Italy faces obstacles as it moves to open gas market

Date: 17/02/2000

By Renée Cordes

ITALIAN energy giant Eni will soon be forced to relinquish its de facto monopoly in gas transport and distribution as Rome prepares to implement the EU's liberalisation law before the August deadline.

The Italian government responded to mounting pressure for action this week by approving planned legislation to implement the Union directive, although officials refused to give details of the package. It is, however, expected to call for Eni's gas unit Snam to be split into two separate companies for transport and distribution.

The growing pressure on Italy to put the necessary legislation into place to comply with the EU legislation reflects concern that Rome is lagging behind other member states, many of which have already gone well beyond the requirements laid down in the directive.

Under the terms of the market-opening package agreed in 1998, EU governments must open up at least one-fifth of their domestic markets to competition this summer, rising to nearly a third by 2008.

But Spain has already liberalised 46% of its market and plans to complete the process by 2013; the Netherlands intends to open up 45% of the sector this year and 100% by 2007; and Belgium liberalised 47% of its market last year and is aiming for full competition by 2010. The UK, which privatised its gas industry in 1986, is the only Union market to date which has been fully opened up to competition, although experts say follow-up legislation will probably be needed to iron out wrinkles in the system.

Despite its foot-dragging over the initial phase of liberalisation, Italy is also expected to go beyond the requirements of EU law in the next few years by opening up to 70% of its market to competition. This is seen by foreign rivals as crucial because Italy is now the Union's fastest-growing gas market, with demand expected to rise by up to 4% every year for the next decade - twice the EU average.

However, Eni has warned that it is not prepared to tear up long-term contracts with foreign suppliers immediately, raising the prospect of a clash with European Commission competition officials.

The company's board of directors said late last month that it welcomed the liberalisation of the market, and promised to make the gas it plans to import from Libya through a new pipeline available to other operators. But the directors insisted that it would be unfair to force the firm to relinquish contracts which had already been signed, or surrender market share above the level demanded by EU legislation or going beyond the market-opening measures introduced by other member states.

In Italy, as in the rest of Europe, customers have traditionally been locked into 'take-or-pay' contracts, obliging them to pay for a certain amount of gas regardless of how much they actually use. Italy, which is a net importer of the energy resource and which looks to foreign sources for 70% of its supplies, uses these contracts to import gas from major producers such as Russia, Algeria and Nigeria.

Competition Commissioner Mario Monti said recently that he would examine clauses in these take-or-pay contracts to ensure they do not contain anti-competitive elements. Currently, such deals do not have to be notified, even to national governments.

"Breaking up monopolies is not that hard to do. There is a lot you can do, by splitting up the activities into different components. But a take-or-pay contract could be an obstacle to competition," said a UK energy analyst.

The ultimate goal of liberalisation is to forge a single European gas market by ensuring the free movement of products across borders. This is seen as crucial given the growing dependence of the Union as a whole on imports.

But experts predict that many firms will only move slowly to take advantage of the opportunities on offer. "I see a very quiet evolution of the gas market in Italy and in Europe, with companies trying to concentrate on margins in the long run," said Antonella Bianchessi, an analyst at Caboto SIM in Milan.