Energy negotiations reaching flashpoint

Date: 13/03/1997

LONG-RUNNING negotiations between the European Commission and Belgian utility company Electrabel over the firm's attempts to tie local power suppliers to lengthy exclusive contracts have reached a critical stage.

The Flemish government's clearance of the first of a series of contracts between Electrabel and the so-called intercommunales (monopoly distributors of electricity and gas to homes) has put pressure on the Commission to take a stand on the one-year-old dossier.

The Flemish decision to approve the first contract, for the Imea intercommunale near Antwerp, risks shattering an uneasy truce under which the Commission undertook to hold off heavy-handed legal action while it attempted, with Electrabel, to alter the supply contracts to bring them into line with competition rules.

Technical talks between Electrabel and Commission competition officials are contining this week, but Belgian Commissioner Karel van Miert has made it clear that his patience is running out and he will instruct his staff to take the first steps to challenge the agreements by drawing up a statement of objections if there is no prospect of quick results.

Electrabel's attempt to tie its customers to long-term contracts, in return for giving them a small shareholding in the stock exchange-listed utility, is seen by Van Miert as a test case which will decide whether other electricity companies can defeat cautious attempts to open up the sector.

EU governments committed themselves last June to allow big users of electricity to shop around for the best supply deals from 1999, after years of painful negotiations.

Electrabel says the government's decision to clear the current contracts puts it in an impossible position where it now has no room to manoeuvre.

“The Commission is pushing for changes, but the Flemish government has said it does not want contracts to be less than 15 years,” said a company spokesman.

The government has moved to shore up its legal position against a possible challenge from the Commission by describing the deals between Electrabel and the intercommunales as being in the general economic interest.

Firms afforded such status are offered some protection from competition challenges under the EU treaty if they can prove that changes would damage their ability to fulfil their tasks.

“The Commission is in a difficult position,” said the Electrabel spokesman, in a comment that might raise wry smiles from Van Miert's officials.

Ahead of the Flemish decision, Electrabel and the Commission had been investigating a compromise under which the contracts would have been 100&percent; exclusive for the first ten years, with rival suppliers allowed to bid for a growing share of the electricity market over the remaining five of the 15 years.

The Walloon regional government, which covers the southern French-speaking area of Belgium, has already accepted the idea of companies signing 30-year supply contracts. Commission officials say any challenge to the Flemish contracts would automatically take in those cleared by Walloon and Brussels regional governments.

Electrabel is not the only case of exclusive long-term energy contracts being investigated by the Commission.

The offer by a consortium of Germany's biggest power companies - RWE, Bayernwerk, and Preussenelectra - of large discounts to regional distribution companies in former East Germany in return for a commitment from them to take 70&percent; of their electricity from the trio is also being probed.

Electricity and heat co-generation companies in Denmark have complained to the Commission that this long-term supply commitment in Germany prevents them from offering their electricity via a new two-way power link between the countries.