Hopes rise for deal on electricity

Date: 09/05/1996

By Fiona McHugh

EU energy ministers, having failed to break the impasse over electricity liberalisation this week, will try once again to resolve their differences at an extraordinary meeting to be held within the next month.

Member state diplomats say they are cautiously optimistic about the chances of clinching a deal at the meeting, but few industry experts are holding their breath.

Should ministers fail to reach an accord, EU heads of state will be called upon to settle their differences at the European summit on 21-22 June.

While some progress was made at this week's meeting on delicate issues such as public service obligations and reciprocity, member states remained split over the pace and scope of market opening, with Bonn arguing for extensive liberalisation and Paris insisting on a more cautious approach.

Italy had proposed a compromise deal which foresaw opening up the equivalent of 25&percent; of the market initially, gradually rising to 30&percent; after nine years.

France, dropping demands that the extent of market opening should not be increased automatically, indicated that it was willing to accept Rome's proposal.

But the UK and Germany insisted it did not go far enough. Bonn, under pressure from producers at home, wants approximately 40&percent; of the market to be opened after five years, as does the UK.

“The UK opened its market by the equivalent of 30&percent; in the first phase, so clearly we want substantial liberalisation at EU level,” said a British diplomat.

France, worried that wide liberalisation would push up prices for consumers of small amounts of electricity, has tried to slow the pace of market opening at every opportunity.

Meanwhile, the UK, which has already embarked on an extensive liberalisation programme, and Germany, which is on the brink of doing so, feel that no directive would be better than a mediocre one.

Bonn's fear is that half-hearted liberalisation would open the Germany's huge domestic market to competition, while protectionist countries such as France continued to keep German companies out of theirs.

To allay these fears, ministers agreed this week to include a reciprocity clause in the directive, although the Commission has expressed reservations about the legality of such an instrument.

Ministers also reached agreement on the wording of a clause on public service obligations, proving that progress is being made on some sensitive points.

The failure to agree on substantive issues, however, will come as a disappointment - albeit a predictable one - to Energy Commissioner Christos Papoutsis and European industry chiefs who have pressed hard for a deal.

Energy-intensive industries, 20&percent; of whose production costs go on electricity, have long complained that their US rivals have effectively been given a competitive edge by EU politicians. Electricity costs roughly 30&percent; more in the Europe than it does on the other side of the Atlantic.

“We are extremely disappointed with France's opposition to liberalisation and with Germany's intransigence,” says Stephen Telegdi of Dow Chemical. “We thought that this compromise would have allowed Europe to take a small step in the right direction.”

His patience wearing thin, Papoutsis warned ministers earlier this year that if the talks did not pick up speed, “higher authorities” would be called in.

That was widely taken to mean the use of the controversial Article 90 of the treaty, which allows the Commission to break up monopolies without the agreement of national governments. But few expect the Commission to resort to such draconian measures for at least a year or two.