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13 Aug, 2007 03:33

EU looks at unbundling energy sector

The European Union is to review the energy sector this autumn, including proposals on unbundling ownership while large companies say it is a politically-motivated move could harm the entire market.

If made law, the policy will result in the forced sale of energy assets.

Unbundling has become the new buzzword in the halls of the European Commission. The umbrella term includes various types of unbundling, all aimed at separating energy supply from its delivery and generation.

But none compare to what may lye ahead for energy giants.

“The worst case scenario is ownership unbundling which means that the infrastructure can not be built by the company which is trading the gas. If this will not be possible in the future anymore, we will have a lack of investment, prices of energy could increase,” predicted Ingo Neubert, Managing Director of Wingas Transport Kassel, Germany.

Some types of unbundling are already being enforced. The so-called legal unbundling has altered the structural make-up of companies such as Wingas, a joint venture of Germany's Winters-hall and Russia's Gazprom.

Until recently, Wingas was involved in shaping the connecting infrastructure that delivers gas to EU consumers. But in 2006, it had to create a new company, Wingas Transport, to meet new unbundling requirements. The separation is not only symbolic but physical as the new company is located in a completely new building.

As are it's 65 staff members, along with all the paperwork necessary for the relocation. Wingas claims the changes only increase administrative barriers and slow down the company's operations. Selling these assets will solve everything, policy makers claim.

They insist ownership unbundling will help small companies enter the market.

But legal experts say there's more behind the move.

“They may also have other interests like opening up the market for their own major players,” pointed out Oliver Steffens, a partner at McDermott Will and Emery.

A number of countries such as Germany and France are against such a measure.

And in order to make ownership unbundling a law, the European Commission requires the consent of all member states, which raises a bigger issue.

“How much power the EU is actually supposed to have in approaching the member states in sectors such as energy sector,” shared Mr Steffens.

Companies, of course, say less is better.

“I believe we already have a lot of laws concerning the energy market in the EU. We don't need additional laws,” stated Mr Neubert.

Policy makers refuse to leave everything up to the free market. They claim regulation is necessary to protect both small companies and consumers from the monopolistic behavior of energy giants. But the radical shake-up of the energy market could cause a bundle of other problems such as higher prices and a lack of investment.