Next month, the 15 European Member states will convene in Barcelona for the European Economic Summit. High on the agenda is agreement on progress to full gas and electricity market liberalisation, but in the twelve months since this issue was raised at the Stockholm economic summit little real progress has been made. The key to progressing with the accelerated liberalisation timetable is to unpick the lock of Franco-German resistance. According to the media rumour mill some progress is being made. If these rumours are to be believed the European Commission will table a compromise, leaving out retail competition from the timetable providing that France commits to full industrial and commercial competition. Under this compromise it may also involve the actual implementation of industrial and commercial competition being put back a year for gas and two years for electricity, to 1 January 2005.
France, according to the same rumours, is also now more supportive of some form of liberalisation timetable. But should we believe this new found harmony between Brussels and Paris? After all Electricité de France is still viewed as the enfant terrible of the European electricity industry and the French government still believes in protecting its domestic gas and electricity market, which it views as a national asset. And even if the Brussels-France harmony is genuine can the Commission's proposed timetable be met? Last month EDF announced a restructuring of its corporate infrastructure, with the creation of self-contained business units. The new structure clearly endears itself to any future privatisation, partial or otherwise, by the government, and some observers believe the days of EDF being a state monopoly are starting to draw to a close. But under the current government of Lionel Jospin no such talk of privatisation will be entered into. With the neo-Gaullists ahead in the opinion polls for the government elections in the summer Jospin is unlikely to risk alienating his left of centre political rump, which strongly favours state control of public utilities.
However, the current political climate may also work in Jospin's favour. If Jospin can engineer an agreement with the Commission on liberalisation that protects its domestic market, extends the timeframe for industrial and commercial competition, and precludes any privatisation of EDF and GDF, then his political star will shine brighter ahead of the elections. If this is the scenario then it is clear that the Commission needs France more than France needs the Commission. For fourteen of the Member States to broadly support the proposals of the Commission and then for the Commission to modify its proposals to accommodate France sets a dangerous precedent. Only a month ago the Commission made it clear that if France refused to endorse its proposal for full retail competition by 1 January 2005 it would use its executive powers to overrule. How times have changed.
If the Commission can be so easily swayed on the concept of liberalisation how will it progress on the issues that directly underpin liberalisation: capacity constraints, taxation, and regulation? After all there is no European consensus on these issues. The UK is against tax harmonisation, so will the Commission bow to the UK chancellor and amend its tax harmonisation ideals? And Germany is against independent regulation, favouring instead a form of cartel regulation. Indeed Germany is supporting France's resistance to the liberalisation timetable in return for France supporting its stance on regulation.
The problem for the European Commission is that while there may well be a broad consensus for moving to full liberalisation as quickly as possible there is less of a consensus on the issues that underpin such a liberalised state.
Clearly. the Commission has to achieve some progress in Barcelona but the signs are that, at best, some form of fudge will be agreed. The Commission, in playing to French sensitivities on the liberalisation timetable, may well remove retail competition from the agenda. But if it modifies its liberalisation timetable then other countries can argue for similar concessions. Tax harmonisation, one of the more sensitive political issues, may well be watered down. Certainly there is no current common ground on either VAT or carbon taxes, the latter being problematic as the Commission is committed to meeting its obligations under the Kyoto Protocol. And, as for regulation, the Commission may well have to rethink how it regulates a single, integrated European energy market. Acting as a 'regulator of regulators', a position outlined by Commission vice-president for Energy and Transport, Loyola de Palacio, may not be an effective approach to regulation, particularly if an integrated market resembles more of a united states of Europe than a union of Member States.
European liberalisation will eventually be achieved, but the timetable outlined by the Commission looks increasingly unworkable. With a number of concessions now likely in Barcelona the reality is that there will not be full competition until well after 2005. Indeed the main success of Barcelona would be to introduce a second phased-in competition timetable that has universal agreement rather than attempting to fudge the current timetable.
Energy policy and Enron
The inquisition into Enron's collapse continues to unearth new evidence and spreads the web in ever widening circles. Enron's accountants, Andersen, are already embroiled in the scandal and a new entrant may well be McKinsey, advisors to Enron in the 1980s and a previous employer of Jeff Skilling, who resigned as chief executive last summer. But the main interest may well be outside the business sector itself and drive straight into the higher echelons of government on both sides of the Atlantic.
Both the US and UK ruling parties received political funding from Enron, and both governments have been reviewing energy policy. The concern is that Enron has had a strong influence in the development of this policy. While it may be difficult to prove any collusion the current saga should serve to warn governments about relationships with powerful business empires which can further benefit from preferential government policy.
While energy policy has to be developed with the support of market participants it must be objective and impartial. If the respective governments are successful in disproving the allegations concerning Enron they must use this as a lesson for future policy. Although it would be unwise to restrict political funding, as the alternative would be funding political parties through the public purse via more taxation, governments have to be more objective and transparent when developing policy.
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