Franco-German energy pact in doubt

France and Germany’s united front against the European Commission’s plans to bring more competition to the energy sector could crumble next year, EU officials are predicting.

France, Germany, Austria and four other countries are opposing the Commission’s proposals to force companies with power generating assets either to sell off their shares in transmission networks, known as ownership unbundling, or give up direct control by creating a truly independent transmissions system operator (ISO). A report on member states’ views drawn up by the Portuguese presidency for a meeting of EU energy ministers on 3 December says that several member states are calling for "another alternative ensuring a more effective unbundling without interfering with property rights". Germany is arguing that forcing companies to sell off assets would clash with a constitutional ban on forced expropriation of assets. The German government and its allies argue that the ISO is not an alternative but simply another form of ownership unbundling.

But a senior Commission energy official said last week that the opponents of the Commission’s approach were divided over what a third option might look like. "They agree on opposing the Commission’s proposal but not on the alternative," the official said.

France and Germany have asked the Commission to present a third option but the Portuguese presidency and the Commission have said that it is up to the member states themselves to present an alternative. "If someone can come up with a credible alternative we’ll look at it and see if it meets the requirements. But we doubt it," said an official, referring to guarantees for effective unbundling.

An official said that France and Germany had different problems with the Commission’s approach. France could ultimately accept a separate independent systems operator provided the energy-producing and transmissions parts of the business remained under public ownership, officials believe. But Germany, which has privatised its energy companies, is sceptical that such an approach would ensure fair competition.

A German diplomat rejected suggestions of a split among those opposed to the Commission’s approach, saying it was too early to work on concrete proposals for an alternative. He said that the Commission had failed to make a convincing case of the need for ownership unbundling, referring to the Commission’s impact assessment of the effects of the energy market proposal. "We don’t think the Commission’s assessment proves it brings prices down. After tax, the UK [which has unbundled for gas and electricity] had higher net prices than in Germany," the diplomat said.

Last week MEPs from the industry, research and energy strongly criticised the impact assessment. Committee chairwoman German centre-right MEP Angelika Niebler broke off a committee meeting last Wednesday (21 November) with MEPs saying that the impact assessment was "not serious". Niebler has written to Andris Piebalgs, energy commissioner, with a list of detailed questions to answer.

The meeting of energy ministers on 3 December is not expected to deliver any major breakthroughs on the most politically sensitive parts of the energy market package. The progress report does mention a number of areas where member states have asked for greater clarification as well as suggesting a number of possible concessions which could convince more member states to sign up to the package. These include possible delays or exemptions from full unbundling rules for small or isolated markets such as those in Malta or Cyprus. Another possibility contained in the Portuguese paper is allowing energy generating firms to keep minority shareholdings in transmission operators provided there were safeguards to ensure that they did not have a controlling stake or influence over the system operators’ operational and commercial decisions.

EU officials say that unless substantial progress is made on the energy package by June next year a final deal might not be possible until early 2009.

France and Germany’s united front against the European Commission’s plans to bring more competition to the energy sector could crumble next year, EU officials are predicting.