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RWE protests EU energy plan

Aggressive dismantling would violate private ownership

By Michael Heitmann
Staff Writer, The Prague Post
September 26th, 2007 issue

The European Union’s recent announcement that it will proceed with aggressive plans designed to increase competition on its energy market is drawing the ire of RWE Transgas, the Czech Republic’s dominant natural gas utility. The proposed measures would break up huge energy giants that both produce and transmit gas and electricity.
“It has not been proven that these kinds of measures will strengthen economic competition within the European Union and lead to lower energy prices,” said RWE Transgas spokesman Martin Chalupský.
With RWE Transgas as the country’s single importer and wholesale supplier of gas, the EU’s measures could force it to spin off its distribution networks.
“This is a form of dispossession that’s experimental and in clear contradiction to the principle of private ownership,” Chalupský said.
The European Commission (EC), the EU’s executive branch, introduced its proposal Sept. 19. The EC’s previous efforts to bolster energy competition have been largely stymied by the unwillingness of quasi-monopolies across Europe to share their distribution networks with competitors at reasonable prices. This must change, the commission said.
“The time has come for households and businesses to enjoy the full benefits of a competitive energy market in terms of choice of supplier and fairer prices,” said Competition Commissioner Neelie Kroes in Brussels.
The EC’s proposal was also seen as a swipe at Russia, which fulfills much of Europe’s demand for natural gas. While the Czech Republic is a net exporter of electricity, it is almost entirely reliant on external partners for its gas needs, with three-quarters supplied by Russia and Norwegian producers accounting for the rest. The EC’s reforms won’t change that, Chalupský said.
“The main reason for the ongoing problems on the European gas market — the limited natural gas supplies that are in the hands of producers in nonmember countries — remains unresolved,” he said.
Russia’s OAO Gazprom already controls a quarter of Europe’s gas supplies and has been keen to buy into distribution networks in Eastern Europe, seeking direct access to consumers. Most recently, during a May visit of Russian president Vladimir Putin to Vienna, Gazprom signed an agreement with Austria’s OMV to jointly develop the Baumgarten gas hub at the border to Slovakia.
Last week, José Manuel Barroso, the EC’s president, went to great lengths to allay fears — expressed by some EU members, notably France — that ownership unbundling would open the floodgates for foreign takeovers. “This is about … making sure that third country companies respect our rules,” he said. Foreign investors, notably Gazprom, would have to comply with the same unbundling requirements as EU companies, he added.
Electric welcome
Unlike other national champions in France or Germany, ČEZ, the Czech Republic’s largest energy producer and other dominant utility, does not feel threatened by the new proposals. Indeed, it welcomes the move, according to spokeswoman Eva Nováková.
“It’s a confirmation of the fact that the Czech Republic is among the leaders in liberalizing the EU’s energy market,” she said. The country’s transmission network was separated from ČEZ four years ago, and since then, the national grid has been 100 percent state-owned, whereas the government holds only a 67 percent share in ČEZ.
Nevertheless, the government’s stance has been ambivalent to the EU’s proposals, mainly due to fears that it would have to sell its stake in either electricity distribution or production. However, in a concession to its members, the EC’s recent plan expressed openness to establishing independent system operators (ISOs), which would regulate a country’s distribution networks and allow increased competition without the forced dismantling of state-owned utilities.
“The European Commission’s move from strict ownership unbundling to the installation of [ISOs] … is more acceptable for the Czech Republic,” said Industry and Trade Minister Martin Říman.
The Czech power grid opened up to smaller companies Jan. 1, 2006, but customer switching has been limited, according to the EU. Three vertically integrated companies — ČEZ, E.ON and PRE — dominate the industry and account for 95 percent of final consumers’ consumption. Only 1 percent of small and midsize businesses and a fraction of households made the switch after 2006, even though electricity prices have steadily increased in recent years, up 74.5 percent since 2000.
If the EC’s energy package is passed — it needs to be approved by the 27 member governments and could reach the European Parliament by autumn 2008 — it could force consumers and suppliers to rethink their future energy choices.
“If the transmission system of RWE Transgas is split up, it will be easier for ČEZ to enter the gas market,” said Vladimír Štěpán, an energy consultant with ENA. “In my opinion, ČEZ is going to generate electricity using natural gas.”
There are other signs of increased variety in electricity generation, as the German utility E.ON — which, as a distributor, is one of ČEZ’s largest customers — is seeking to enter the domestic production market.
“Our weakness is that we have no generation capacity in the Czech Republic,” said Michael Fehn, chairman of E.ON’s Czech branch. That could change if E.ON’s negotiations with the mining company Czech Coal prove that building a huge coal-fired power plant in north Bohemia is feasible, he said.

Michael Heitmann can be reached at mheitmann@praguepost.com


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