Dutch optimistic over gas liberalisation plan

Date: 20/03/1997

By Tim Jones

BY PROTECTING developing markets and leaving implementation to member states, the Dutch EU presidency is hoping to break the logjam over the liberalisation of Europe's market for natural gas.

In early drafts of their gas proposal, the Dutch are aiming to kill three birds - how to define an emerging natural gas market, at what pace the entire common market should be opened up and whether exclusive long-term supply contracts should be allowed - with one stone.

The original draft directive from then Energy Commissioner Abel Matutes would have allowed large industries using more than 25 million cubic metres of gas to shop around among suppliers.

Although this figure remains in its compromise proposal, the Dutch presidency wants it to be a mere starting point for market-opening. If liberalisation begins

in January 1999, alongside the opening of the electricity market, more cuts in the threshold would occur over the following decade.

But Dutch officials have made it clear that the cut-off point is a blunt liberalisation weapon when dealing with the gas market.

“If we pursued the option of liberalising the markets in the same way as electricity - by determining a percentage of the consumers that would be eligible - we would not address the problem of different markets, let alone emerging markets,” said Dutch Director-General for Energy Stan Dessens last week. “In fact, we could make the problem worse.”

To cope with this, the compromise will seek to define the type of customers allowed to choose between suppliers. The Hague has yet to decide whether to apply the principle of subsidiarity - which decrees that decisions in the EU should be taken by national and local authorities where appropriate - in deciding whether a distribution company would be classed as an 'eligible customer'.

If this principle was applied, the 'liberal' countries would be free to allow distributors to shop around for gas while others, such as Belgium (where the Distrigaz monopoly relies almost exclusively on contracts with municipal distribution companies), would probably opt to give freedom of choice only to big industrial gas users.

Since this approach would certainly lead to fragmentation of the common market for gas, the European Commission may be reluctant to accept such a change to its original directive.

Energy Commissioner Christos Papoutsis is reserving judgement for the moment. He recognises that establishing such rules will be hard given the lack of information about national markets. To overcome this, the Commission sent a questionnaire to member states in August last year, but some have yet to reply.

The Dutch are hoping to win a majority of member states over to their compromise by clearly defining which countries should be exempt from the normal rules.

Member states such as Greece or even Sweden use little natural gas and want production firms to spend huge amounts to develop their markets. These firms want the certainty that old-fashioned 'take or pay' contracts give them.

When the natural-gas rush to the North Sea began in the Seventies, production companies wanted to tie customers into long-term contracts at set prices to justify their massive investments. These contracts, under which suppliers continued to pay for their gas even if they did not want it, have locked some of them into buying gas at a cost often well above the current market price.

While they are willing to grant exemptions for past contracts, the Dutch are against allowing producers to sign long-term deals with suppliers in the future which offer no scope for renegotiation.