EU Strikes Deal Over Foreign Gas, Power Takeovers

By Jonathan Stearns

Oct. 10 (Bloomberg) -- A Dutch-led group of European countries bolstered its defenses against energy takeovers by foreign natural-gas and power companies after letting Germany and France opt out of a plan to break up national champions.

The governments said producers such as E.ON AG and Electricite de France SA must be barred from controlling transmission networks in European Union nations that require the two businesses to be split and could face hurdles acquiring rival producers in those countries. Non-EU energy companies including Russia's OAO Gazprom, the world's biggest gas producer, are also affected.

The provision puts the finishing touches on a compromise market-opening accord among the EU's energy ministers after they struck a preliminary deal in June. A final EU agreement on the new rules requires the ministers to bridge differences with the European Parliament, which is holding out for more deregulation.

``We need a clause that will allow member states to protect their own structures,'' Dutch Economy Minister Maria van der Hoeven, who is also responsible for energy matters, told a meeting with her EU counterparts today in Luxembourg. ``We need independent management of the grids. We don't want monopolies.''

Unbundling

The EU is fighting its way toward new gas and electricity rules that aim to facilitate network access for companies such as Centrica Plc without their own grids. After 2003 laws gave customers the right to choose suppliers, the EU's 340 billion- euro ($463 billion) power and gas market remains fragmented by national barriers, says the European Commission, the bloc's regulatory arm that proposed the new rules in September 2007.

The commission said gas and electricity producers should sell or spin off their transmission business -- steps known as ownership unbundling -- or hand over operation of the network to an independent entity. The Brussels-based regulator said such structural separation was necessary to remove a conflict of interest that leads incumbents to discriminate against new entrants when it comes to network access.

On June 6, EU governments as a whole caved in to German and French demands for a third, looser option under which power and gas producers would be able to make their grid business more independent through internal actions. That led to a disagreement over how to ensure a level playing field for EU nations that opt for ownership unbundling.

`Difficult Process'

The compromise accord on this marks a balancing act between political sensitivities and legal realities in the 27-nation EU. The new text being added to the draft legislation says any measures taken by a government to ensure a level playing field must be reported to the commission and comply with the EU treaty, which guarantees the free movement of capital.

``It was a difficult process,'' said German Deputy Economy Minister Peter Hintze. He said Germany succeeded in ensuring the primacy of EU treaty rules in the new text, which also says any restrictions in an EU nation on foreign producers acquiring its own producers must be ``proportionate, non-discriminatory and transparent'' and must be approved by the commission.

While EU governments were working toward today's accord, the EU Parliament voted in June to require the breakup of electricity companies and in July to allow the gas industry to opt out with the looser option of greater internal separation.

Differences

The 785-seat assembly said ownership unbundling should be the only way forward in the power industry and the looser option for gas should be a substitute for, rather than an addition to, the possibility of an independent system operator.

These differences must be resolved for the EU to reach a final accord on the new rules. The process will probably extend into next year.

As lawmakers have debated new EU legislation, the commission has used its antitrust powers to open a second front in the battle for more energy-market competition. This has led to probes of companies including E.ON, Gaz de France SA -- now GDF Suez SA -- RWE AG, Electricite de France, Eni SpA and Electrabel SA for possible illegal business practices that could lead to fines totaling as much as 10 percent of the companies' annual sales.

In February, Germany's E.ON agreed to sell its electricity grid to resolve two commission probes into the company's business practices. And in May, Germany's RWE agreed to sell its gas-transmission network to settle a commission inquiry.

The German unit of Sweden's Vattenfall AB said in July it would seek to sell its power transmission grid. Neither the company nor the commission has said whether this step was linked to an antitrust case.

To contact the reporter on this story: Jonathan Stearns in Luxembourg at jstearns2@bloomberg.net