EU blocks Portuguese gas and electricity merger

 The European Commission has decided to block a deal to combine Portugal's main power and gas groups because of competition
concerns, national news agency Lusa quoted Economy Minister Alvaro Barreto as saying Friday.

The transaction would have seen state-controlled oil company Galp Energia sell 51 percent of gas firm GdP to former state monopoly EDP and the other 49 percent to Italian energy group ENI.

But last month the European Commission, the executive arm of the European Union, formally objected to the proposed merger, expressing concern to Lisbon that the deal could make Portugal's main electricity and gas providers overwhelmingly dominant.

Barreto said Brussels had rejected Thursday as insufficient a number of compromises proposed by EDP in order to allay the Comission's concerns.

The minister added that he had advised EDP against giving in to demands for further concessions from Brussels so that the deal could go ahead.

"We are small and we can't be held to the will of those who want to impose conditions that harm our country," he said on the sidelines of a conference, Lusa reported. The move, if made final by the Commission, will be the first prohibition of
a takeover by the EU executive in more than three years and is a major setback for Portugal's centre-right government which has strongly backed the merger.

The Commission was reportedly worried that allowing the deal to go ahead would set a bad precendent.

The government of France has in the past considered a similar merger of power company Electricite de France and Gaz de France. Last week EDP president Joao Talone said in an interview published in the newspaper Expresso that the company was willing to temporarily give up its veto right in Portuguese gas company Turbogas, a smaller rival of GdP, in order to remove these concerns.

The utility currently has a 20 percent stake in Turbogas, which gives it a veto right over key decisions. He added EDP was also willing to sell its terminal in Sines south of Lisbon in order to win approval for the merger.

Portugal and Spain agreed at a summit earlier this year to start running a long-delayed unified power market before June 2005, known as Mibel, and Lisbon wanted the merger to be approved before then.

EDP and the Portuguese government had argued that the EDP-GdP deal should be considered in the context of the proposed Mibel single Iberian energy market instead of just in the context of the Portuguese market.

Shares in EDP, which had risen in recent sessions following a report in business daily Diario Economico that the European Commission was set to approve the merger, closed down 0.88 percent to 2.25 euros.