Power Engineering - Russia faces European Union barriers to power sector

30 August 2007- Russian energy companies' ambitions to expand in the European Union may be curbed by plans to be considered by the European Commission, according to the London Financial Times.

In a confidential working paper, the Commission suggests a series of measures to restrict foreign companies' access to the EU's energy sector, and in particular the gas and electricity transmission networks. One option to be considered is a "reciprocity clause" that would keep out countries such as Russia or Saudi Arabia where European companies face severe restrictions on investment.

The proposals are linked to the Commission's plans to increase competition in the European energy market - to be published on September 19 - in an attempt to ease fears about consequences of liberalisation.

The Commission is expected to restate its support for "ownership unbundling"; that is, separating ownership of gas and electricity transmission from the supply and generation businesses.

Member states opposed to unbundling and some MEPs argue that splitting off the transmission networks into separate businesses could leave them open to foreign takeovers.

A separate internal Commission document about the implications of unbundling, seen by FT Deutschland, the Financial Times' sister paper, says the EU could be "vulnerable to a strategy of third countries to dominate the EU markets not only in terms of supply but also by acquiring the networks".

The document explicitly warns about situations "where investment is driven by other motives than economic ones". It has been suggested Russia or other resource-rich countries could gain control of European energy supply by means of state-controlled companies such as Gazprom or state-owned investment funds.

In the working paper, the Commission suggests several options to prevent uncontrolled access. The weakest proposal would give the commission the right closely to examine any potential buyer.

The toughest measure would declare the European energy sector a "strategic industry", thereby excluding most countries from outside the EU from investing in it.
The requirement for reciprocity would be a particular blow to Gazprom, Russia's state-controlled gas company, which has intense ambitions to expand in Europe and already owns a range of assets and equity stakes in the EU.

Attempts by the EU to restrict acquisitions by non-European companies are likely to be _vexatious. The European Commission has set itself firmly against attempts by member states such as Spain and France to declare their energy industries strategic sectors that can be _protected from foreign bidders. However, it seems likely that some form of protection for the energy sector will be _implemented.

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