The New York Times: Merger of Energy Companies Sets Back European Efforts on Competition

By JUDY DEMPSEY and KATRIN BENNHOLD
Published: September 4, 2007

BERLIN, Sept. 3 — The European Union’s ambitions to open its energy sector to greater competition were dealt a fresh blow Monday after the French state-owned company Gaz de France announced that it would merge with the utility Suez to create one of the world’s largest energy groups.

The deal, which creates Europe’s largest buyer and seller of natural gas as well as its biggest natural gas distributor, reinforces France’s position as a major player in European and global energy markets. But it also runs directly counter to the centerpiece of proposals by the European Commission to break up control of the production, transportation and distribution of energy, analysts cautioned.

“The Gaz de France and Suez deal shows that the commission’s plan to really open the internal market to competition in the energy sector is going nowhere,” said Christian Egenhofer, energy analyst at the Center for European Policy Studies, a research group in Brussels.

Since 2003, the commission, the executive arm of the European Union, has moved to break up concentration of power in the hands of large companies, as part of a larger initiative to increase competition and spur economic growth.

The deadline for full liberalization by July, when the last national barriers to open trade in energy were to be dropped, set off rapid consolidation in the sector and prompted individual governments to support their own national champions.

Indeed, the Suez-GDF merger, in which the French state retains a blocking minority, means that Europe’s natural gas sector will now be firmly dominated by handful of players, including Gazprom of Russia, E.on of Germany, Eni of Italy, Gasunie of the Netherlands and Norsk Hydro of Norway.

Along with Gaz de France, these companies have jealously guarded their positions, sometimes making informal agreements not to enter each other’s markets. Their tight grip has made it difficult for smaller companies to enter the sector unless they make significant investments, like building pipelines, and has led Brussels to insist that the energy companies allow other companies access to their networks.

The European Commission tried Monday to put the best face on the French deal. “We examined the details of the merger over a long period of time,” said Jonathan Todd, spokesman for the competition commissioner, Neelie Kroes. “If we find that the companies are abusing their monopoly power by restricting access to the gas or electricity, then we could fine them.”

The prominent role the French government played in brokering the merger, initially to thwart a foreign hostile bid, reinforced suspicions in Brussels that national, not European, interests remained the key variable in the politically delicate energy sector. It also raised the broader question of whether a policy of grooming national industrial champions was compatible with European ambitions of opening up the energy market.

The merger is likely to bring Europe greater clout when it comes to negotiating energy contracts with other big companies, especially Gazprom, Russia’s state-owned energy giant, which already supplies a quarter of Europe’s natural gas.

Jan Horst Keppler, energy analyst at the French Institute of International Relations in Paris, also played down fears about weakening competition, at least in France. “The great asset of Gaz de France is its gas transport infrastructure,” he said. “Suez will be able to use it.”

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