Gas compromise wins support nnn

Date: 24/07/1997

By Chris Johnstone

A FRESH attempt by the Luxembourg EU presidency to break the deadlock between governments over how to open up the European gas market to competition appears to have won broad but cautious support from all sides.

Experts from those member states anxious to slow down the process of allowing large gas consumers to shop around for the cheapest suppliers said the new Luxembourg text appeared to ease some of their fears.

Others seeking to speed up competition said they might be able to accept a slower pace as long as a 'real' opening of the market was on offer.

Both camps warned, however, that discussion of the Luxembourg text so far had been brief, and stressed that many details still had to be filled in. A meeting scheduled for 8 September is expected to take the process further.

Luxembourg has set the ambitious target of getting an agreement on market-opening by the end of the year.

“A political deal would still seem possible by that date,” said one expert, although he added that significant changes to the Luxembourg text would probably be needed.

Previous Dutch attempts to open up gas supply collapsed in June after 'liberalising' and 'protectionist' member states failed to agree on how fast the market should be opened and whether long-term, fixed-price gas contracts were compatible with a free market.

Luxembourg appears to have moved to appease the protectionist bloc of countries, headed by France and Belgium, on the supposition that the liberalisers - the UK, Netherlands and Germany - will eventually be forced to conclude that a flawed directive is better than no directive at all.

The broad format of liberalisation stays the same: countries would be given the choice of allowing gas suppliers to negotiate access to new customers on the basis of guideline charges for using pipelines or having a more formal system where access would be guaranteed on the basis of published terms and prices.

However, the latest proposal calls for a slower and less ambitious market-opening than its failed Dutch predecessor.

It suggests allowing all gas-fired power generators (regardless of their annual consumption of gas) and other industrial customers consuming more than 25 million cubic metres a year to shop around for suppliers immediately.

The threshold for industrial users would be cut to 15 million cubic metres five years after the directive came into force (5 million higher than under the Dutch plan), and to 5 million cubic metres (instead of 1 million) after another five years.

Luxembourg is also proposing a lower target for the percentage of the market that must be liberalised, suggesting at least 45&percent; of national gas markets should be opened to competition ten years after the directive comes into force. The Dutch proposal envisaged its three-stage procedure liberalising at least half of national gas markets over the same period.

Safeguards are also built into the Luxembourg text to ensure that some countries would not be forced to open their markets to a greater extent than their neighbours.

Under the plan, an estimated 28&percent; of national gas supply would be exposed to competition in the first stage. If more than 35&percent; of the total market was opened, governments would be allowed to define more strictly the 'eligible customers' allowed to shop around, thereby pushing down the proportion of the market being opened to below the 35&percent; mark.

The proposal also offers a wholesale derogation from the initial stages of liberalisation to countries with 'emergent' gas markets, defined as those where the first commercial long-term gas supplies have come on stream within the last ten years. The exemption would lapse once the market was deemed to have developed. Temporary derogations would also be offered for developed markets.

The tricky issue of 'take or pay' contracts, which bind companies to be supplied with gas at a given price over decades, even if they cannot immediately sell it on, is also tackled by offering yet more derogations. Temporary exemptions from the liberalisation process could be made available by governments if a firm faced “serious financial or economic difficulties” as a result of its long-term supply commitments.