The Liberalization of the European Energy Sector from an Ownership Perspective

Abstract: The European energy market has undergone a large transformation in the last 20 years. It has gone from being a market strictly controlled by the Member States and dominated by state monopolies to being a privatized market under the rules of the market economy. This process has as its main aim to create a free and unified European energy market characterized by productive competition. A number of secondary legislation acts has been adopted by the Council in order to apply Union Law to the area in an efficient way and to regulate the cooperation between the Member States. The most important acts are the Electricity Directive 2003/54/EC, the Gas Directive 2003/55/EC as well as the Electricity Regulation (EC) 1228/2003 and the Gas Regulation (EC) 1775/2005. The central task of these Directives is to promote actions on national level in to create an open sector without discrimination and to reduce risk of market dominance and predatory behaviour. The Regulations have been adopted in order to implement rules meant to promote the trade of energy between the Member States of the EU and to contribute to a unified energy market. They mainly aim at setting up frame provisions on conditions for cross border distribution and access to such infrastructure. The rules on competition in the EC-treaty make up an important basis for the current work in the energy market. Article 86 EC on state controlled companies and Article 87 EC on state aid are of special interest when discussing the issues on the liberalization of state owned companies. State control over private companies is only illegal if it is exercised in a way that breaches any of the other competition rules of the treaty. Article 82 EC on abuse of dominating position is of special importance in this context. This Article serves to exclude principally all measures take by the state where it uses its position to set interfere with the conditions of the market. All measures construed as state aid under Article 87 EC are basically illegal. Such measures are only allowed when they can be justified under one of the exceptions in the article. These exceptions mainly consist in performing public service obligations, in which case the aid shall function as a compensation. The raison d'être of Article 86 and 87 EC is to restrain the involvement of the state in the market to an absolute minimum. This involvement may only occur in situations where it necessary to reach justified social or environmental goals that lie outside of what the free market can achieve and not go beyond what is necessary to reach these goals. Even though the European energy production of today is mainly performed in the form of companies principally subjected to the terms of the free market, some obstacles still exists before the goal of a unified and liberalized energy market is achieved. The European energy sector is still divided in to national market that are often controlled by the former state monopolies, thus lacking in real competition. This has led to insufficient new investments in infrastructure, especially concerning transmission systems between the Member States. The Commission has for these reasons proposed a new legislation package on this area. This shall provide stricter secondary legislation in the area by making the duties of the Member States in the process of deregulating national monopolies clearer. The new legislation is also meant to provide for a more efficient surveillance of the market. This seems to be a step in the right direction as the problems of the market to a large extent derives from the dominating of the former national monopolies. Those companies do often have interests in directly hindering the opening of the market in order to protect their dominating positions. Because these companies are to a large extent still owned by the Member States, they often have interests in protecting their national markets. What is primarily needed are more multi national actors that lift the focus to an international level in the energy sector. In order for the work of opening the sector to have a real result, a thorough reworking of regulations, surveillance and infrastructure is needed.