EU/Competition – Legal Update
Status: 2 May 2022
Germany will support German companies that have been particularly affected by the war in Ukraine.
On 19 April 2022, the European Commission approved a German scheme to support companies active in all sectors in the context of the invasion of Ukraine by Russia. Under the scheme approved, aid of up to EUR 400,000 per company is permitted (press release). Affected companies should be able to submit their applications for aid in the short term. The Federal Ministry for Economic Affairs and Climate Action (BMWK) and the Federal Ministry of Finance (BMF) will provide information about the details on their websites.
The BMWK and the BMF had already announced several aid measures on 8 April 2022 (press release only in German), including liquidity support (KfW-loan programme with a volume of up to EUR 7 billion and federal state guarantee programmes), temporary grants for companies with high additional costs due to increased natural gas and electricity prices, as well as targeted equity and hybrid capital support.
The scheme was approved under the State aid Temporary Crisis Framework, with which the Commission recognises that the EU economy is experiencing a serious disturbance in a wide range of economic sectors as a result of the Russian aggression (and the related sanctions) (we reported: Link). In the context of the required notification, the Commission found that the notified German scheme fulfils the conditions of the Temporary Framework, in particular by limiting the amount of aid and the period during which it can be granted.
The so-called Cloud-IPCEI, one of six IPCEI projects in the EU so far, is ready to take off.
Within the IPCEI “Next Generation Cloud Infrastructure and Services “, twelve EU member states support projects of a total of 159 companies with a total volume of more than EUR 5.2 billion, including 26 German companies, which will receive funding of around EUR 750 million. The European cloud is intended to lead the European Union towards digital independence and competitiveness.
According to the press release from 8 April 2022, all project proposals have been pre-notified to the Commission and are to be launched in the autumn of 2022.
Background: Important Projects of Common European Interest (IPCEI) can be subsidised by EU Member States, provided that the IPCEI project and the intended State aid have been approved by the Commission under Article 107(3)(b) TFEU. At least four Member States must be participating in an IPCEI, and significant spill-over effects must be demonstrated, i.e., a positive impact of the project beyond the participating Member States, companies, and sectors. This is designed to support complex, investment-intensive development projects which otherwise could not be realised.
The rise in prices at petrol stations in the context of the Russian invasion in Ukraine now also concerns the German Federal Cartel Office (FCO; Bundeskartellamt).
Due to the significant divergence of crude oil prices, sales prices of refineries and prices charged at petrol stations, the FCO felt compelled to intervene and announced on 12 April 2022 (Link), that it would launch a so-called ad-hoc sector inquiry.
In addition to the simultaneous publication of the annual report 2021 of the Market Transparency Unit for Fuels, the president of the FCO announced that, in context of the Ukraine war and the subsequent price increase, the aim was now to shed light on the reasons for the price and market developments. At the same time the inquiry was intended to create an important basis for the proposed expansion of the tasks to be fulfilled by the Market Transparency Unit. The German Federal Government had suggested an expansion of the powers and tasks to monitor the Market Transparency Unit to better assess the market conditions, especially in the refinery sector and to prevent companies from exploiting the current circumstances for covert agreements. For that, the Market Transparency Unit is to collect data on the quantities of fuels, in addition to price data.
A sector enquiry is an investigative tool through which the FCO can obtain information on the state of competition in a specific economic sector.
Once again, the FCO uses the means of a formal warning against a company in abuse of dominance proceedings.
After the FCO had already formally warned Lufthansa AG (we reported: Link), the German competition authority has now used the same instrument on Deutsche Bahn (DB). By press release of 20 April 2022, the FCO announced that, after preliminary investigations during an abuse proceeding initiated at the end of 2019, the FCO had come to the conclusion that DB played a double role: On the rail market DB is, according to the FCO, the dominant transport company in Germany. At the same time DB offers its own powerful mobility platform on its online platform and its app. The FCO concludes that DB therefore is subject to abuse of dominance control under competition law and has special obligations towards other mobility service providers, which the FCO found DB does not fulfil to the required extent.
Mobility service providers offer their customers online solutions for intermodal route planning using combinations of, for example, train tickets, airline tickets and car sharing. DB currently refuses to make its own data, such as data on cancellations or delays, available to other platform providers even though the data are essential for the existence of these kinds of platforms and not obtainable in any other way. According to the FCO, other and smaller railway companies that depend on the mobility platforms could also be disadvantaged by the hindrance of the platforms. In addition, the FCO accuses DB of further restricting competition through several clauses in its contracts. For example, DB contractually sets price specifications for passenger tickets, far-reaching bans on discounts and bans on advertising, whereas, however, DB itself uses discount campaigns and bonus point programmes to advertise its services.
The warning is an intermediate step in antitrust proceeding, which enables the FCO to grant a legal hearing and an offer of commitment before issuing a possible cease and desist order.
The war in the Ukraine has now reached procurement policy and procurement rules.
Firstly, procurement rules for public administration are simplified for contracts in connection with the war of aggression against Ukraine (only in German: Link); secondly, the BMWK published initial information on the application of the sanctions against Russia, which exclude persons and companies with a connection to Russia from public contracts and concessions (only in German: Link).
On 13 April 2022, the BMWK announced that procurement rules for public administration will be simplified for purchases under EUR 10,000 in light of the Russian war of aggression against Ukraine. The Federal Cabinet approved the legal framework on the same day, having previously adopted procedural simplifications in the business area of the Federal Ministry of Defence.
The simplifications apply to contracts related to the war of aggression, so that the federal, state and local government can react as quickly as possible to the effects of the war. In addition, to purchases related to the accommodation, medical care and feeding of Ukrainian refugees, this also concerns investments in cyber security and energy supply. Due to the urgency, fast procurement procedures are essential, which is why extended possibilities for direct awards now come into effect.
Furthermore, the BMWK published information on how to apply the ban on participation of Russian companies in public procurement in EU Member States. The ban is part of the fifth package of sanctions against Russia from 8 April 2022 (see further below). The guidance on the application and scope of the ban is intended to ensure a harmonised application of the sanctions in Germany.
The ban imposed by Art. 5k of Council Regulation (EU) 2022/576 of 8 April 2022 amending Regulation (EU) 833/2014 contains both a ban on awarding contracts for not yet concluded procedures since 9 April 2022 and, as of 11 October 2022, a ban on execution of contracts awarded before 9 April 2022, insofar as there is a Russian connection or if persons or companies with a connection to Russia account for more than 10 % of the contract value as subcontractors, suppliers or entities whose capacities are being relied on within the meaning of the public procurement Directives. A connection to Russia exists if the candidate/bidder has Russian citizenship (including in the case of dual citizenship) or his establishment in Russia; through a candidate/bidder whose propriety rights are owned by such a person or company through shares of more than 50% and through the actions of the candidate/tenderer on behalf of or at the direction of such a person or company. Art. 5k (2) of the above regulation contains a limited number of exceptions from the above prohibition, including for civil nuclear power plants and joint space programmes, for any EU or EU Member State diplomatic/consular representations, as well as for the purchase, import and transport of specified items such as e.g. (for the time being) natural gas and oil, titanium, aluminium, copper, nickel, palladium, iron ore and coal.
The scope of application only includes contracts and concessions above the EU thresholds (cf. Section 106 GWB) as well as certain exceptions contained in the EU public procurement directives for which no procurement procedure pursuant to the GWB public procurement law has to be carried out.
The EU further continues its sanctions policy against Russia.
On 8 April 2022 the Council adopted what is now a fifth package of measures against Russia „in light of Russia’s continuing war of aggression against Ukraine, and the reported atrocities committed by Russian armed forces in Ukraine“ (Link).
The latest package of sanctions includes a prohibition to purchase, import or transfer coal and other solid fossil fuels into the EU if they originate in Russia or are exported from Russia and other new important bans on wood, cement, fertilisers, seafood and liquor. It also contains export bans on jet fuel and other goods such as quantum computers and advanced semiconductors, high-end electronics, software, sensitive machinery, and transportation equipment as well as the prohibition to provide access to EU ports to vessels registered under the flag of Russia. However, derogations are granted for agriculture and food products, humanitarian aid, and energy. Furthermore, it includes a ban on any Russian and Belarusian road transport undertaking preventing them from transporting goods by road within the EU, including in transit. Derogations are nonetheless granted for several products, such as pharmaceutical, medical, agricultural and food products, including wheat, and for road transport for humanitarian purposes.
Besides that, the Council imposed a full transaction ban on four key Russian banks representing 23% of market share in the Russian banking sector and decided on sanctions against companies whose products or technology have played a role in the invasion, key oligarchs and businesspeople, high-ranking Kremlin officials, proponents of information manipulation, as well as family members of already sanctioned individuals.
Finally, the sanctions include targeted economic measures intended to strengthen existing measures and close loopholes, such as: a general EU ban on participation of Russian companies in public procurement in member states (see above), the exclusion of all financial support to Russian public bodies, an extended prohibition on deposits to crypto-wallets, and on the sale of banknotes and transferrable securities denominated in any official currencies of the EU member states to Russia and Belarus, or to any natural or legal person, entity or body in Russia and Belarus.
Given Russia's reluctance to cease military aggression and reports of further alleged atrocities, a sixth package of sanctions is now being prepared by the EU. According to the German Minister of Economics, Robert Habeck, the search for alternative oil suppliers has significantly reduced Germany’s dependence on Russian oil supplies. By press release of 1 May 2022, Habeck announced that since the beginning of the Russian invasion, Germany’s dependence on Russian oil has fallen from 35 % to 12 %. It seems now that the German government supports an import ban on Russian oil. However, since other member states might still have reservations in this regard, long transition periods are to be expected even if the ban is introduced
According to news reports, the German Federal Ministry for Economic Affairs and Climate Action has forbidden the takeover of German producer of respirators Heyer Medical by Chinese medical device producer Aonmed Medical from Beijing. The Ministry argued that its decision was necessary in the interest of public order, especially in view of the experiences made during the CoViD-19 pandemic.
The acquisition, however, had been formally concluded in March 2020. In such cases, German law provides two alternative reversal mechanisms, while also leaving room for alternative measures. The Ministry can either prohibit or limit Aonmed Medical in exercising their shareholder voting rights or instate a fiduciary instructed to reverse the transaction. So far, the Ministry has not publicly announced which measures it will apply.
The Chatham Partners’ EU/COMP-team is specialized in complex issues in the areas of EU and German competition, State aid and public procurement law and has extensive practical experiences in these fields.