Hopes rise for EU electricity deal

Date: 13/06/1996

THE prospects of a deal opening Europe's 136-billion-ecu electricity market to competition have brightened following an agreement between Germany and France on the pace and scope of market opening.

The breakthrough paves the way for an EU-wide agreement at a meeting of energy ministers called for next week in a bid to settle the long-running dispute ahead of the Florence summit.

“We are very optimistic that the directive will be adopted next week. Really we have made a lot of progress,” said an aide to French Industry Minister Franck Borotra.

The two EU heavyweights have blocked progress on the controversial issue for several years, with Germany seeking substantial liberalisation and France insisting on a more cautious approach.

But Bonn and Paris have now agreed to an initial market opening equivalent to 23&percent;, rising to 33&percent; after nine years.

Put another way, the deal would allow large industrial consumers who use more than 40 gigawatt hours of power annually to shop around for cheap deals from the start, a privilege which would later be extended to those who use more than 9 gigawatt hours per year.

However, any progress at next Thursday's (20 June) meeting is likely to be greeted with horror, and possibly industrial action, by workers at the French state-owned power company, Electricité de France (EdF), who have already taken to the streets in a warning strike.

Conscious of the sensitivity of the issue, the French government has always insisted that the EdF must be allowed to retain control of the power grid and to guard its monopoly on the sale of electricity to households. Both conditions are included in the agreement struck between Paris and Bonn.

The UK and Nordic countries have not yet delivered a final verdict on the Franco-German agreement, but they are expected to follow the Italian presidency's lead and support it.

With state-owned electricity companies accounting for a huge number of jobs in many EU countries, and widespread fears about long-term planning in a market-run regime, energy liberalisation has proved to be one of the trickiest single market aims to achieve.

France, concerned 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.

This has prompted concern in Bonn, which has always insisted on a broad market opening, that it would open the Federal Republic's huge domestic market to competition while protectionist countries such as France continued to keep German companies out of theirs.

To allay such fears, the two countries agreed last month to include a reciprocity clause in the directive which would allow French companies to supply large industrial users in the Republic only if German firms were allowed to sell their goods on the French market.

However, the Commission might yet object to that clause because it feels such a measure gives a bilateral flavour to what was supposed to be a Europe-wide deal.

Any agreement at next week's meeting would be a major triumph for Energy Commissioner Christos Papoutsis, who has made progress on this dossier one of his priorities. It would also come as a relief to European industry chiefs who have long opposed the current monopoly regime.

Energy-intensive industries, 20&percent; of whose production costs go on electricity, complain that their US rivals have an unfair competitive edge over them because their energy is roughly 30&percent; cheaper.

Should ministers fail to reach an accord, EU heads of state will be called upon to settle any differences at the European summit next weekend (21-22 June).