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EU 3rd Energy Package not to extend to Nord, South Stream

December 14, 2011, 11:11 UTC+3

The Third Energy Package is a block of legislative acts developed by the European Commission, which aims at increasing competition in the European energy market

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BRUSSELS, December 14 (Itar-Tass) — The problem EU Third Energy Package will not extend to the key Russian projects - the Nord Stream and South Stream pipelines, Russian Ambassador to the EU Vladimir Chizhov told reporters in the run-up to the EU-Russia summit opening in Brussels on Wednesday. Energy issues will be high on its agenda.

“South Stream does not fall under the Third Energy Package, because its owner will be not Gazprom, but an international consortium. That is, it will be under an independent operator. The same applies to Nord Stream, because its operator - Nord Stream AG – is a consortium registered in the Canton of Zug of the Swiss Confederation. We’ll see where South Stream will be registered, but I guess that also there. This canton has a very favourable climate, tax, in particular,” Chizhov said.

The Third Energy Package is a block of legislative acts developed by the European Commission, which aims at increasing competition in the European energy market. It, in particular, requires from European energy companies to separate their mining and production assets from transport assets, such as power transmission lines or pipelines, and to transfer this infrastructure to independent companies operators. This package is based on the liberal thesis on the absolute benefit of competition. The European Commission explains that it intends thereby to reduce the control of major energy companies over the energy sector in Europe and create the conditions for entry of new players into the market, which in theory should reduce energy costs.

Russia does not agree with the problem presentation. In Moscow’s view, energy is one of the most capital-intensive industries, which is regarded as a natural monopoly. From this standpoint, too much competition in the industry only creates extra margins due to the participation of additional companies, as well as reduces the opportunities for attracting investment.

The package was proposed by the European Commission in September 2007, and adopted by the European Parliament and the European Council in July 2009. It entered into force on 3 September 2009.

One of the core elements of the third package is ownership unbundling which stipulates the separation of companies' generation and sale operations from their transmission networks.

The European Commission and the Parliament wants to reach the goals of “Europe 2020 Strategy” through a secure, competitive and sustainable supply of energy to the economy and the society. The correct transposition of the European electricity and gas legislation in all Member States is still not complete. Because of this, the Third Internal Energy Market Package was adopted in 2009 to accelerate investments in energy infrastructure to enhance cross border trade and access to diversified sources of energy. There is still a market concentration on the energy market in the EU. Together, the three biggest generators of each country hold more than 2/3 of the total capacity of 840 000 MW. The EU advises three options to de-concentrate the market power of the biggest electricity firms. The first option is ownership unbundling. The second and third options are independent system operator (ISO) and independent transmission operator (ITO).

Ownership unbundling is proposed by the European Commission and the European Parliament. This option means to split the generation (production of electricity) from the transmission system (transmission electricity from electrical generating station via a system to a distribution system operator or to the consumer). It is the hardest form to regulate the energy market in the EU, but it is legitimate by EU-law. The criticism by that system is, who can buy the transmission networks, will it really regulate the market-place and who will pay possible compensations to the energy firms. Moreover, some economists also stress that the benefits will not pay off the costs. In 2011 none of the EU members favoured this option. Just UK implemented it before the Third Internal Energy Market Package.

Austria, Bulgaria, France, Germany, Greece, Luxembourg, Latvia and the Slovak Republic presented at the end of January 2008 a proposal for a third option. This model, the independent transmission operator (ITO), envisages energy companies retaining ownership of their transmission networks, but the transmission subsidiaries would be legally independent joint stock companies operating under their own brand name, under a strictly autonomous management and under stringent regulatory control. However, investment decisions would be made jointly by the parent company and the regulatory authority. It is also named a legal unbundling.

The directive 2003/54/EC gives the member states three options of unbundling. One of them has to be transposed into national law. In 2011 the ownership unbundling is implemented just in United Kingdom. The next years will show, if the European Commission and the European Parliament force on achieve the ownership unbundling model or if the other models reach the goals of a secure, competitive and sustainable supply of energy to the economy and society.


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