Opinion: The imminent announcement of one of the largest ever increases in the price of electricity will be greeted with muted dismay. After all, it is likely to be less than the maximum increase sought - up to 20 per cent - and well below the 34 per cent increase in the price of gas that kicks in at the start of next month.

The Commission for Energy Regulation (CER), which decides on energy prices, gives a useful comparison of energy prices in EU countries in its recent annual report. These, based on Eurostat figures, placed our domestic market in a favourable light, with both electricity and gas prices below the EU average. The prices, however, were based on purchasing power standards (PPS) that compares the purchasing power of the currency of each country to reflect the price impact and "therefore an accurate cost comparison of the prices in each country can be compared", according to the report. A subsequent newsletter, from CER, out last Friday, quoted the raw figures.

The Eurostat figures for January 2006 are revealing. The average price of electricity per household in the EU was €14.16 per 100 kWh. In this State, it was €14.9 per 100 kWh, the seventh highest. Also we are well ahead of the €10.2 per 100 kWh paid in the UK that this year, like ourselves, is having to contend with further enormous increases.

A further breakdown is also revealing. The most expensive, by a long shot, were Denmark, Italy and the Netherlands. The lowest prices were in Greece, Lithuania and Estonia. And, interestingly, electricity prices in Denmark are more than four times the level in Greece.

The main reason for the disparity is tax. In Denmark, taxes account for an incredible 57.8 per cent of the total price, while in Greece the tax rate was 16.4 per cent. In contrast, our value-added tax (VAT) rate is 13.5 per cent, ranking us among the lowest.

And what about the raw gas prices? Here, we fare better. The average household price of gas was €13.02 per GJ (giga joule) in the EU. That is a little higher than the domestic price of €12.51 per GJ. However, gas prices are much higher here than in the UK, with its price of €8.24 per GJ, that operates in a deregulated and highly competitive market. The basic price was also lower in the UK, which has a relatively low VAT rate of 5 per cent.

The most expensive areas for gas were in Denmark and Sweden. And the lowest prices in the EU for householder consumers were in three Baltic countries: Estonia, Latvia and Lithuania.

The highest taxes are in Denmark. Here, more than half the final price is made up of taxes. The tax on gas in the domestic market is among the lowest of the 25 states.

With the price of gas and electricity effectively outside the control of domestic operators, is there any scope for part of the increases to be absorbed by the ESB and Bord Gáis?

The latest ESB accounts show a rise in revenue from €2.5 billion in 2004 to €2.8 billion in 2005. The vast bulk of this, €1.8 billion, came from ESB customer supply. A 20 per cent increase would boost this by more than €360 million and every 5 per cent would represent an extra €90 million. It has already had a 4.1 per cent price increase for 2006 and this will show in this year's accounts.

The group's income statement shows a rise in pretax profit from €82.8 million to €241.3 million. However, these figures camouflage the real trend. The results included non-recurring profit of €106 million from the disposal of businesses (including the retail business) and the inclusion of an income from the amortisation of emissions allowances of €117.7 million. If these are excluded, then it appears that the ESB recorded a profit of a mere € 16 million, or less than one-tenth of the previous year and a meaningless return on sales.

This reversal was due to the substantial rise in operating costs; specifically, energy costs, up more than €200 million, the emergence of emission costs and higher depreciation. Employee costs are almost static, and with net borrowings of some €1.8 billion against equity funds of €2.5 billion, it has all the appearance of a tightly run group with little fat and also little scope to absorb extra energy costs.

Bord Gáis reported a fall in pretax profit from €119.1 million in 2004 to €108.3 million in 2005, on a rise in sales from €758.2 million to €860.5 million. Excluding exceptional costs, there was a similar trend at the operating stage. Payroll costs rose just marginally and unlike the ESB, Bord Gáis's operating cost fell marginally. And with net borrowings of €1.08 billion against equity funds of €1.03 billion, there is little scope for Bord Gáis to absorb any of the extra energy costs.

Companies are saving some energy costs by using off-peak electricity. The Government could minimise the impact of the energy price escalation. All it has to do is put a stay on dividend payments to the Exchequer. It received a dividend of €10.09 million from Bord Gáis and €77.4 million on the ESB capital stock; ESB's employee share ownership programme (Esop) has a 5 per cent stake and this could be excluded from any waiver.

Such contributions would, of course, be small in the context of the substantial increases in international energy costs, but anything that could minimise the impact on inflation needs to be addressed. Already the Exchequer, through taxes, gains considerably from energy price increases, so why not the political gesture?

Obviously, household and industrial consumers need to become more efficient in reducing energy usage. ICT Ireland this week rightly called on the Government to publish its national energy policy and to introduce meaningful competition.

Also, it remains to be seen what impact, if any, flows to the household consumer from recent EU legislation that states all consumers will be free to shop around for gas and electricity supplies from next July.

It is worth noting that energy products accounted for 6.39 per cent of the Consumer Price Index (CPI) when it was constructed in 2001. Prices for electricity and gas accounted for 3.3 per cent, with petrol and diesel accounting for the remainder.

The latest CPI figures show a 10.4 per cent annual rise in energy products inflation in July. That was 2 ½ times the rate of inflation. And in the month alone, it amounted to a staggering 3.2 per cent.

With the 34 per cent rise in gas prices next month, following the 25.2 per cent increase in the previous period, and the substantial rise in electricity prices from the beginning of next year, inflationary pressures and subsequent labour demands can only become more problematic.