A. GENERAL POLICY QUESTIONS
16. AMENDED PROPOSAL FOR A EUROPEAN PARLIAMENT AND COUNCIL
DIRECTIVE CONCERNING COMMON RULES FOR THE INTERNAL MARKET IN NATURAL
Letter from Lord Geddes, Chairman of Sub-Committee
B, to John Battle MP, Minister of State, Department of Trade and
I am writing to inform you of the preliminary conclusions
reached by Sub-Committee B after its deliberations this morning
on the above draft Directive.
As you know, the Sub-Committee conducted an enquiry on this
subject in the weeks preceding the summer recess, taking evidence
from a wide range of UK and Continental witnesses, including yourself
and officials from your Department. Most of that evidence referred
to the Dutch Presidency texts of 25 April and 6 June, but we also
received, just a few days before the meeting you attended on 26
July, the Luxembourg Presidency text of 18 July. We now understand
that, during the course of the summer, further texts (including
one dated 6 October) have been circulated in preparation for an
extraordinary Energy Council meeting scheduled for 27 October,
at which the Presidency hopes that a Common Position might be
The Sub-Committee aims to agree a report based on its enquiry
for presentation to the Select Committee and subsequent publication
within the next few weeks. Since this process will inevitably
not be complete until after the 27 October Energy Council meeting,
we set out here the preliminary conclusions reached by the Sub-Committee.
Although conscious that these may differ in some respects from
the final conclusions adopted by the Select Committee, we hope
they will be of some benefit to you in preparing your negotiating
position for the 27 October meeting. You will of course be sent
a copy of the Select Committee's final report as soon as it is
The Sub-Committee welcomes the draft Directive as an important
element in the extension of the single market to the energy sector.
Although we recognise that the Directive will have only a limited
impact on the United Kingdom gas market, given the domestic legislation
that has already taken effect, we believe that it has the potential
to yield some benefits to the Community. We have noted various
criticisms of the text based on unfavourable comparisons with
the liberalised regime being created in the country, but we believe
that, despite its evident imperfections, it is better to have
a Directive subject to such amendments as it may be possible to
obtain, rather than have no Directive at all.
We consider that the proposed transparency arrangements,
which would require only accountancy separation between the transportation
and supply operations of gas companies, are inadequate to ensure
the emergence of the level playing field" required for competition
to emerge. We therefore urge you to continue to press for amendments
to require management separation of these activities or, at the
very least, a comprehensive Chinese wall requirement to ensure
that pipeline companies are prevented from using information obtained
from other suppliers to benefit their own supply activities.
On market opening, our concern is that competition should
be introduced as rapidly and as widely as is possible. While we
accept that it would be difficult to obtain any radical changes
to the figures for market opening or thresholds contained in the
Luxembourg Presidency text of 18 July, we would still prefer to
see either lower thresholds defining eligible customers, or a
shorter timetable, or both - perhaps thresholds of 25 million
m3, 10 million m3 and 1 million m3,
with intervals of three years rather than five between stages.
Notwithstanding any possible price rises that may result, maximum
competition is in the interests of the United Kingdom, which would
benefit directly in the short term by increased exports of gas
to the Continent and from the export of its expertise in operating
in a competitive gas market.
After careful consideration of the arguments advanced in
evidence, we have concluded that considerations relating to security
of supply and investment are not sufficient to justify indefinite
special treatment for companies which enter into long-term take-or-pay
contracts. We accept that derogations should be permitted in respect
of contracts already existing at the time it became apparent that
Community rules for an internal market in gas would be introduced,
but we do not accept that derogations should be allowed in respect
of take-or-pay contracts entered into more recently or in the
future. As to the proposed derogation arrangements, they have
the merit that a final decision on whether a derogation is to
be granted lies with the Commission and not with the Member State
concerned. We also regard the new criterion for granting derogations
included in the 6 October text as a useful addition. However,
we think that, overall, they have a number of unsatisfactory features.
In particular, we believe that the provisions requiring examination
of the extent to which the contract conditions allow for market
changes should be strengthened to make it clear that the absence
of adequate provisions for such changes would be a bar to the
grant of a derogation.
We consider that a number of the procedural aspects are unsatisfactory.
Our particular concerns are as follows.
- The right of the buyer to refuse access to its pipeline
before a derogation is granted enables the buyer to exercise the
right merely as a delaying tactic.
- Because the text does not impose any time limit within
which the Member State concerned must decide whether it intends
to grant a derogation, there are considerable opportunities for
- The likelihood that decisions to grant or refuse
derogations will be subject to legal challenges presents further
scope for delay.
- Pending final resolution of an access dispute, applicants
for access would be unable to obtain supplies of gas from any
source other than the owner of the pipeline to which access has
- Any legal challenge by an applicant for access would
involve the applicant in expenditure of considerable management
time and resources.
Finally, we strongly recommend the Government to press for
the inclusion in the Directive of safeguards to protect the position
of applicants for access. These safeguards might include constraints
on the rights of pipeline owners to refuse access, such as a requirement
that they act in good faith; the inclusion of time limits on Member
States to reply to applicants for derogations; and the inclusion
of a specific right to damages for applicants who have been denied
access in circumstances where a derogation is subsequently refused
either by the Member State concerned or by the Commission.
I hope that you will find these preliminary views helpful,
and I look forward to hearing from you on the outcome of the 27
October meeting as soon as possible thereafter. We shall maintain
a scrutiny reserve for the time being.
16 October 1997
7 7th Report, Session 1997-98 (HL paper 35). Back