Gas plan leaves key questions unanswered

Date: 17/10/1996

By Chris Johnstone

THE Irish presidency has drawn up a compromise framework for opening up competition in Europe's gas market in a move aimed at breathing life into the stalled proposal.

However, just how far the move will go remains unclear, as the presidency paper makes no mention of what size of company would be allowed to shop around for gas suppliers - a crucial factor in determining the impact of any liberalisation measure.

Nor does it set any target date for the directive to come into effect, or give any indication of whether there would be follow-up measures.

These gaps leave the main battle over the breadth of gas liberalisation to be fought in the next few months, with national experts due to start discussing the Irish text next week.

But one industry observer commented: “There will have to be a compromise on this issue and this appears to be a framework for that.”

Liberalisers such as the UK, Germany and the Netherlands are facing up to countries such as France and Belgium which are fighting the end of their companies' import and transmission monopolies.

Liberalising countries are looking for a clear set of rules and firm regulatory backup which would allow companies to supply gas across borders to major customers in other national markets. Hitherto, domestic gas markets have been the protected fiefdoms of large, often state-owned, national monopolies.

The compromise text fudges the intense debate over how liberalisation should take place by offering member states the choice of two different models for gas producers and independent distributors to supply their customers using other companies' networks.

Member states could either opt for a system where producers, suppliers and customers would negotiate the price for access to networks on a case by case basis, or adopt a more regulated approach with transmission and distribution charges published up front. The latter system already exists in the UK.

The presidency paper says both systems should offer equivalent market opening opportunities.

Following closely on the lines of electricity liberalisation, the gas proposal offers the prospect of a limited market opening, with only consumers over a certain size being deemed “eligible” for a choice of supply.

The precise degree of competition allowed for natural gas within national markets would be worked out annually according to the number of eligible consumers in each country. As it stands, gas distribution companies do not appear to have been given an automatic right of access to networks (access depends on whether their customers qualify as eligible).

Those campaigning for liberalisation are also concerned about the regulatory framework proposed by the presidency. This would leave it up to individual member states to appoint a watchdog to settle disputes over transmission and distribution contracts, the conduct of negotiations and the refusal of access to networks. The liberalisers argue that this would leave too much room for regulators to favour national companies.

They are also concerned about a clause offering big gas companies the opportunity to ask the Commission for more time to open up their markets if they are tied to long-term supply contracts at the same time as facing shrinking captive domestic markets.

Most major gas companies in Europe have long-term supply contracts which fix the volume of gas to be delivered for up to 30 years in advance, and at a fixed price.

They are, however, claiming a minor victory from the fact that the paper places the burden of proof on the network operator or transmission company to justify any refusal of access to their infrastructure.