Cross-border investments light up eastern markets

By Andrew Rosenbaum

Date: 08/09/05

The liberalisation of the gas and electricity markets in the EU has so far had little effect in Central and Eastern Europe, but there are some signs of change beginning. The national monopolies still have few competitors, but cross-border consolidation is expected to increase competition in the region.

"All of Europe is in a consolidation phase and we've seen the birth of global multinationals in recent years, including France's Electricité de France [EDF] and Germany's RWE," says Rod Christie, region executive, Central and Eastern Europe at GE Energy in Prague. "The same process is taking place in the new member states, with companies like the Czech Republic's CEZ investing in Romania and Italy's ENEL moving into Slovakia. As effective cross-border alliances take place, we will see increasing pressure on governments to implement liberalisation and competitive pricing," says Christie.

For now, energy production is either controlled or subsidised in most Central and Eastern European (CEE) countries and the price of gas and electricity remains well below the average market price in Western Europe. For example, in 2004, the average household price for electricity in the old member states was 15.9 cents per kilowatt-hour (kWh) while in new member states it was 8.77 cents per kWh. Electricity for businesses costs about 30% less in the CEE than in Western Europe, according to the London-based research and consulting firm Datamonitor. Although energy generation is still tied to outdated equipment, long-term contracts are used to keep prices down.

The Hungarian market provides a good example. Hungary has already implemented EU energy legalisation and power is now traded over the counter in that country, although generation is limited to the former national monopoly MVM. Germany's E.ON has a working subsidiary in Budapest that already has 50% of the deregulated market. And E.ON Hungária is spearheading efforts by private transmission companies in Hungary to change regulations that allow MVM to reserve the lion's share of cheapest-generated power for its own sale, according to E.ON Hungária director Konrad Kreuzeder. The two-year-old Hungarian Energy Regulation Office is reportedly already considering changes in the current regulatory framework that would effectively liberalise all power sales.

The situation is much the same in Poland. EU energy legislation will be fully implemented on 1 October 2005. There is already a market for energy trading in Warsaw and businesses have a choice of suppliers, at least in theory. "In practice, the market has very limited liquidity, and regulations on energy allocation are still complex and differ from country to country," explains Jaroslav Dybowski, an energy trader with the Prague-based broker Entrade.

But Dybowski expects the situation to change in the coming year. The majority of the new member states either have already implemented the EU's latest energy legislation, or they are expected to in the near future.

"It's clear that the regulations that hamper our trading will be changed soon. Member states cannot ignore the thrust of the EU directives liberalising energy trading, and we expect that pressure from the Commission and people like us will soon succeed in effectively opening the market," says Dybowski.

• Andrew Rosenbaum is a freelance journalist based in the Netherlands.

Article says that the liberalisation of the gas and electricity markets in the EU had so far had little effect in Central and Eastern Europe, but that there were some signs of change beginning. The national monopolies still had few competitors, but cross-border consolidation was expected to increase competition in the region.