EU energy ministers may end deadlock

SIX years after the EU Commission first proposed to liberalise Europe's £110 billion electricity market, energy ministers today look set to break the deadlock between member states.

Compromise proposals from the Italian presidency are likely to be approved. They would initially open up a quarter of the Irish market to rivals of the ESB. This follows diplomatic indications that France has agreed, under pressure from Bonn, to soften its position.

Diplomats say the Italian Minister, Prof Alberto Clo, appears determined to get the package through today.

Ireland now stands alone in its opposition to the extent of the proposed liberalisation. The Minister for Energy, Mr Lowry, will be hard pressed to wring any further concessions from his fellow ministers.

If any changes to the compromise are to succeed, diplomats say, they are likely to be in the direction of greater liberalisation.

Mr Lowry supports competition in the Irish market, but it is understood that he will oppose any moves to open up a large section of the market very quickly to competition.

There were reports yesterday that the Germans, leading the free market lobby, were to propose reducing the hurdle for access to one quarter of that suggested by the Italians. They are said to have backing from Britain, Sweden and Finland. That is enough to ensure a blocking minority on the compromise proposals, but probably not enough to ensure the hard line prevails. However, diplomats hope the Germans will back the Italian position.

The directive proposes two systems of introducing liberalisation and member states must pick one. Third Party Access, under which states must allow any generating company which meets basic standards to enter the market; or the Single Buyer System, the option that Ireland will go for.

The latter means that a single monopoly buyer of electricity, yet to be established in Ireland, would decide when a new power station was required. It would then put the job out to tender. The single buyer would sell on power to the distributor, in Ireland's case the ESB.

However, under the single buyer system, member states have to accept that a certain proportion of large scale users, "eligible consumers", such as Al can or Aughinish Aluminum, will be able to bypass the single buyer and negotiate directly for supplies with independent producers.

At stake today is the threshold, which will in any case be lowered progressively, at which a user becomes an eligible consumer. The Italians are proposing a consumption figure of 40 gigawatt hours per year. Ireland would prefer a figure of 50, and the Germans 10.

The Germans would like to see 40 per cent of the market opened within five years.

Mr Lowry has already won acceptance that Ireland may insist on 15 per cent of production coming from "indigenous fuels". He will be anxious to copperfasten safeguards for ensuring a public service commitment to harmonise prices to consumers and prevent "cherry picking" by independent producers. He would like to extend for as long as possible the phasing of complete liberalisation.

He will be attempting to ensure that the commitment to a review process in five years will be more than a formality.

The Irish have made the case that the proposals fail to take real account of the problems of small markets and warn that the ESB may be severely threatened. However, sources in the Department of Energy suggest that the new structure may not be particularly attractive to outside investors, effectively leaving the field free to the ESB if it can keep its costs under control.

If approved today the directive returns to the European Parliament for its opinion on changes since its second reading. It then returns for final approval to the Council of Energy Ministers, probably in Dublin in December.

It would then come into operation within two or three years, depending on the final package agreed today.