Monti set to unveil energy aid rulebook

Date: 28/10/1999

By Peter Chapman

The European Commission will spell out next month how it intends to decide whether member state schemes to compensate electricity firms hit by liberalisation can be allowed under EU competition rules.

The move comes as Madrid attempts to convince Competition Commissioner Mario Monti that he should wave through payments of €7.3 billion to compensate Spanish firms for investments rendered obsolete by increased competition in the electricity sector. A lack of clear rules has prompted fierce clashes between Spanish Industry Minister Josep Pique and Monti over what sums should be authorised.

The issue came under the spotlight after EU governments began to implement the 1996 electricity liberalisation directive in February this year.

The legislation allows member states to set up schemes in some instances to give firms with huge 'stranded costs' (investments that they will never recoup) a soft landing. Berlin was, for example, given the right to protect companies in east Germany from the full brunt of competition because of its potential impact on power producers who invested heavily in lignite-based plants there after the country was reunified.

But the Commission says Madrid's compensation scheme must be examined under EU subsidy regulations because it is based on direct payments funded through levies on electricity usage. Other member states with levy schemes under scrutiny include the UK, Netherlands, Austria, Denmark and France.

The institution is now drawing up guidelines for governments, to be published at the end of next month, showing how it plans to crunch the enormous numbers involved and marry the terms of the directive with the Union's state-aid rulebook.

Concern over the 'stranded costs' issue follows increased tension between the Commission and France over Paris' continued failure to implement the electricity directive by opening its market to foreign firms.

In response to complaints from the British and Dutch governments, Energy Commissioner Loyola de Palacio announced this month that her officials would carry out “fortnightly checks” to ensure the French parliament was on course to approve draft legislation implementing the directive by the end of this year.

The UK and the Netherlands say foot-dragging by Paris means French firms are enjoying the freedom to enter other member states' markets while foreign firms still face barriers when they try to sell power in France.

Despite De Palacio's decision to act, critics of French stalling remain sceptical that its planned legislation will solve the problem of market access for foreign firms.

“This law is meant to transpose the terms of the directive. But it will not solve all the evils because most people now recognise that the directive itself does not go far enough,” said one national expert.