Divisions threaten Barcelona success

Date: 28/02/02

By Laurence Frost

SPAIN'S EU presidency has renewed the push for a deal between member states on long-stalled plans for full electricity and gas liberalisation at next month's Barcelona summit.

As both the presidency and the Commission are only too aware, energy market-opening has become emblematic of EU governments' failure to advance the 'Lisbon agenda' of promised economic reforms.

According to the plan tabled by Energy Commissioner Loyola de Palacio, industrial electricity and gas supplies would have to be liberalised by 2003 and 2004 respectively, with domestic consumer markets freed up by 2005 at the latest. With elections in Germany and France looming, the proposal is more sensitive than ever. But with the Commission showing increased flexibility insiders suggest Barcelona could produce a partial deal, rubber-stamping industrial liberalisation while setting a later date for household supplies - or even no date.

'It may be that the French government is not able to agree to a date specifically for domestic liberalisation,' said a Spanish official. 'But domestic needs account for just 30 of the overall energy market - so if you set a date for non-domestic [industrial] supplies that opens up 70.'

But a breakthrough on dates may highlight other serious obstacles that have gone largely unnoticed until now except by energy experts negotiating behind closed doors on behalf of their member states.

'We've always felt the dates were a bit of a red herring,' said one member state official. 'It's all very well to talk about the quantitative aspects but the real issues are qualitative - what sort of single market are we going to end up with?'

One obstacle to a deal is Germany's steadfast refusal to join the other 14 member states in setting up fully independent national electricity and gas regulators to oversee access to the power and gas networks.

So far, the management of Germany's infrastructure has been supervised by the Bundeskartellamt state competition watchdog.

Diplomats involved in the talks indicate that a compromise is already taking shape that could allow national energy regulators to remain part of government bodies, if the independence of their decision-making was guaranteed.

'There's a broad consensus emerging on the principle of not necessarily demanding that

an independent regulator be physically set apart from existing bodies,' said one EU official.

Divisions also exist over the powers to be given to the national regulators - whether, for example, they will vet and publish the tariffs charged to power and gas companies for distribution network access, as the Commission has proposed.

But by far the most serious hurdle facing the summit is the dispute over the extent of the public service obligations to be introduced in the revision of the gas and electricity directives. An annex to the Commission's proposal obliges member states to take measures to protect 'vulnerable customers'.

France wants to go further, however, by incorporating this provision into the main directive, leaving much less room for interpretation by member states and by allowing governments to dictate maximum prices for the disabled, poor and unemployed.

This has provoked sharp reactions from the Netherlands, the UK and Scandinavian countries, which reimburse energy bills to disadvantaged customers through their social security systems, rather than interfere with market prices.

'France seems to think you can have a free market and have government-fixed prices,' said an EU diplomat. 'But it seems to most of us that that's not what a free market is all about.'

When heads of state meet in a fortnight to thrash out these issues, much could depend on the extent of France's determination to win concessions on regulatory price intervention - just what it may need to sell the package to its powerful public service unions.

MEPs are likely to add a new dimension to negotiations on energy liberalisation four days before the summit, when they vote on plans to make the proposals more environmentally friendly and boost competition between companies.

A report by Luxembourg Green Claude Turmes, adopted this week by the Parliament's industry committee, would force electricity companies to disclose the sources of power sold to consumers. It would also ban companies from using billions of euro set aside for nuclear decommissioning to buy up other firms.

Spain's EU presidency has renewed the push for a deal between Member States on long-stalled plans for full electricity and gas liberalisation at the forthcoming Barcelona summit. Article is part of a survey on energy.