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01 December 2016
On October 27 2016 the government exempted the state-owned national electricity provider and an energy company from having to fulfil merger control obligations before their intended merger. According to the relevant government decree, the concentration was of national strategic importance, as it facilitated affordable energy supply for consumers. This exemption is not unprecedented under Hungarian competition law.
A 2013 amendment to the Competition Act enabled the government to exempt concentrations from having to fulfil the Hungarian Competition Authority's (HCA) merger control clearance obligations. The government has since exempted a number of concentrations from fulfilling clearance obligations, mainly in the public utilities field.
Under the Competition Act, the government can – for reasons of public interest – declare a concentration to be of national strategic importance. In such cases, HCA clearance is not required to carry out the transaction. However, it is a condition precedent for such an exemption that the concentration be part of a national strategy and serve the public interest. As regards the latter, the Competition Act states that the protection of jobs and security of supply may sufficiently serve the public interest to constitute an exemption. As a result, the government or state-owned companies usually participate in exempted transactions.
Concentration participants need not apply for an exemption – issuing such a decree is done solely at the government's discretion. Consequently, there are limited options for challenging an exemption, although – in theory – an exemption can be disputed on the basis of constitutional issues before the Constitutional Court. This limited possibility of appeal sets the Hungarian rules apart from similar rules in other countries – most notably, Germany.
The government usually applies this exceptional instrument to public utilities. It has exempted several concentrations – not only regarding entities in the electricity field, but also natural gas providers – when such transactions are considered necessary to safeguard the security of supply in these fields.
However, such government decrees have also been applied in a wide range of areas. For example, certain transactions involving banks and financial institutions have been exempted, in order to safeguard jobs and ensure the supply of services (especially in rural areas). In other cases, exemptions have been granted to:
Other exempted transactions have involved school textbook publishers, IT service providers and a broadcasting and radio communications company.
Exemptions provided by government decrees should not interfere with the European Commission's competence regarding mergers with an EU dimension pursuant to Article 1 of the EU Merger Control Regulation (139/2004). The Competition Act clearly states that the exemption applies only to national merger control proceedings (ie, proceedings carried out by the HCA under Section 24 of the act).
Further, the possibility of gaining an exemption for a merger does not conflict with the EU competition rules, as each EU member state has the discretion to scrutinise mergers without an EU dimension and determine whether they should be subject to prior clearance by the national competition authority.
The question may arise as to what would happen if a merger clearance application has already been submitted to the HCA when an exemption is granted for the transaction. In such cases, the applicant must withdraw its application or the HCA will terminate the proceeding based on the fact that legislative changes in the interim have removed the merger clearance from the scope of its competence.
The government can also grant an exemption in a prohibited transaction subsequent to a completed HCA procedure.
In the three years since this instrument was introduced, the government has issued approximately 15 decrees declaring concentrations to be exempt from the HCA's merger control obligations. This shows that the practical importance of the instrument cannot be denied; however, the significant discretion given to the government by the vague conditions for obtaining an exemption (ie, national strategic importance serving a public interest) has been criticised.
Conversely, similar non-competition issues are also considered when assessing mergers under the laws of other EU member states. While the above instrument exists under European competition law, other EU member states arguably provide more protection for market participants that could be negatively affected.
For further information on this topic please contact Orsolya Eötvös or Christoph Haid at Schoenherr by telephone (+36 1 8700 700) or email (firstname.lastname@example.org or email@example.com). The Schoenherr website can be accessed at www.schoenherr.eu.
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