EU considers adding protectionist measures to energy policy

EU considers adding protectionist measures to energy policy
By Judy Dempsey Published: September 18, 2007



BERLIN: The European Union is having to rethink its relationship with Russia and other non-EU energy giants at a time when Brussels is pushing hard to open the sector to more competition.

In an internal document that casts doubt on its own energy policy, the European Commission has expressed concern that two state-owned companies - Gazprom, Russia's giant state-owned energy monopoly, and the Algerian national gas company Sonatrach - could take advantage of the bloc's new liberalization push by buying networks in European Union countries.

Not only could that jeopardize the EU goal of diversifying its energy supplies away from those two countries, but the document notes that in the case of Russia, there is little reciprocity, in that European companies have little chance to enter the energy distribution market there. The document also suggests using the leverage of a trade and economic agreement, due to be renegotiated with Moscow this year, to address that issue.

The "discussion note" was presented Monday by senior energy officials in the commission and was to be discussed at a commission meeting Wednesday.

According to the document, the EU could be vulnerable "to a strategy of third countries to dominate the EU gas markets, not only in terms of supply but also by acquiring the networks."

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This, says the document, would give third countries "an influence on network development" and the potential to increase dependency on those countries as suppliers.

Gazprom has already taken advantage of the EU's more open energy policy by buying shares in eight of the bloc's transmission system operators.

Gazprom holds a 37.2 percent share in Estonia's Eesti Gas, 48 percent of Europolgaz of Poland and 50 percent minus one share of Wingas, the energy subsidiary of BASF, the German chemical and energy group. It also has stakes in another small German company, VNG, as well as Latvian, Lithuanian, British and Finnish transmission system operators.

"We see a liberalized market as a great opportunity for us," said Philip Dewhurst, spokesman for Gazprom's subsidiary in Britain, Gazprom Marketing and Trading, which entered the retail market nearly three years ago.

The commission's concern about Russia highlights the contradictions facing by the EU in pressing ahead with a more competitive energy market.

While the EU wants independent producers and nonenergy related investors to enter the sector, some member states, particularly Poland and other East European countries, fear that the bloc's energy security could be undermined. Because they were once part of the Soviet bloc, the countries are more dependent on Russia for their energy than are countries farther West - and more nervous about reliability and dependency.

However, the commission has limited legal means to stop a network in any particular EU country from being sold to a non-EU company, even if such a sale goes against broader EU energy security goals or attempts to forge a common policy. Investment policy is the exclusive right of the member states, not the commission.

This means that French, German and Italian energy companies have pressed ahead and forged their own deals with Gazprom, allowing the Russian company to enter their energy distribution networks in return for long-term gas supply contracts.

Fears about the long-range goals of Gazprom were expected to play a role Wednesday when Andris Piebalgs, the EU energy commissioner, will call for the introduction of much tougher powers for national regulators to ensure that energy companies "unbundle."

In practice, this would mean that companies dismantle the tight integrated links between producers, suppliers and distributors to allow smaller independents to enter the market. That, in theory, would provide consumers with lower prices and greater choice.

However, the idea of unbundling without some form of control has unnerved the European Parliament and some of EU member states.

"We were asked back in July to propose some framework that would protect or prevent the threat of a sell-off of an EU network to a non-EU company, such as Gazprom," said a commission official who requested anonymity because he was not authorized to comment publicly about the document.

Without some protection, the commission document said, "some member states may oppose ownership unbundling in the gas sector." The commission said it was considering three ways to protect energy networks.

One is that member states or companies of member states could own more than 50 percent of the transmission networks or control them, similar to how a national airline can be majority owned and effectively controlled by nationals of that state. "Such a rule could be established for energy companies," the document says.