French election slows down gas market-opening

Date: 01/05/1997

By Tim Jones

NEGOTIATIONS to open Europe's natural gas markets to competition have become a victim of the impending French elections.

The EU's Dutch presidency, recognising that Paris will be unable to sign up to a liberalisation deal when energy ministers meet at the end of May, has pencilled in a special ministerial gathering for 25 June with the intention of cracking the outstanding issues before its term at the helm of EU affairs comes to an end.

When member states' top energy policy officials met in Brussels yesterday (29 April), French officials came armed with brand new proposals aimed at slowing the pace of liberalisation.

The presidency's high hopes that the meeting of directors-general would break the deadlock over how much of the market should be opened and whether long-term exclusive supply contracts should be allowed in the future were dashed.

In its compromise text, the presidency suggested that the first round of liberalisation should allow big industrial customers using more than 25 million cubic metres (m3) of gas to choose their suppliers. This would then be cut to 10 million m3 five years later and to 1 million m3 after ten years. At first, 30&percent; of a national market would have to be open to competition; then this would expand to 40&percent; after five years and 50&percent; after a decade.

While stating that they would have preferred faster and more extensive market-opening, Germany's Elmar Becker and the UK's Jeffrey Preston both gave their support to the Dutch proposal and found allies in the Swedes, Irish, Finns and Danes.

But French energy Director-General Claude Mandil asked for modifications to avoid the danger of a lop-sided opening of national markets which would result from a “purely quantitative approach”.

Mandil claimed the current proposals did not take sufficient account of the diverse rate of gas use in different member states. Instead, he argued, the directive should divide up the eligible customers into energy producers, industries and public distribution, and each sector should then be assigned an expected percentage level of market-opening.

Once the French had stated their case, they found support. The Italians said the market-opening thresholds were too generous to competing gas suppliers, and were supported by Spain, Portugal and Greece.

Belgium came on board with the French and added that it should be left to each country to decide whether distributors should be able to shop around for supplies.

Stan Dessens, director-general for energy at the Dutch ministry of economic affairs, promised to come up with another revision of the market-opening proposals.

A second round of discussions centred on the 'take-or-pay' contracts which dominate the industry. These contracts allow the EU's major suppliers - western oil companies, Russia's Gazprom and Algeria's Sonatrach - to set the volume of gas they deliver to supply firms for as long as 30 years at fixed prices.

While the UK, Ireland and Sweden stood firm in insisting that no future take-or-pay contracts should be allowed to be exclusive or excessively long-term, other countries also stuck to their long-held positions.

The French and Belgian representatives, as well as the southern European countries, continued to argue that some such contracts were needed to ensure security of supply and to encourage investment by gas extraction companies in emerging markets.