Public involvement. This Wednesday, the European Commission is to approve its highly anticipated package of measures and guidelines for the energy sector. Our readers are already familiar with the majority of this, thanks to the clear and detailed prior indications from Emmanuel Hagry since the beginning of the month: bulletins 9492 and 9496 for the legislative package concerning the internal energy market, 9498 on provisions to limit access by non-European groups and capital to the energy sector of the EU. On this latter aspect, an extremely delicate issue for the energy autonomy of Europe and also for its relations with third countries, the Commission is to present several options on certain points.
I have nothing to add to the in-depth comments of Mr Hagry; I would just like to make a few comments on the reasons behind the Commission's position and on developments it is to bring in an area which is one of the most sensitive, important and complicated in the entire European economy.
I do not believe that I am taking too many liberties with the truth when I state that the Commission's new documents have the effect of officially acknowledging that the energy sector cannot be governed by market laws alone; the public authorities must have a part to play in them. The days when the major oil companies laid down the law and, in practice, dictated a considerable proportion of the foreign policy of their country (and therefore of the West as a whole) have gone. The symbol of this irremediable change was the way in which Russia challenged those enormous research and exploitation contracts with a consortium led by Shell. Today, it is not just a colossus like Russia which would dare to do the same; but Kazakhstan (with a consortium led by ENI) and Algeria (via the intervention of the state company Sonatrach, which questioned contracts with the Spanish companies Repsol and “Gaz Natural” have done the same (see our bulletin 9495). What is more, it has become commonplace to state that Gazprom is an essential weapon in the foreign policy arsenal of Vladimir Putin.
The involvement of the public authorities in contracts between energy companies will not be stated in as many words in the Commission's documents, but it is explicit in the provisions governing the access of third-country companies to the European energy market. It is inevitable, given the virtually limitless financial resources of Gazprom and of the Chinese bodies tasked with making purchases and buying stakes overseas.
This new direction, moreover, is explicitly advocated in the Saryusz-Wolski report which was approved almost unanimously (three votes against) by the energy committee of the European Parliament. This document calls for: Russia to respect the Energy Charter (which it is signed, but never ratified); the principle of reciprocity for the investment in energy in the EU by third countries; checks on these investments to be carried out in the fields of gas and electricity distribution networks (see our bulletin 9496). The plenary session of the EP is set to approve this report in the next few days.
Link between unbundling and access by third countries. The requirement of reciprocity on the part of the third countries should - the Commission hopes - convince the Council to accept the principle of unbundling between energy production and energy distribution activities, within the energy market of the EU. This principle is supported by many member states, but opposed by others. Germany and France balk at dismantling their giants which carry out both activities. For the mere observer, some of their arguments appear to work in either direction. The Commission hopes to get the agreement through on the relaxed wording, playing on the external plank. This “relaxation” consists, as we know, of a free choice between two options: either the separation of the ownership of production companies and distribution companies, or the ability to retain ownership of both activities, whilst contracting the job of distribution out to a completely independent operator.
If unbundling - which the Commission sees as vital in creating a genuine unified European energy market - is decided upon, this can be applied to all third countries without creating any discrimination, thus keeping within the rules of the WTO (World Trade Organisation) and the Energy Charter. The non-European giants in the energy world will be allowed to distribute gas or electricity directly to European users (whilst benefiting from more favourable tariffs compared to those involved when selling to European distributors), as long as they can prove that they are indeed “unbundled”; if they are not, then they will not be granted authorisation. The president of the Commission, Mr Barroso, explained: “I find it strange that a Russian company should be allowed to buy energy transport network companies in the EU, but that European companies do not have the same rights in Russia”. He went on to add: “it will be interesting to see whether the member states are prepared to adopt this kind of mechanism for the defence of the market and the principles of competition” (our translation; see our previous bulletin).
Double strategic objective. Energy Commissioner Andris Piebalgs and Competition Commissioner Neelie Kroes, believe that this will make it possible to reconcile all interests: to move forward with the internal energy market (the functioning of which is somewhat hit and miss at the moment, and on which competition is insufficient) and monitor the activities of third countries which- like Russia, China and certain Gulf states- would be financially able to impose their presence, not to say their supremacy, on the European energy market. The overview of the reasons for the Commission's plans (non-definitive text) states that the great importance for the EU of the distribution networks makes additional safeguard measures towards third countries necessary in order to avoid threats to public order, public safety and the well-being of the European citizens. These measures are necessary to guarantee that effective unbundling is in line with the rules. For his part, Mr Barroso stressed that the line taken by the Commission was not a protectionist one: “the European energy sector must be open, but we must not be naïve”. The mechanisms envisaged aim to protect the EU market from “outside designs towards it which would not necessarily be motivated by purely commercial objectives”. For the details, I refer you back to the excellent article by Emmanuel Hagry in the above-mentioned bulletin 9498. The golden shares instrument held by a member state is one of the options on the table; this would allow this member state a right of veto or additional voting rights in a third-country business which becomes the co-owner of the distribution network within the EU.
To sum up, then, the strategic significance of the position taken by the Commission is clear. Aiming to ensure both the improved functioning of the European energy network and the option for the EU to control the level of involvement of third countries on this market, the Commission is pursuing a double objective:
a) to make progress with the common energy policy, in spite of the differences between the situations and interests of the member states, by integrating decision-making mechanisms and networks;
b) to clarify and confirm the responsibilities of the political authorities (national and European) in the management of European policy as regards third countries. Nobody still believes that this policy can be left totally in the hands of private companies when faced with Gazprom and the enormous financial resources of China in certain countries of the Persian Gulf. One commentator spoke of a “mixed economy”, paraphrasing: “necessity is the mother of law”.
The opening of a debate, inevitable changes, first rapprochements. The initiatives of the Commission will open the debate between the member states. A major initial exchange of views is also taking place between the Commissioners, who certainly do not all share the same views on public presence in the handling of the economy. The Commission's documents will no doubt undergo many changes and modifications. Germany has already announced alternative suggestions on the issue of unbundling in order to avoid the dismantling of national energy groups. Other member states will speak out on various of the other aspects. The negotiations will not be easy.
The main thing is that the debate is finally taking place at the highest level, after many misunderstandings and the veritable conflicts we have seen in the past (whether on the proposed gas pipeline project under the Baltic Sea or the Nabucco project, or other controversial issues). The principle of European solidarity has been officially proclaimed by the European Council and various disagreements have partially abated. For example, Hungary has just pledged its unreserved support for the Nabucco project (which aims to facilitate energy imports from the Caspian Sea via Turkey, without having to go via Russian soil) and of which it was initially a critic. Furthermore, a European coordinator (former Dutch Foreign Affairs Minister Jozias van Aartsen)has been appointed as facilitator for this project; other coordinators have been appointed for other objectives which are close to the hearts of various member states: the interconnection of electricity networks between France and Spain (Mario Monti, former European Commissioner), the links between the Baltic network of gas pipelines and the German-Polish network (and it is highly significant that the coordinator for this project is himself a Pole, Wladyslav Mielczarski).
It will not, however, always be easy to reconcile ideas and interests, but the awareness of what's at stake and the need to act will finally prevail.
(F.R.)