The European Commission is set to publish a draft law on energy market competition that will separate the ownership of energy production from the ownership of distribution systems. If adopted, these new rules would have implications for the assets Russian state gas giant Gazprom owns in the European Union.
E.U. Competition Commissioner Neelie Kroes has been campaigning for the "unbundling" of production from distribution systems in E.U. energy markets. Her concern is with gas and electricity:
--The weaker version of the unbundling law involves separating the management of production and distribution activities into separate companies.
--The strong version, preferred by Kroes, entails separating not just management but ownership as well.
The rationale behind this approach is that competition does not function properly in the European electricity and gas markets. The Competition Commission argues these markets are dominated by a small number of vertically integrated companies, often with national monopolies. Furthermore, international competition is weak.
Liberalizing the gas and electricity markets across the E.U., along the lines already followed by the U.K., is seen as the way forward. The lobby group of industrial energy users, the International Federation of Industrial Energy Consumers (IFIEC), supports Kroes, as does the European Council. For advocates of the reform, the aim is to create a single European energy market.
A number of member states will oppose ownership unbundling. The heavyweight opponents are several large national champions, including:
--Italian companies Eni and Enel, both over 31% state-owned;
--Gaz de France, which will be GDF Suez after the merger with utilities company Suez, about 40% state-owned;
--Germany's powerful E.ON group, incluing E.ON Ruhrgas.
--Russia's Gazprom will also strongly resist the initiative.
The E.U. imports about 58% of its gas. Around half of that comes from Gazprom, whose monopoly on the export of Russian gas is entrenched in Russian law.
As a supplier of gas, Gazprom would present no problem for the Kroes strategy. In a speech to the IFIEC General Assembly in June, Kroes said long term supply contracts were not themselves a problem for competition, but they became a problem when they involved a dominant supplier accounting for a large part of the market.
Gazprom already has stakes in distribution businesses in several E.U. countries. It has also formed joint ventures in gas reservoirs and gas distribution hubs in Hungary, Belgium and Germany. The E.U. competition policy, if it followed the Kroes strategy, would require on principle that Gazprom be treated like all other vertically integrated energy businesses in Europe: It would have to divest itself of distribution assets. However, this plan would encounter three major problems:
--E.U. Links: Vertically integrated national champions in several E.U. states are already intertwined with Gazprom. Together, they can successfully resist any unbundling.
--No reciprocation: E.U. Trade Commissioner Peter Mandelson and German Chancellor Angela Merkel have voiced concerns that E.U. companies are being acquired by state-owned entities from non-E.U. countries, which do not open their own economies to acquisitions by E.U.-based firms. These concerns may prompt the commission to propose additional measures aimed at non-E.U. state companies, such as Gazprom.
--Russian sensitivities: The present Russian leadership appears to be highly sensitive to any action that could be interpreted as a threat to Russian interests. Restrictions on Gazprom's activities would be readily interpreted in Moscow as being anti-Russian. This would further spoil the already strained relations between Brussels and Moscow.
E.U. Competition Commissioner Neelie Kroes has been campaigning for the "unbundling" of production from distribution systems in E.U. energy markets. Her concern is with gas and electricity:
--The weaker version of the unbundling law involves separating the management of production and distribution activities into separate companies.
--The strong version, preferred by Kroes, entails separating not just management but ownership as well.
The rationale behind this approach is that competition does not function properly in the European electricity and gas markets. The Competition Commission argues these markets are dominated by a small number of vertically integrated companies, often with national monopolies. Furthermore, international competition is weak.
Liberalizing the gas and electricity markets across the E.U., along the lines already followed by the U.K., is seen as the way forward. The lobby group of industrial energy users, the International Federation of Industrial Energy Consumers (IFIEC), supports Kroes, as does the European Council. For advocates of the reform, the aim is to create a single European energy market.
A number of member states will oppose ownership unbundling. The heavyweight opponents are several large national champions, including:
--Italian companies Eni and Enel, both over 31% state-owned;
--Gaz de France, which will be GDF Suez after the merger with utilities company Suez, about 40% state-owned;
--Germany's powerful E.ON group, incluing E.ON Ruhrgas.
--Russia's Gazprom will also strongly resist the initiative.
The E.U. imports about 58% of its gas. Around half of that comes from Gazprom, whose monopoly on the export of Russian gas is entrenched in Russian law.
As a supplier of gas, Gazprom would present no problem for the Kroes strategy. In a speech to the IFIEC General Assembly in June, Kroes said long term supply contracts were not themselves a problem for competition, but they became a problem when they involved a dominant supplier accounting for a large part of the market.
Gazprom already has stakes in distribution businesses in several E.U. countries. It has also formed joint ventures in gas reservoirs and gas distribution hubs in Hungary, Belgium and Germany. The E.U. competition policy, if it followed the Kroes strategy, would require on principle that Gazprom be treated like all other vertically integrated energy businesses in Europe: It would have to divest itself of distribution assets. However, this plan would encounter three major problems:
--E.U. Links: Vertically integrated national champions in several E.U. states are already intertwined with Gazprom. Together, they can successfully resist any unbundling.
--No reciprocation: E.U. Trade Commissioner Peter Mandelson and German Chancellor Angela Merkel have voiced concerns that E.U. companies are being acquired by state-owned entities from non-E.U. countries, which do not open their own economies to acquisitions by E.U.-based firms. These concerns may prompt the commission to propose additional measures aimed at non-E.U. state companies, such as Gazprom.
--Russian sensitivities: The present Russian leadership appears to be highly sensitive to any action that could be interpreted as a threat to Russian interests. Restrictions on Gazprom's activities would be readily interpreted in Moscow as being anti-Russian. This would further spoil the already strained relations between Brussels and Moscow.
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