UPDATE 2-Iberdrola ups stakes in Enel Brazil battle with EU call

* Enel not competing on level playing field - letter

* Enel taking advantage of being state controlled - letter

* Enel says Iberdrola trying to block fair competition (Recasts, adds Enel comments)

MILAN, April 26 (Reuters) - Spanish utility Iberdrola locked horns with Enel on Thursday, alleging its Italian rival’s state control was resulting in unfair competition.

Enel, which rejected the allegations, and Iberdrola are involved in a heated contest to control Eletropaulo, Brazil’s largest power distribution company.

But in a letter to the European Commission, Iberdrola said Enel, which is 23.6 percent owned by the Italian Treasury, was taking investment decisions it would not be able to were it not supported by the government in Rome.

“It is critical that the European Commission... prevents any member state from passing legislation, adopting policies and taking measures that favour state-controlled companies and ... distort the level playing field,” Iberdrola said.

In emailed comments, Enel Americas, Enel’s South American subsidiary, said the lack of substance to all the allegations made in Iberdrola’s letter was “quite surprising”.

Enel said the only apparent goal of the letter was “to prevent fair competition for Eletropaulo”, after the Brazilian grid’s board had refused to proceed with a capital increase that would have favoured Iberdrola’s unit Neoenergia.

The tussle comes not long after the Spanish government stepped it to prevent Italy’s Atlantia from acquiring exclusive control of rival Abertis.

On Thursday, Enel, which paid around 39 billion euros to take control of Spanish utility Endesa eight years ago, raised its bid to 32.2 reais ($9.20) per share in a tit-for-tat with Iberdrola.

The bid values Eletropaulo at 5.39 billion reais and tops a Neoenergia offer on Wednesday of 32.10 reais per share.


In its letter, Iberdrola said Enel benefited from a privileged “factual and regulatory” situation in Italy that guaranteed it cheaper and easier access to capital markets.

It said it was looking at legal actions to make sure the EU Commission looked into whether Enel and the Italian state were complying with competition rules applicable to state-owned or state-controlled companies.

The European Commission declined to comment

Enel, Europe’s biggest utility in terms of market value ahead of Iberdrola, competes with its Spanish rival in many markets around the world, including Latin America.

Last year Iberdrola said it was entering Italy’s retail power market, targeting 5-7 percent of the country’s more than 37 million consumers.

Enel, which is focusing on green energy and grids to boost growth, generates more than 25 percent of its earnings in South America and is keen to buy regulated grid assets there.

Earlier this month Enel CEO Francesco Starace told Reuters the group was looking at bolt-on deals below 5 billion euros, with several opportunities in Brazil.

Besides Iberdrola and Enel, Brazil’s Energisa SA has also already bid for Eletropaulo. Competing bids will be presented to the Sao Paulo stock exchange on May 18. ($1 = 3.5010 reais) (Additional reporting by Andrei Khalip, Jose Elias Rodriguez, Foo Yun Chee, editing by Valentina Za/Elaine Hardcastle/Alexander Smith)