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Speech by C. Papoutsis at the Wall Street Journal Europe/Handelsblatt Conf. on "International Energy Markets" "Towards a Liberalization of the Energy Markets:EU's Concept for an Open European Energy Sector with Competitive Electricity and Gas Prices
 
 
 
Vienna,12-14 September 1995



Introduction

The opening up of energy markets and industries in Europe to more competition and competitive pressures has received a lot of attention in recent months. I am optimistic about the prospects for realizing an internal market in electricity and gas within a reasonable timeframe, and I believe that the attention this subject has received lately is proof of a growing momentum in this area.

All Member States of the European Union agree with the objective of an open and competitive internal energy market. Some may have concerns about one or other aspect of the liberalization process, but in general all Member-States support our goal. Support was also given by the European Parliament two years ago, and although the Parliament may not have agreed with all the elements of the Commission's legislative proposals in this area, it did at least support the common objective. The energy consuming industry has supported the Commission's efforts for a long time and recently, the energy producing industry, represented through the organization Eurelectric, has also come out in favour of an internal energy market.

Trade unions are expressing valid concerns with regard to the impact that the liberalization of the market may have on employment.

Specifically, employees of state enterprises are worried that a process of privatisation could be speeded up. As I will mention later on, our objective is not privatisation but increase in competitiveness.

I believe that if the liberalization of the market takes place gradually, so that the socio-economic consequences can be kept under control, it is in the interest of workers to support development while strengthening the industry and improving efficiency worldwide.

Today, even if some may still have concerns about modalities or details, there is a general concensus on the final objective.

This support is one of the reasons why I am an optimist. Another reason is the on-going process of change, de facto taking place in the energy sector. It was only a few years ago that the peaceful revolutions took place in Central and Eastern European countries, which resulted in state monopolies and long term planning being replaced by free market principles.

However, at the same period state monopolies dominated the electricity and gas markets as well as the energy products' trade, not only in countries of Eastern Europe but also in most countries of the European Union.

Much of this has not changed in 1995, but some of it has. The positive developments need to be strengthened and an overall framework must be established. Some Member States of the European Union have already liberalized their electricity markets or are due to do so very soon. I should note that developments taking place in Scandinavia are in this respect very encouraging. Even if three and a half years of discussions on the Commission's proposals has not yet produced an internal market for electricity and gas, the changes in attitude which have taken place, as well as the unilateral decisions of individual countries to forge ahead with energy liberalization, show that Europe has left the era of monopolistic state-run energy companies behind it, and is heading towards a more open, more flexible, and more market-based future in terms of energy markets.

Competitiveness

One may well ask why does all this matter ? Why should energy liberalization make such a difference ? One reason is the existence of article 7a of the Treaty of Rome which refers to the internal market. Another reason is that the same Treaty is also based on fundamental freedoms and principles such as the free movement of goods, the free provision of services and the freedom of establishment. But even if we leave all the ambitions and ideals of greater European integration aside, I think there are two very practical reasons why energy liberalization matters.

Firstly, the European internal market was completed and came into force on the 1st January 1993. The internal market programme applies to all economic sectors, and all these sectors are interdependent. If one sector is left out, the others are influenced. It is also important to note that no exceptions were foreseen in the Treaty for the energy sector, and we are therefore under an obligation to complete the internal market also in the field of energy. As long as the internal market for electricity and natural gas is not completed, the integration of our economies and national markets will remain incomplete. Such a lack of integration can weaken the European position, both when businesses are operating in foreign markets, as well as when governments are dealing with energy crises at home.

Secondly, the creation of the liberalised internal market as such is an attempt to create more competitive and efficient market structures. Competitive market structures are important when we look at the trends in most of our economic activities nowadays. More and more business is being conducted on a global scale, and as a result of revolutionary changes in information and process technologies many industries are forced to compete with each other in an ever-expanding global marketplace.

The industries of the European Union have to face fierce competition from the countries of Eastern Asia, from the resurgent economies of Central Europe and from the North American Free Trade Area. In order to compete and to survive in these world markets, European energy consuming industries need to have free and open access to energy sources, under competitive conditions and prices. Moreover, in order for the energy supply industries in Europe to become as efficient and competitive as possible, they should be exposed to competition in domestic markets, so that they can develop sufficient competitive strength for operating in global markets.

Privatization

The themes of the Conference discussions link liberalization of energy markets with the issue of privatization of energy supply and distribution. In some countries, privatization can be part of a process of liberalization, but this does not necessarily have to be so. Neither the European Community law nor the Treaty itself require privatization as a condition for establishing the internal market. The Treaty is completely by neutral with regard to the system of property ownership, be it public or private. Irrespective of privatization, there are rules that have to be followed as regards state aids, competition law and public enterprises. In principle, public companies should behave like private ones in an internal market. Privatization or public ownership is not an issue for the European Union to resolve, but is strictly a matter for individual Member States to decide upon. However, the fulfilment of the basic principles of the Treaty as regards the internal market is an issue that is of great concern and direct interest to the European Union.

EU Policy Proposals

Ever since the original proposals of the European Commission for the achievement of the internal market in electricity and natural gas were presented in 1992, the Commission has taken a very open approach and has shown a high degree of flexibility. It has shown flexibility both by amending its proposals in December 1993, after the first reading of the European Parliament, and by being prepared to accept a modified single buyer concept, and by not rejecting it straight away. It is now up to Member States to also show a certain degree of flexibility in order to attain the common goal.

The Council already reached political agreement on four key issues in November last year. These issues cover the subjects of public service obligations, unbundling of accounts, procedures for the construction of new production capacity and the role of the system operator. It is now of crucial importance to find agreement on the fifth and last key issue, that of access to the network.

Whatever system is chosen by Member States, be it a third party access or a single buyer one, some fundamental principles will have to be guaranteed.

Firstly, there will have to be full freedom of establishment, for all companies, including independent power producers.

Secondly, there will have to be full consumers' choice, taking into account the importance of competitiveness.

Thirdly, as a result of consumers' choice, liberalization would have to include distribution companies as well. Some do not want to give distributors access to networks and free choice to choose their suppliers. I do not accept that position and I reject its premises. From a political and democratic point of view it is not acceptable that an internal energy market will only be realized for industrial consumers and not for captive consumers. If captive consumers are excluded, then there is a real danger of a cross-subsidization of industries at the expense of captive consumers. I believe that captive consumers should not be disadvantaged, and they will only benefit when distributors are included in a system of network access.

Fourthly, any system of access will have to overcome the shortcomings in companies and the pressure of the dominant players in the particular system in terms of competition. In a Third Party Access system, attention would need to be given to the position of the system operator, and the potential problems could be solved through an unbundling of accounts together with an administrative independent position. In a modified Single Buyer system, the position of the Single Buyer itself would need to be balanced by a full unbundling of management and information flows, in addition to the accounting unbundling.

Certain differences in opinion among Member States, and between Member States and the Commission, as to how best to achieve the desired objectives are based on a number of legitimate concerns as regards the introduction of an internal electricity market. However, these concerns should not form any serious obstacle to the achievement of the internal energy market. A great degree of political agreement has already been reached on most of these issues.

Some may worry about security of supply. It is my opinion that in an integrated european system based on an internal market, that in a system which is based on efficiency, security of supply will be ensured. Europe as a whole will work together to assure supply security.

Others may worry about environmental protection. There is no reason for liberalisation to have negative impact on the environment. National regulations for the protection of the environment should and will be maintained, and environmental protection is recognized as a public service obligation. In addition to this preferential treatment can be given to the construction of generation capacity using environmentally-friendly production technologies such as renewable energies, waste and cogeneration. If Member States so wish, power produced through these technologies can also get priority in the dispatching order of electricity by network operators. Moreover, nothing hinders the use of economic instruments for the benefit of the environment, such as a CO2/energy tax.

I am of the opinion that where there were concerns among Member States and other interested parties, they have now been addressed and resolved, so that we can now at last proceed towards a finalization of our discussions. The outlook for a possitive outcome to our discussions is positive. We should also recall that liberalization and competitiveness are central elements in the preparations the Commission is making for publishing a White Paper on Energy Policy. This shows yet again, the Commission's strong commitment in this field.

Concluding Remarks

The Energy Ministers who met on the 1st of June in the Energy Council took up the challenge which the Commission had put on the table with its White Paper establishing a framework for the coexistence of Third Party Access Systems and a modified Single Buyer concept. The Council recognized that the two systems cannot be considered equivalent and compatible unless changes are made in the single buyer model. Some agreement was already reached on a few of the changes to be made. The majority of modifications will have to be discussed and solved under the present Spanish Presidency. However, I think the clear recognition by all Member States of the Council that the time has come to make progress, to finalize discussions, and to go on to the next phase within this gradual process of liberalization, gives sufficient proof of the building momentum within the European Union to finally settle our differences and find common agreement.

The Spanish Presidency, in an attempt to facilitate this process, has put a compromise text on the table which could form the core of a future common position of the Council. This text still needs a lot of discussion before we can claim to have found agreement. However, I am not only an optimist, but also a realist. For the first time in many years I feel that there is a real possibility of making a political breakthrough, which would enable us to establish the internal market for electricity. As an optimist I say we should grasp this opportunity. As a realist I say we can grasp the opportunities lying before us. There is a clear window of opportunity opening up for the liberalization of the european energy markets, and we should step into that window as long as it is still open.

As a realist I have no illusions about the internal energy market. The beginning will be awkward and difficult, and we will go through a process of trial and error. We will have to evaluate the experience after a few years to see if any adaptations need to be made. But this is a legitimate part of a gradual process, which the Commission has chosen taking by a long term view on liberalization. Adopting and applying the present proposals of the Commission will form the next step towards full liberalization.

I would like to repeat that these proposals do have high priority on the Community's agenda. As I have said in the past, and as President Santer has also said, there is a need to make and to show real progress in the field of energy liberalization by the end of this year. We are now in a process which, if successful, will make this possible.

If no progress is made, then we will all have to consider the consequences of having had four years of discussions in Parliament and Council, many more years of preparatory discussions and studies by experts in the field, all without any real result at a European level. It will not be enough for only part of Europe to liberalize energy markets on a unilateral basis, and the rest of Europe to maintain the status quo. We all bear the obligation of completing the internal market. Our economies and industries need the benefits of an internal market. If no progress is made, the Commission will have to reconsider the whole approach taken during the past four years and evaluate which other strategies and instruments might be applied to realize the internal market in electricity and natural gas.

It is my sincere wish that we achieve progress in the opening up European electricity and gas markets to more competition and liberalization. I hope that other players in the field recognize that at this moment in time there is a real opportunity for success. I hope we can grasp that opportunity together.


SPEECH/95/165

 

 

 
Ημ. Έκδοσης:12/09/1995 Share Εκτύπωση
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