|Vol.7, No.34, 20.9.01, p22
IT IS not polite to suggest that the single energy market is heading for deadlock. But the EU's commitment to a competitive market is looking frayed. The growing market strength of dominant national players such as Electricité de France (EdF) and E.on in Germany is just the most visible part of the problem.
The EU summit in Stockholm failed to set a target date for full competition in the energy markets when all Union consumers would have a free choice of supplier. Attempts to do so were stalled by French and German opposition. Promotion of renewable energy and environmental issues are the main goals for the Energy Council meeting in December. But little can be achieved if access to and regulation of the overall energy market cannot be expanded EU-wide. "It's two steps forward, one step back. It is moving in a certain direction," says Jan van Aken secretary general of the Amsterdam-based European Federation of Energy Traders (EFET). It believes that a successful liberalised market should secure access to electricity and gas transmission networks and related services to suppliers and customers on equal terms.
This should be enforced through a strong regulator. Energy traders, who act as intermediaries between the gas and electricity producers, the transmission companies and the final distributors, have a lot to gain in an open market.
Traded gas and electricity far exceed that which is physically transported. International links such as the Interconnector pipeline between Britain and Belgium effectively create a market. The European Commission has produced a draft regulation advocating a robust legal framework for network access and cross-border trade, and giving itself a substantial regulatory role. But this brings into play the principle of subsidiarity.
Although most member states were obliged to transfer the electricity and gas directives into national law by 1999 and 2000 respectively, they were given much freedom on how to implement them. The result is 15 different types of market opening and regulatory framework.
While the UK is regarded as the most open and France the least, there are internal contradictions. Germany has officially liberalised its gas and electricity markets but there is no independent regulator. This role is assumed by the Bundeskartellamt. Nordic countries, such as the UK, have had a fully open electricity market for some years, but this is dominated by state-owned utilities. "The EU directive is based on the lowest common denominator; it doesn't go far enough," says Neil Bradshaw, electricity analyst at investment bank JP Morgan. The imbalance between public and private ownership of assets where publicly-owned companies are able to acquire privately held assets but not vice-versa has triggered some of the greatest protests about the course of the industry. EdF is viewed as the greatest predator in the European sector. It has a largely protected market at home and foreign suppliers are unable to compete on price, because of the cheap nuclear power which EdF supplies.
Jean Syrota, the chairman of France's energy regulator, Commission de Régulation de l'Electricité (CRE), refutes the criticism of France. In practice, a choice of suppliers is now available to France's largest electricity consumers, he says. The Commission's approval of the take-over of Italy's second-largest power generator Montedison by Italenergia, a consortium of Fiat and EdF, together with some banks and private investors, reinforced doubts among many industry specialists in Europe that the Commission is powerless to enforce its own competition rules.
EdF has just 18% of Italenergia and 2% of the voting rights and the Commission asserts it will re-examine the case if EdF gains control of the consortium, but whether the French company's ambitions will be thwarted remains questionable. Its acquisition in Italy and Spain prompted laws in both countries restricting the voting rights of state-owned foreign companies which buy stakes in privatised utilities. "The EU will come under more pressure. It was wrong of the Italian government to bring in its own law because it's closing the market," argues Bradshaw. Sweden's Vattenfall, which is 50% state-owned and supplies half of the Swedish electricity, has come under similar fire in Germany for its acquisitions in former East Germany, even though the Nordic electricity market has been fully open since 1996.
Now Germany's E.on is under scrutiny should it acquire a further 20% stake in Ruhrgas from ExxonMobil, giving it an unassailably dominant position in the German energy markets. Criticism of France may increase, if, as oftenrumoured, oil company TotalFinaElf takes over the state-owned Gaz de France (GdF).
The even slower pace of gas market liberalisation worries EFET further. Europe's major gas suppliers such as Russia and Algeria fear a liberalised and more competitive EU gas market will cut their export revenues.
These are using the EU's preoccupation with security of energy supply to emphasise their case and try to moderate Union energy liberalisation. Security of supply for Europe means market security for the gas producer, noted Nordine Ait Laoussine, Algeria's former energy minister at a conference earlier this year.
But others believe that the notion of security of supply is a ruse to maintain the status quo. The EU's potential gas supplies include not only the major producers Algeria, Russia, Norway and Netherlands but also potentially Libya, Egypt, Oman and the Middle East, central Asia, Nigeria and the Caribbean basin. "You should not over emphasise the security of supply argument in order not to open the market," says EFET chairman Paul Van Son. The environmentalist lobby thinks likewise. "It's just phoney-baloney stuff to promote nukes," says Robert Bradley, energy specialist at the Brussels-based Climate Network Europe.
Article forms part of a special report on energy.