Regional Members Among EU Laggards On Energy Market Reform

By Svetla Dimitrova

The European Commission (EC) has given Bulgaria, Romania and six other EU states until the end of April to transpose the EU’s binding electricity and gas market liberalisation rules into their national legislation. The eight countries have been warned that they might face legal action at the European Court of Justice if they fail to meet their obligations.

“Opening energy markets for competition is key to competitiveness of the EU economy as a whole,” the EC said on February 27th.

All of the EU member states were to incorporate the electricity and gas directives of the Third Energy Liberalisation Package in their domestic legislation by March 3rd 2011.

A year after the deadline, Bulgaria, Cyprus, Luxembourg, the Netherlands, Romania, Slovakia and Spain had yet to implement the required reforms in either field, while Estonia had not informed Brussels of any steps towards the enactment of the gas market rules, the EC noted.

Urging the eight to take quick action, the EC said it was giving them a further two months to take the needed measures.

In response to the EU warning, Giorgos Shammas, the chairman of the Cyprus Energy Regulatory Authority (CERA), suggested that the needed electricity bill would soon be in place. He also explained the delay in transposing the EU gas directive with the discovery of natural gas deposits off the island’s southern coast last year.

“I think that if all authorities work in harmony, we can prove to the EU that we are moving towards the right direction; for us, the basic rule is for CERA to have the necessary power to exercise its role,” the Cyprus Mail quoted Shammas as saying in late February.

Bulgaria’s Economy, Energy and Tourism Ministry said the government had approved the necessary amendments to the energy law in mid-January and had submitted the bill to parliament. The changes are expected to be adopted this month.

A key requirement of the EU electricity and gas directives calls for the separation of energy production and supply from transmission activities to eliminate conflicts of interest, promote investment and prevent discriminatory conduct.

To meet that obligation, member states can choose among one of three options: full ownership unbundling; an independent system operator outside of the vertically integrated company; or an independent transmission operator within the company, but with sufficient guarantees for its independence.

Bulgaria has already made its choice and now needs to move to the process of restructuring, says Jana Georgieva, who is in charge of policy and research at the Energy Management Institute, a Sofia-based think tank.

The transformations in the field of electricity will be more complex than in the gas sector, where Bulgartransgaz already owns the gas transmission network and is not a subsidiary of the public supplier, Bulgargaz.

The Electricity System Operator (ESO) is a subsidiary of Bulgaria’s state-owned National Electricity Company (NEK). Its numerous activities include power generation and transmission, as well as supply.

“Under the chosen model, the ownership of the transmission network must be transferred to the ESO, which it currently manages under a contract with NEK. Furthermore, the ESO must be made equal in status with NEK as a direct subsidiary of the Bulgarian Energy Holding,” Georgieva told SETimes.

The goal of the Energy Liberalisation Package, she said, is to open energy production, delivery and trade to competition, but not the transmission networks.

“There is no room for competition there. The transmission networks are considered natural monopolies,” she told SETimes. “Nobody builds parallel networks [to them],” because it is typically too costly.

The Romanian government submitted an electricity bill to parliament in mid-March, including a calendar for the phased elimination of regulated power prices by 2013 for industrial consumers and by 2017 for households.

“After parliament approves this draft law, we shall be able to say this is the calendar to be followed,” Iuliu Plaveti, the chairman of the country’s National Energy Regulatory Authority, told reporters on March 16th. “What we suppose is that the market will function absolutely naturally; the competition environment will develop. That is why we do not necessarily see any major [price] increases.”