Sep 19, 2007, 16:46 GMT
Brussels - The European Union issued a massive challenge to energy companies Wednesday with the release of a proposed market reform aimed at boosting competition and lowering prices.
'The status quo cannot continue...Without change, distortion of competition and fragmentation of the market will continue, (and) the consumer will continue to pay the penalty,' Jose Manuel Barroso, the president of the EU's executive, the European Commission (EC), said.
The proposal, whose final text was approved by the EC on Wednesday, aims to boost competition by breaking up firms which control both the production and the delivery of energy.
'If a company sells electricity and gas and at the same time owns the networks, it has every incentive to make sure that its competitors do not get fair access to 'its' grid,' Barroso said.
The package contains three key proposals. One - the strengthening of national energy regulators and the creation of an agency in which they would discuss cross-border energy issues - is unlikely to ruffle many feathers.
But the other two, which strike directly at the power of energy giants within and outside the EU, respectively, are as potentially explosive as an electric spark in a gas silo.
Under the first proposal, companies which sell energy or gas to consumers within the EU would be forced to give up the control of any main-line gas pipelines or electricity cables which they own, in a process known as 'unbundling.'
'Without effective separation, effective competition won't take off,' EU Competition Commissioner Neelie Kroes said.
Consumers in Germany, where the EC says that energy markets need to be unbundled, paid 31 per cent more for power than consumers in the more liberalized UK market between 2004 and 2006, even though wholesale prices in Germany were 10 per cent cheaper, she added.
The proposal has received bitter criticism from some EU member states, particularly France and Germany.
France's EDF called the proposal a 'step backwards,' while French gas giant Gaz de France called it 'neither in the interest of the consumer, nor of European policy, nor of the security of supply in Europe,' the French newspaper Les Echos reported.
The EC proposal does, however, offer member states who are unwilling to unbundle their markets a fall-back option.
'One size does not necessarily always fit all. We have therefore provided a second option that achieves to a very large extent the same objective,' Barroso said.
The fall-back option would allow energy companies to keep the ownership of their transmission networks, but oblige them to hand network management to a verifiably independent system operator (ISO).
The ISO system 'is more complicated than ownership unbundling, and involves an increased regulatory burden. This is the trade-off for those Member States that choose this option,' Barroso said.
Under the second proposal, companies from non-EU countries wanting to buy a stake in EU gas pipelines or electricity grids could only do so if they are not involved in producing or selling gas or power.
Non-EU companies seeking a controlling interest in an EU energy network would only be allowed to do so if they could prove that they have no involvement in producing or selling energy, and if their home country signed a bilateral agreement with the EU, officials said.
'This is simply to ensure that the unbundling rules will be respected. Once again, the aim is not to prevent these companies playing a greater role on EU markets - on the contrary, it is to make sure that all follow the same rules,' Barroso explained.
Commentators, however, see the proposal as being specifically aimed at Russian gas monopolist Gazprom, which in January 2006 caused a short-term gas crisis in much of the EU when it shut off gas supplies to Ukraine during a pricing dispute.
Some commentators have dubbed this proposal the 'Gazprom law,' though EC officials strongly reject the suggestion that it was written with the company in mind.
It is 'not against a specific company or country,' Barroso said.
Gazprom released a statement on Wednesday saying that the company was a 'reliable gas supplier to the EU,' and that it would only comment on the proposal after studying it 'very carefully.'
But some Russian politicians have already accused the EU of 'hysterical' protectionism and threatened to mount a legal challenge to the package if it is implemented.
'This is about fairness; it is about protecting fair competition. It is not about protectionism,' Barroso said.
Implementation is not likely to come for some time, however. The package must first be approved by the EU's member states, who would then have two and a half years in which to comply with it.
And approval is unlikely to come easily, with a German official saying that his state - the largest in the EU - was opposed to the proposal for unbundling.
Joachim Wuermeling, state secretary in the Economics Ministry, said in an interview that Germany and eight other nations had 'clearly expressed' their rejection of the unbundling policy.
But he said some regulatory changes were certain, such as forcing utilities to let others operate their networks without forcing them to give up the legal ownership.
Your Talkback on this Story