Spain broke rules in energy deal

The Spanish government favoured a Spanish buyer for Endesa

Europe's top court says Spain broke EU law by trying to obstruct a German takeover of Spanish energy firm Endesa.

The European Court of Justice ruled Spain broke competition rules by insisting mergers in its energy sector be pre-approved.

E.On made a 42.5bn-euro ($60bn; £30bn) bid in February 2006 and it was approved by the European Commission.

But the Spanish energy regulator placed 19 conditions on E.On's 2006 offer, which was withdrawn in April 2007.

'Infringed community law'

As well as the E.On case, Spain also applied the system of "prior authorisation" to the bid for Endesa by Italian energy company Enel and Spanish construction group Acciona.

The actions were considered to be part of a wider attempt by Spain to prevent foreign utilities from taking stakes in domestic peers.

"By making the acquisition of shareholdings in undertakings in the energy sector and of certain of their assets subject to the prior approval of the national energy commission, Spain has infringed community law," the European Court of Justice said.

The European Commission took Spain to the court, accusing it of restricting the free movement of capital.

Ruling welcomed

"The system constitutes a restriction on the free movement of capital in as much as it is capable of deterring investors established in other member states other than Spain from acquiring shareholdings in Spanish undertakings operating in the energy sector," the court said.

The action against Spain was brought by EU Internal Market Commissioner Charlie McCreevy.

"Commissioner McCreevy welcomes the ruling of the court, which confirms the consistent line that special rights have no place in the internal market," his spokesman said.