Examination of Witnesses (Questions 569-579)
DG TREN, EUROPEAN
COMMISSION
22 FEBRUARY 2005
Q569 Chairman: Good morning, sadly it
is only cheers with water, Mr von Sydow, but thank you very much
for making yourself available this morning. Video-conferencing
is a somewhat novel experience for us, if not for yourself, but
we are very grateful to you for taking the trouble to make yourself
available. We have been watching you via the monitor, and I am
not quite sure whether you have been watching us so far, but we
would like to start on what Mr Lowe has been giving us evidence
on and that is that the Commission intends to carry out two parallel
investigations into the energy markets. Your own department is
going to look at the success of the existing gas and electricity
Directives. We have had some indication from Mr Lowe of the timescale.
How many people will you be putting in this inquiry? What sort
of order of priority will you accord this inquiry in the scheme
of work of your department?
Mr von Sydow: Good morning to
London. Thank you for inviting me to your hearing. I hear you
quite clearly and well but there is some background noise because
I understand that you do not speak directly into a microphone
but there is one general microphone for the room. So if I do not
understand fully a question, I beg your pardon if I ask for it
again. We have adopted a second package of market liberalisation
Directives in the summer of 2003 which are right now being implemented
by Member States, so our first priority these days is indeed to
ensure that these Directives are correctly implemented and then
to see how the system works with the new Directives. We will present
a report before the end of the year on the functioning of the
internal market both for electricity and for gas. That will be
the priority of my gas people these days. We have a gas and electricity
unit comprising 15 people, including clerks and secretaries, and
everybody is working closely together. For linguistic reasons,
I cannot tell you how many people work on gas and how many on
electricity but let us say there are three or four people doing
that overview of the gas market so that is a rather small team,
contrary to the public perception of the monster bureaucracy in
Brussels.
Chairman: Okay, thank you. Mr Mike Clapham?
Q570 Mr Clapham: Mr Smith could I ask
the same question that I put to Mr Lowe. We know that when Ofgem
carried out its analysis of the price spike in 2003 they were
unable to answer certain questions regarding the way in which
the gas market has worked in mainland Europe and what I would
like to know is whether you have any evidence that gas companies
in Europe have either withheld supplies or withheld transportation
capacity on the European pipeline network or is there perhaps
evidence that they continue to put gas in storage rather than
to make it available on the Interconnector?
Mr von Sydow: I have not listened
to the answer by Mr Lowe but I fully subscribe to it of course!
We very much rely on the probes and on the examination by the
British regulator into the British market. We do not pretend to
know more about the British market than the British do themselves.
I have spoken personally with Sir John Mogg on these items and
he told me the more experts you ask the more answers you get on
the possible causes. There are some causes that are quite evident,
which is the link to the oil price, which may be due to the lack
of competition and especially the lack of competition in the European
market. As concerns specifically the question of holding gas in
storage in Europe, it is, I understand, quite normal that Continental
gas operators/suppliers buy gas during the summer from the United
Kingdom and elsewhere because, contrary to the United Kingdom,
most of the Continental suppliers are not self-sufficient so they
do not have continuous supply. There is less need for supply in
the summer, more need in the winter, and that is why they use
the summer period in order to fill their storage capacities. If
afterwards they make that stored gas available in reasonable terms
to the United Kingdom market I ignore that because this is part
of the private business behaviour of these companies. Just to
tell you the fact that there is storage on the Continent is natural
behaviour and linked to the supply situation.
Q571 Mr Clapham: Do you feel that the
traditional supply arrangement with European mainland companies
may be a rigidity that is going to be difficult to overcome as
we move to a more competitive European gas market?
Mr von Sydow: There is surely
a lot of rigidity on the European markets and in the behaviour
of Continental companies. I hope the more that we open the markets
and the more that we ensure there is effective unbundling, effective
free access to the network (which will always be a natural monopoly)
the more the market will become flexible. I already see in the
companies certain changes. If you speak to the traditional managers
of companies you have to convince them of the merits of a free
market for competition and of greater dimension to the market.
If you speak to seminars of the young people in the companies
you do not have to explain it any more because they feel it is
quite natural that there is competition. So in the behaviour of
the managers but also in the market structures themselves I see
progress. It is slow, but there is progress.
Q572 Richard Burden: Good morning. Mr
Lowe indicated that you may be best placed to tell us just for
the record which Member States have implemented Directives as
regards liberalisation of the energy market. I understand there
are 10 that have so far not implemented those Directives?
Mr von Sydow: There was a cut
in your question. You want to know who are the culprits who have
not implemented the Directives?
Q573 Richard Burden: That is just about
it, yes.
Mr von Sydow: There were 18 Member
States which were late last autumn and we have started infringement
procedures against those 18 Member States. Right now there are
still 10 who have not yet notified—notified means formal
transposition and a letter to Brussels. Of course amongst those
10 there are some who are more advanced or less advanced. I can
give you the full list: Belgium, Germany, Greece, Spain, Ireland,
Latvia, Lithuania, Luxembourg, Estonia and Sweden. The United
Kingdom is on the safe side!
Q574 Richard Burden: So Germany is still
on that list? We received information they intended to do it but
they have not done it yet.
Mr von Sydow: Germany are among
those who are even later than others. Others are ready and the
law has just to be finally approved. In Germany we do not know
yet the final shape of the law because it is still in discussion
between the upper house and lower house between the separate parties.
The difference in Germany is also they still have to give real
powers to the regulator. Mr Lowe said before there is a regulator
in every Member State. The Germans were the latest. They had no
regulator and we had to convince them to create a regulatory authority.
There has been some discussion on who it should be. Now it has
been decided it will be the same authority which is responsible
for the regulation of telecommunication and postal markets, but
this regulator that exists still has no powers for energy because
the primary legislation has not yet been adopted by the German
Parliament.
Q575 Richard Burden: Do I detect a degree
of frustration with the rate at which change is being effected?
Mr von Sydow: I have been with
the European Commission for over 30 years and I am accustomed
to the fact that it is not always on the very day which was foreseen
by a Directive that implementation takes place. When Lord Cockfield,
the architect of the internal market, did his White Paper in 1985
on the completion of the internal market he spoke of completing
the internal market in only eight years but that had not yet been
done in the 20 years before. He was quite reasonable in fixing
a deadline which was eight years away. Not all Directives have
been implemented immediately but even if there was one year or
two years' delay, in the meantime we have made real progress on
the internal market in the rest of the goods and services and
I am sure we will also succeed in the internal market for gas
and electricity. Let me say that those Member States who are lagging
behind are penalising themselves. We have seen that in the liberalisation
of postal markets and telecommunications markets where a lot of
Member States asked for additional transitional periods but in
the long run they have seen that those who were quicker have profited
more from the new dimension and profited more from the internal
market than those who were lagging behind. 15 years ago nobody
knew a small Finnish company called Nokia but there they liberalised
the telecommunications market quicker than others and that is
how their industry also benefited. The opening of the internal
market for gas and electricity is not just done for the sake of
the gas industry; it is done for the consumer. It is household
consumers but also industrial consumers and in that respect it
is an important part of the competitiveness of the whole of European
industry. If a Member State lags behind in opening its gas market
then the whole of the industry of that Member State is penalised
and will suffer so Member States have a national interest and
that is what we are telling them, to be as quick as possible and
even to be in advance. Perhaps some have not succeeded and some
are late for the deadline of 1 July 2004 but, for example, the
Germans have told us once they have done their legislation they
will be in advance concerning the deadline of 1 July 2007. That
is a promising element.
Q576 Richard Burden: Thank you. Which
would you say is the most important area where Member States have
yet to implement Directives? Would it be on the access to networks
issue? Is that really the crux, would you say?
Mr von Sydow: That is the crux
of the problem. You have competition on the production side, you
have competition on the consumer side but you have a natural monopoly
which is the gas pipeline and that is why the most important item
is to ensure fair access to the grid, transparent access, and
no discrimination, and that is where our efforts are concentrated.
Q577 Richard Burden: This may be a cheeky
question but if I were to invite you to say you are the Trade
and Industry Committee in the UK, and this is the recommendation
I would most like you to come up with to try to move along the
question of access to networks, what would your advice be?
Mr von Sydow: For the moment I
am quite happy. We have a draft proposal on a Regulation concerning
access to the network. The Directive of summer 2003 just opens
the market in general but we have a specific Regulation which
is right now under consideration in Council and Parliament concerning
the access to the grid. Ten days ago we succeeded in finding a
compromise between Council and Parliament in a conciliation procedure.
Today the parliamentary committee will decide on it and then there
will be the Plenary in March and the Council will then give its
final blessing, I understand, in April so for the moment I am
rather happy concerning the legislative work. We have done, as
completed by this Regulation, this second package on gas and we
will now lean back, if you will allow me the expression, and see
how it works and then decide if there is a necessity of further
improving the legislation. Of course we are working on the outside
concerning gas supply. May I take this opportunity to remind you
that we do not have the ambition to regulate everything. We are
happy if it works in the individual Member States and if there
is free flow between Member States by itself. When we saw that
did not work, we did a first package of gas and electricity legislation
in the 1990s which was rather soft. Concerning unbundling for
example, it only addressed accounts unbundling. Unbundling is
the link between the mother company who produces gas and the daughter
company who transports gas and is a network operator. We only
foresaw accounts unbundling. Then we realised that that was not
sufficient, and that the market was formally open but there was
no real cross-border flow, there was no switching of consumers
from one gas supplier to another, so we did that second package
in 2003 providing for functional unbundling and legal unbundling
between the gas producer and the gas network operator. Now we
will see. If it works we are happy; if it does not work we may
ask ourselves the question if we need further unbundling which
means ownership unbundling. We did not touch that until now because
we do not want to oblige the mother company to sell all its shares
in the network operator but if ever we see that the market does
not function and that complete ownership unbundling is the only
answer, then we are ready to do so. For the moment we will just
see and hope that the market will work. If the market does not
work of course we also have to distinguish between the fact do
we need more legislation or do we need better implementation
of the legislation or do we need action by Mr Lowe and the competition
authorities.
Q578 Richard Burden: How long do you
think you would give it to make that assessment?
Mr von Sydow: We will come up
with a report before the end of this year.
Richard Burden: Thank you.
Q579 Mr Evans: What is your best idea
at the moment? To get full liberalisation, do you think that it
is erring more on the side of more regulation and more legislation
or do you think it is erring on the side of just more thorough
implementation?
Mr von Sydow: It is implementation
especially as the word "regulation" is falsifying the
debate a little bit. We call those authorities regulators but
in reality they are also competition authorities. Competition
authorities normally intervene ex post after the behaviour
of the company. The gas regulators and electricity regulators
intervene and monitor the situation before the behaviour by authorising
and scrutinising the tariffs, for example, and transparency
of tariffs. So a regulator seems to regulate but in reality he
liberalises. The regulator's task is to ensure fair access to
the grid, transparency and non-discrimination. In reality it is
liberalising the access to the grid.
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