective of guaranteeing adequate investment in the electricity and gas distribution systems and security of energy supply are recognised as being an overriding reason in the public interest, as well as the objectives of combating cross subsidisation in the broad sense, including exchange of strategic information, in order to achieve transparency in the electricity and gas markets, and to prevent distortions of competition. The questions whether or not the restrictions at issue are appropriate to the objectives pursued and do not go beyond what is necessary to attain those objectives are for the referring court to determine. So, to be continued…

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