BELGIUM / FILE: EU lays down proposals for energy market which would impose strict rules on EU countries as well as those from outside the bloc

The European Commission took on Russian and dominant European power giants on Wednesday (September 19) in a new move to open gas and electricity markets to more competition while limiting foreign ownership of EU assets. The European Union executive adopted hard-fought energy proposals aimed at forcing big utilities such as Germany's E.ON and Electricite de France to separate power generation from their distribution networks. At a news conference in Brussels, European Commission President Jose Manuel Barroso said the EU bloc needed to be tough to ensure that all the energy players inside and outside of the 27 played by the same rules. "To protect the openness of our market to protect the benefits that unbundling will bring, we need to place tough conditions on ownership of assets by non European companies to make sure that we all play by the same rules," he said. Under the plan, generators will be forced to sell their transmission networks or hand over control to an independent operator, which the Commission argues will boost investment in infrastructure and allow new entrants into the sector. But Russian gas monopoly Gazprom, which supplies about a quarter of the 27-nation bloc's gas, and Algeria's state-owned Sonatrach will not have free rein to buy pipelines and power grids. The new rules will bar foreign firms from controlling European energy networks unless they play by EU rules and their home country reaches an agreement with Brussels, Barroso said. "In practice, this means that third-country individuals and companies should not be able to acquire control over Community transmission networks unless there is an agreement between the Community and the companies' country of origin," Barroso said. A Commission statement said Brussels could intervene when a potential purchaser "cannot demonstrate both its direct and indirect independence from supply and generation activities". In a statement issued before the proposals were published, Gazprom stressed it was a reliable gas supplier to the European Union and wanted a say in future regulation. Gazprom company spokesman Sergei Kupriyanov said in a statement issued in Brussels: "Gazprom has an important contribution to make to the debate about regulation of the energy sector in Europe and feels certain that its voice will be heard." Barroso said the new proposals were not aimed at Russia as a country nor as a government and used the EU's anti-trust laws against Microsoft as an example. "There is no politicisation and this is not against a specific country or a group of countries. Same case, if I may, since you mentioned it, Microsoft was not against the United States of America. When we asked Microsoft to respect the competition rules, when we enforce our competition rules, this is not against the United States of America. So if you take now this decision it is not against Russia. Lets be clear about this. What we want is the internal market to work in a fair open manner," Barroso said. The Commission argued over details of the package up to the last minute in a sign of their political sensitivity. Transport Commissioner Jacques Barrot of France wanted utility groups to have more say over transmission networks even if they were run by an independent operator, EU sources said. Energy Commissioner Andris Piebalgs and Barroso reject that view. The Commission has long favoured full "ownership unbundling", which would force companies to sell their pipelines and grids. But several EU states, including France and Germany, oppose it, so the Commission offered an alternative of an independent system operator (ISO) to run distribution networks. Each member state would be free to choose between the two options. Piebalgs insisted the Commission had not watered down its proposal on the independent operator. He also said that consumers from countries like Germany would benefit from unbundling and that consumer organisations there had asked for it. "If you have more competition in the market then the margins we discovered between the wholesale and retail sales will go down and in Germany's particular market the difference between wholesale and retail is extremely high compared with the other comparable markets where the companies have been unbundled. So definitely we can't necessarily predict that if oil prices reach 3 digits and if dollar against the euro will change the ratio that also makes an influence on the energy prices but the generation prices, the charge for the access to the customer will be optimal, that is quite clear and the German Verbraucher organisation always defend that unbundling should be done so it's not only different opinions and they see that this is one part of the problem as to why the prices have been so high in Germany," Piebalgs said. Nellie Kroes, EU Commissioner for Competition standing next to Barroso at the news conference, said consumers in Germany paid around 30 percent more for their energy bills than British consumers but that unbundling would remedy the situation. Barroso said he was confident a clear majority of member governments would support the energy package. But, as with most restructuring EU-wide legislation, the road to success is far from paved with gold. "So what we are now presenting is in line with the wish presented by our member states. Of course now discussion starts on the concrete proposals and lets be honest it will be a tough long negotiation, we know that," Barroso said. A senior German official was quoted on Wednesday as saying Brussels' proposals to break up big utility companies were almost tantamount to expropriation. Other elements of the new rules include strengthening the role of national electricity and gas market regulators and the formation of an Agency for the Cooperation of Energy Regulators. Legal issues surrounding the creation of the agency were also still being debated, the sources said. Speaking at a news conference on Wednesday (September 19) Michael Glos, German Economy Minister, said the proposals would bring too much regulation. "We have worked hard for more competition and the so called Independent System Operator plans (by the European Union) are right. It's also a proposal we were hoping for. However, the definition envisaged by the Commission is too bureaucratic, too centralistic. We fear that if the current plans are implemented the necessary investments in the grid-type networks -- which we want -- will not happen. So the final word has not yet been spoken," Glos told reporters after a meeting with India's finance minister in Berlin. Other elements of the new rules, which Piebalgs hopes will be adopted by the end of 2008, include strengthening the role of national electricity and gas market regulators and the formation of an Agency for the Cooperation of Energy Regulators.

ITN Source | September 20, 2007

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