EU Energy Commissioner Andris Piebalgs has made the third package of legislation for liberalisation a cornerstone of his term. In an exclusive interview withEuropolitics Energy, the commissioner remains optimistic despite substantial modifications of the European Commission’s proposals. Piebalgs denies that there has been any weakening of his proposals, notably concerning ownership unbundling. He also blames financial markets for a substantial part of the rise in oil prices.

The Commission’s proposal on energy markets has been substantially modified via the third alternative (ITO). Are you confident that the three options now available will ensure a free and competitive energy market?

The alternative unbundling proposal agreed at the Energy Council on 6 June and known as independent transmission operator (ITO) is an improvement compared to the present unbundling requirements even if it does not go as far as the Commission envisaged in its original proposal. The ITO solution specifies in detail the conditions for independence of the network operator, while the certification procedure for the network operator ensures that all the necessary conditions are really put in place and applied in a consistent manner across the EU.

Moreover, it is important to note that the ITO solution has made it possible to find broad agreement also on all other essential elements of the third energy package. The third package is a very ambitious and comprehensive set of measures which, taken together, will boost competition in the internal energy market.

In her report, MEP Eluned Morgan proposed a definition of dominant companies in terms of market share and a commitment to reduce such dominance. Why did the Commission not adopt such a strict approach to market dominance?

Lack of competition cannot be pinned down to arithmetic figures of market shares. What is needed is a case-by-case analysis and the numerous competition cases by the Commission and by the national competition authorities show that it is possible to intervene where dominant companies have indeed abused their market power and have harmed consumers. Moreover, in the medium term, a truly European energy market with common network rules and no more cross-border congestion will be a more effective and more sustainable way to limit the market power ofdominant companies.

The Energy Council was hesitant as to the so-called Gazprom or third country clause fearing that it may be protectionist, threaten third country investment and be overly bureaucratic. Can the Commission address these concerns?

The third country clause aims to ensure a level playing field by enforcing the same rules for third country companies that apply for any EU company, that is the effective unbundling of network operators from supply interests. It must be ensured that neither EU nor non-EU companies are guided by anti-competitive interest and would thus put at risk the management and development of the transmission networks and ultimately undermine the EU’s security of supply. Since it is more difficult to verify this condition for companies from third countries, this clause specifies a particular approach to control from such countries. In any event, the conclusions of the Energy Council show clearly that member states support the general principle of the third country clause.

Can you live with a barrel of oil at US$250 as suggested by Gazprom CEO Alexei Miller?

In a nutshell, the present oil price, around US$140, does not reflect the fundamentals of the oil market and includes a significant share due to the financial markets’ activities which have developed since September 2007. If the fundamentals may justify the level reached in 2007, it is now difficult to see the benefits for the real economy of further increases of the oil price. The impact on our economies is becoming more and more negative in terms of inflation, of keeping households’ budgets balanced, of competitiveness of some sectors working heavily with oil such as the fishing, agricultural, transport and automotive sectors ⁽¹⁾. The poorest are the most affected. And the consequences are much worse for the developing countries. This is unacceptable. For developed countries, the largest consumers of fossil fuels, positive effects may be seen in the research of energy efficiency and the reduction of consumption which may in turn lead to a reduction of greenhouse gas emissions, favouring the much-needed transition to a low carbon economy. However, at the end of the day, any price increase has to be supported by the economy and the citizens and there are clear limits to the acceptance of such brutal and continuing increases not justified by the reality of the oil sector.

Gazprom CEO Miller dubbed EU efforts to diversify into Central Asia “counterproductive”. Has anything come out of your trips to Central Asia as?

Diversification remains a core objective of EU policy to effectively manage energy supply. For natural gas, the opening of a south-eastern corridor plays an important role. Diversification means on the one hand creating a stable political framework with supplier countries, in which companies can safely operate in order to purchase or explore and produce natural gas and oil. On the other hand, infrastructure needs to be built in order to transport energy to consumer markets. These two developments have to go hand in hand. They also contribute to wider export opportunities for the countries concerned. I am confident that for the south-eastern corridor things are advancing.

Do you see any risks of this energy package coming unstuck before MEPs pack up for the elections next year?

In this respect, the Energy Council’s agreement, of 6 June, has been very valuable. Now it should be possible to come to an agreement between the Council and the Parliament by the end of this year. All institutions are fully aware of the urgency of the matter and I am confident that we will reach this objective if we all continue to work together in a constructive spirit as we have done over the past months.

Lack of competition cannot be pinned down to arithmetic figures of market shares - In a nutshell, the present oil price, around US$140, does not reflect the fundamentals of the oil market
⁽¹⁾ The Commission published a communication, on 11 June, analysing the reasons and consequences of high oil prices as well as their influence on other energy and commodity prices.