Brussels Energy Brief - September 2006
September 2006
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KEY DEVELOPMENTS
Spain Required to Modify New Legislation on Energy Regulation and to Withdraw Orders Concerning E.ON’s bid for Endesa
Patrice Corbiau
In February 2006, the German energy company E.ON launched a bid for the acquisition of the Spanish energy company Endesa. E.ON’s offer competed with another bid for Endesa launched by the Spanish energy company Gas Natural. Following E.ON’s bid for Endesa, the Spanish Council of Ministers adopted new urgent legislation, Royal Decree 4/2006, widening the powers of the Spanish Energy Regulator, CNE. On 16 March 2006, E.ON notified the proposed transaction to the Commission and on 25 April 2006, the Commission decided that the planned operation constituted a concentration with a Community dimension and approved it because it would not significantly impede effective competition in the EU. On 3 May 2006, the Commission started an infringement procedure against Spain, arguing that the Royal-Decree restricts the free movement of capital and the right of establishment provided for in the EC Treaty rules. Notwithstanding this infringement procedure, CNE, making use of its new powers granted by the Royal Decree, decided on 27 July 2006 to submit the E.ON/Endesa operation to a number of conditions, including the divestiture of important assets. The Commission has now taken a further step in the infringement procedure by sending a reasoned opinion formally asking Spain to modify the Royal-Decree. In the absence of a satisfactory reply from Spain within two months of receiving the reasoned opinion, the Commission may decide to refer the matter to the European Court of Justice. In addition, the Commission has also decided that the CNE decision breaches the EU Treaty and Merger Regulation and must be withdrawn. The Commission’s decision is based on two factors: First, CNE’s decision was adopted and entered into force without prior communication to, and approval by, the Commission, in violation of the EU Merger Regulation. Second, the CNE subjected E.ON’s acquisition of control over Endesa to a number of conditions that are contrary to EC Treaty rules on free movement of capital and freedom of establishment.
Gaz de France and Suez Submit Proposals to Commission in Response to Statement of Objections
Alexandra Rogers
On 20 September 2006, Gaz de France and Suez submitted their proposals to remedy the concerns that were highlighted by the European Commission in its Statement of Objections relating to the proposed merger of these French gas operators. In its Statement, which was released in August, the Commission stated that competition in the gas and electricity markets in Belgium, the gas market in France and the market for district heating in France would suffer adverse affects if the merger proceeded. The two companies have proposed the following measures to counteract the Commission’s concerns:
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the creation of a new competitor in France and Belgium (by forming a new company, selling it to a third party and transferring assets, including a portfolio of sales contracts and supply contracts, to that new company);
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organising a “gas release” program in France and Belgium (the release of contracts to third parties by means of auction);
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Gaz de France to sell its 25.5 per cent interest in the capital of SPE – the second largest gas operator in the Belgian gas and electricity market;
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changes to the corporate governance rules in the companies responsible for infrastructure in Belgium and France to ensure separation between infrastructure ownership and operational management; and
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the sale of Cofathec (a subsidiary responsible for the managing of public service contracts related to the heating networks serving local communities).
The Commission is due to announce its decision on the merger mid-November, after considering these proposals and consulting other stakeholders in the relevant markets.
Emissions Trading and Carbon Capture & Storage - New EU Legislation in 2007
Frank Schoneveld
Commissioner Dimas, responsible for Environment, has announced that the European Commission will propose new legislation on Carbon Capture & Storage in 2007. The proposals will be designed to complement existing legal measures to reduce greenhouse gas emissions such as the Emissions Trading Scheme (ETS), renewables and energy efficiency. The review of the ETS, also to be completed in 2007, will consider the integration in the ETS of carbon capture and storage (CCS). If CCS is integrated into the ETS, emitters of CO2 will be able to reduce their emissions using CCS rather than other possibilities such as buying units in the ETS. To avoid conflicts with existing policies and objectives, changes will also be proposed to the definition of "waste" and existing legislation on water pollution controls and monitoring.
Further Strengthening of EC-Norway Energy Cooperation
Elena Kostadinova
The European Commissioner for Energy and the Norwegian Minister of Petroleum and Energy have established a Joint EC-Norway Energy Cooperation Group. The Energy Cooperation Group will be established at Director/Head of Unit level and its main tasks will be to examine the whole spectrum of energy issues and make concrete proposals at Ministerial meetings. Norway is an exporter of oil and gas to the EU and through the EEA Agreement is fully integrated in the internal energy market. Preparation for the Ministerial meeting in June 2007 will focus on security of supply and demand in the EEA and a detailed overview of energy cooperation between the two sides. In a meeting on 15 September 2006 it was confirmed that Norway would increase its gas exports to the EU by 60 per cent from 2005 levels by the year 2010. A new pipeline from Norway to the United Kingdom will be operational in 2007. All of these efforts stem from EU attempts to diversify energy sources and ensure security of energy supply.
Renewable Energy: EU Contribution to the ITER Project
Michal Cieplinski
The Commission has proposed the creation of a Joint Undertaking to provide the European contribution to the ITER international fusion energy project. ITER is a worldwide project to demonstrate the potential of fusion as an energy source and is the world’s biggest scientific collaboration of its kind. The ITER research project and its seven Member Parties (EU, Russia, Japan, China, India, South Korea and the US) aim to reproduce the physical reaction – fusion – that occurs in the sun. Fusion has several attractions as a large-scale energy source such as abundance of basic fuel, no greenhouse gas emissions, and no long-lasting radioactive waste. The Joint Undertaking’s primary task will be to meet Europe’s obligations towards ITER by working with European industry and research organisations to supply components for the ITER research project.
Revision of EU Rules for European-Wide Energy Transmission Network
Elena Kostadinova
The EU Council and Parliament have adopted a Decision on Trans-European Energy Guidelines (TEN-E Guidelines). The TEN-E Guidelines determine projects of common interest, priority projects and projects of European interest. These projects relate to the creation and completion of the European internal market which requires sufficient gas and electricity cross-border transmission capacity. The new guidelines include 42 projects of European interest. The total amount of the estimated investment cost is approximately EUR 28 billion, of which 4.8 billion will be invested in electricity projects, 19 billion in gas projects, 2.5 billion in Liquefied Natural Gas projects and 2.0 billion in storage projects.
Mergers: Toshiba Acquisition of Westinghouse Electric and BNFL USA
Geert Dierickx
The European Commission has cleared the proposed acquisition by the Japanese conglomerate Toshiba of Westinghouse Electric and BNFL USA (both hereafter Westinghouse). The proposed transaction would combine two suppliers whose activities are to a significant extent complementary, both technologically and geographically. The Commission investigated in particular the effects of the transaction in the nuclear fuel assemblies markets, in which Westinghouse, Areva, and Global Nuclear Fuels (GNF) are the largest suppliers worldwide. GNF is controlled by General Electric (GE), and has Toshiba and Hitachi as minority shareholders. Concerns materialised as to possible effects on potential competition in the fuel assembly markets of the combination of Toshiba’s stake in GNF with its control of Westinghouse. To allay these concerns Toshiba has submitted a commitment to modify its contractual arrangements with GE and Hitachi, its partners in GNF.
Renewable Energy: Proposal to Extend Energy Crop Aid Scheme to all Member States
Mélanie Bruneau
The European Commission has proposed to extend the energy crop premium from 2007 to the eight Member States who joined the EU in 2004 and did not benefit from it. These include the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Poland, and Slovakia. These countries were applying the Single Payment Area Scheme (SAPS) but were excluded from the aid for energy crops which is an incentive for farmers to produce crops for energy purposes rather than for food. The review of the energy crops scheme has shown that it was appropriate to extend the aid for energy crops as it has proved a simple and efficient method of supporting farmers and should be increased in proportion to the maximum guaranteed area. The data available on biofuel consumption and national indicative targets has also shown that many new Member States are making significant efforts to comply with the EU biofuels initiative and have adopted national measures (e.g. exemptions from excise duty) to support the production and use of biofuels.
MERGER NOTIFICATIONS
Friday 1 September – Saturday 30 September 2006
M.4329 - TOTAL / CEPSA (8 September 2006)
M.4368 - EDISON / ENECO ENERGIA (15 September 2006)
MEETINGS
Sunday 1 October – Tuesday 31 October 2006
Transport, Telecommunications and Energy Council (12 October 2006)
High Level Meeting on Short Sea Shipping (26 October 2006)
