Late burst of energy for liberalisation

Date: 18/12/1997

By Chris Johnstone

A LATE flurry of liberalisation measures kept up the pace of EU market opening in 1997 and allowed what looked like being a transition year to end in triumph.

The deal on gas liberalisation agreed earlier this month was the single biggest factor in changing the tone.

With energy costs up to 50% higher in some EU countries than in the US, the agreement should provide a powerful impetus for prices to fall and for one of Europe's biggest competitive handicaps to be removed.

Some economists, and most dominant gas companies, will argue about whether there is a direct link between more competition and lower prices.

But EU governments recognised that something had to be done to ease industry's energy burden.

Few would have given the Luxembourg presidency much of a chance of clinching a deal, even on the eve of the crunch 8 December meeting of gas ministers. The gap between the market opening demanded by keen liberalisers such as Germany and the UK, and a reluctant France, had closed slightly but remained wide.

Paris also had a series of potentially deal-breaking reservations about opening up Gaz de France's distribution monopoly and the protection of long-term gas supply arrangements.

The final deal, for an initial marketing opening of 20% to be broadened to 33% after ten years, allowed France to justifiably claim victory. However, the liberalisers can say that history and experience is on their side and may privately suspect that they will sooner or later have the last laugh.

The emerging lesson of electricity liberalisation over the last year has been that the percentage figures for market opening tend to lose significance once the starting gun has been fired.

Commission officials now believe that 60% or more of the EU's electricity market will be open by 1999, with some countries shrugging off the original 23% target thrashed out at the end of 1996 and moving full-speed ahead towards full liberalisation of their own markets.

The expectation is that where the EU's market-opening evangelizers lead, others will have to follow, albeit reluctantly, or see their industries hamstrung by higher costs and less competitive services.

Yet while electricity liberalisation got off to a flying start, the much-heralded dawn of a new era in aviation started with a whimper rather than a bang April 1997 had long been anticipated as the date when Europe's airlines would obtain the full freedom to fly between any EU airports without restrictions on the number of passengers they could pick up outside their home country.

Yet airlines singly failed to take up the opportunity offered them, in contrast to the fare war which erupted when price controls were ended in 1993. Perhaps the date of 1 April was seen as just too unlucky by the marketing men.

The lack of uptake underlines the fact that setting up a totally new operation in a foreign country is an expensive and risky option This has fuelled the airlines' calls for the European Commission to strengthen its proposals to tackle high charges by airports - one of the main obstacles to the launch of new services.

Although airfares still show a stubborn resistance to gravity on routes where only two airlines operate, the number of complaints that companies have been firing at each other in recent months is just one encouraging sign that competition is hotting up.

EasyJet complained about KLM, Deutsche BA has protested against Lufthansa, and almost everyone appears to be lined up to target BA's new cut-price carrier, soon to be launched out of London Stansted.

Meanwhile, the EU's timid opening of the market for postal services took two steps forward with the European Parliament and national ministers approving the timetable for post offices to relinquish some of their monopolies.

Post offices will lose the right to deliver letters weighing more than 350 grams, but there will be no relaxation of their grip on lucrative 'junk mail' before 2003.

However, private courier companies - the most strident campaigners for an end to post offices' protected markets - had to wait all year for the Commission's Directorate-General for competition (DGIV) to deliver a promised notice on how it will approach complaints about unfair practices and cross-subsidies in the sector.

Part of the European Voice 'Review of the Year'.