EU enters crunch talks on energy liberalisation

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Energy ministers from the 27 member states are meeting today (6 June) in an attempt to reach a compromise over plans to force more competition onto EU energy markets – otherwise they risk delaying any decision until 2010.

The ministers will try to agree a “general approach” to further open up EU energy markets, including a contested proposal to break up energy utilities’ production and transmission businesses, known as ‘ownership unbundling’.

Germany and France have fiercely opposed the Commission’s plans and formed a blocking minority with six other member states in the Council, threatening to derail the whole package if they are not offered an alternative.

Time running out fast

But the ministers will be running against the clock when they meet in Luxembourg. The French, who take over the rotating EU Presidency from 1 July until the end of the year, clearly said they would refuse to deal with the issue, arguing that they already have an extremely busy agenda (EURACTIV 2/06/08).

According to EU diplomats, in practice, this means the whole package could be delayed indefinitely, since next year will be almost entirely dominated by the European elections, leaving Parliament in a de facto recess as of March 2009.

“If we lose six months, then we run out of time,” a British official said, adding that any agreement “will then probably be postponed to 2010”.

On the other hand, if energy ministers can agree a general approach at their Friday meeting, then the deal could be fine-tuned and transformed into a more detailed “political agreement” in October, the official said.

Compromise in sight

Central to the discussion on Friday is a compromise proposal tabled by the Commission and Slovenia, the current holder of the rotating EU Presidency, which aims to sooth Franco-German opposition to ‘ownership unbundling’ (for more details, see EURACTIV 16/05/08).

“Honestly, we are not very far from coming to a close,” a French diplomat said, adding that the aim of the meeting will be to sketch the “broad outlines” and “the main balances” of the agreement.

However, there are a number of remaining issues which could still sink the deal.

Third option: for gas only?

First among them is to determine whether the ‘Third Way’ compromise proposal will be applicable to gas only or whether it should also be applied to electricity.

The Commission, supported by the UK, argues that the electricity market is already mature enough and that the ‘Third Way’ should therefore only apply to gas. Once the gas issues are solved, the argument goes, finding a compromise on electricity will be “much easier”.

However, the French see things very differently. “The staunchest supporters of ownership unbundling are now saying there should be a differentiation between gas and electricity as a safety exit,” one official said. “But to go to the bottom of things, what they want is to attack EDF and E.ON”.

For the French, this would mean crossing a red line. “The Slovene Presidency has well understood that there will be no agreement without electricity,” the official said. “Otherwise, there will be no deal.”

Review clause: also for unbundling?

Another big issue is the review clause that the European Commission will have to produce five years after the directive comes into force. 

Under the current draft, the review would address “the extent to which the unbundling requirements [of the directive] have been successful in ensuring full and effective independence of transmission system operators”.

For the UK, the review should be made as stringent as possible and focus mainly on whether the ‘Third Way’ option has delivered. “The review clause needs to be tightened up,” said a British official, stressing that its main focus should be on “measuring the success of the third option.” According to the official, the clause should make clear that “the main principle of the directive is ownership unbundling”.

However, those claims are roundly rejected by France. “We are in favour of a strong regulatory system but the criteria should apply to all options in the same manner,” the French official stressed.

According to him, focusing the review only on the ‘Third Way’ would introduce an in-built bias in favour of one option. “We have to depart from this ideological debate where one solution is necessarily ‘good’ and the other is derogatory,” the official said.

In short, the directive’s ultimate objective should not be ownership unbundling, the French official insisted. “If the ‘Third Way’ works, why change it?,” he asks, adding that in this case, there would be “no reason to change the system even in ten or fifteen years”.

Suggestions that unbundling could be introduced after a transition period were also rejected as “a non-starter”, the official said, using Shakespeare’s language.

Under pressure, it seems the UK has begun a U-turn. “The review clause can be broadened” to also include ‘ownership unbundling’, the British official conceded. “But it should make clear that the third option receives special attention.”

‘Gazprom clause’: Towards a middle way

Finally, a reciprocity clause on investment, also dubbed the ‘Gazprom clause’, is causing concern among some EU countries. 

Under the clause, foreign companies would need to comply with the same unbundling requirements at home before making acquisitions in the EU. The deal would need to be signed in a bilateral agreement between the European Commission, on behalf of the whole EU, and the partner country.

Supporting the clause are former Soviet satellite states such as Poland, which are pushing for a strong approach at EU level to protect their strategic energy transmission assets from acquisitions by Russian companies (EURACTIV 20/09/07). 

At the other end are countries like the UK, which worry about “a burdensome procedure” that would involve all 27 EU member states mandating the Commission to sign a bilateral investment deal that would have to be returned to the Council for approval. 

British diplomats also worry that the clause would give the Commission new “creeping powers”. “The UK thinks it can deal with this without the EU,” one said.

In its third liberalisation 'package' proposals unveiled in September 2007, the Commission left member states with two options to complete the liberalisation of the EU gas and electricity sector:

  • Forcing large integrated energy firms to sell off their transmission assets in order to keep these activities fully separate from energy production ('Ownership unbundling'), or;
  • allowing firms to maintain ownership of their transmission assets but leave their management to an Independent System Operator (ISO) responsible for taking investment and commercial decisions.

France and Germany have opposed the Commission's plans and, together with six other member states, tabled an alternative proposal, called the 'Third Way', which would save companies from splitting their energy production and transmission businesses (EURACTIV 01/02/08).

  • 6 June: Energy Council meeting (Luxembourg).
  • 19-20 June: EU Summit (Brussels) offers last chance for an agreement.
  • 1 July-31 Dec.: French Presidency.

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