Electricity sparks highlight dangers for gas market

Date: 06/03/1997

TALKS on electricity liberalisation finally got under way in earnest in 1992, only making significant progress once the

Germans - who were rapidly liberalising their domestic market - began to pressurise the protectionist bloc led by France.

Opinion could not have been more divided. Some countries sought 'third party access', under which a generator such as the UK's PowerGen could supply French companies via the French national grid without having to sell its electricity to Electricité de France.

Paris preferred a 'single buyer' model, with a national buyer negotiating contracts on behalf of its domestic customers with foreign suppliers offering cheaper energy.

The unhappy compromise finally negotiated last June foresees the opening of 23&percent; of the market from January 1999, allowing huge industrial customers using more than 100 gigawatt hours per year to choose their supplier from day one; those using over 20 GWh a year later; and 9 GWh-users three years after that.

These desperately slow negotiations have encouraged EU governments not to make the same mistakes again in the gas market.

The Dutch presidency wants to bridge the considerable gaps between member states over guaranteeing open access to markets, defining who should be allowed to choose between suppliers and how to treat long-term exclusive supply contracts.

The major problem is to decide on the size of those gas users who will be able to shop around.

Another significant difficulty is how to deal with the 'take or pay' contracts which dominate the industry, under which Russian, Algerian and North Sea producers lock their supplier-customers into very long-term exclusive deals. Countries with emerging natural gas markets want to preserve such arrangements to secure future income for production firms developing new fields.

Consideration is still being given to two alternative schemes put forward by the Irish presidency last December for access to non-domestic supplies: 'negotiated third party access' under which the price is negotiated on a case-by-case basis; and regulated access, whereby transmission and distribution charges are published up front.

The Netherlands is still hoping to achieve a common position when energy ministers meet again on 26 May.