Feb 23 - Herald, The; Glasgow (UK)

 

THE continent's big power companies were threatened with a major anti-trust crackdown last week by Neelie Kroes, the European Union's competition commissioner, after she uncovered evidence that markets for electricity and gas across the continent were not being liberalised nearly fast enough.

This week, E.ON, Germany's largest utility, slapped in a GBP20bn unsolicited bid for Endesa, its Spanish opposite number. Having earlier walked away from a takeover approach to ScottishPower, E.ON now has its sights set on becoming the global number one, in one vaulting step.

The two events are inextricably linked. One of Kroes's five main concerns is market concentration, the delivery of more and more of Europe's power generation and supply into fewer and fewer corporate hands.

Another of the commissioner's worries is what Brussels calls vertical foreclosure. In ordinary language, that's the same company controlling everything, from the generation of electricity or bulk gas supplies to the plug or tap in your home. E.ON is a prime example, especially after acquiring major pipeline company Ruhrgas a couple of years ago.

But E.ON isn't the only European power major spearheading consolidation. Endesa is already on the receiving end of a rival unsolicited bid, from Gas Natural, another Spanish utility, backed by Italy's biggest utility, Enel. That bid was frowned on by the competition authorities in Madrid but Spain's socialist government had other ideas.

It was promoting the deal with a view to creating a national power champion. Gerhard Schroeder's administration had followed similar logic when it sanctioned E.ON's acquisition of Ruhrgas, despite objections by the competition authorities in Berlin.

When E.ON turned its attention to Endesa, the Spanish government's reaction was extremely hostile. "We will do everything in our power to ensure Spain's energy companies remain Spanish, " said the chief spokesman for Jose Luis Rodriguez Zapatero's government.

But within 24 hours, Senor Zapatero himself was sounding rather more emollient. His government still holds a golden share in Endesa, which became a private company only in 1998. But its use, he said, "would not be advisable except in absolutely exceptional circumstances, which we certainly do not contemplate".

British interest in these great potential shifts is twofold. The UK has already liberalised its internal energy markets. Indeed, were E.ON to acquire Endesa, both the global one and two in the power sector, E.ON/Endesa and EdF (Electricite de France), already have significant corporate assets here. And that corporate consolidation, which is running way ahead of all efforts by Brussels to advance the cause of market liberalisation, is already hurting British energy users. As Sir John Mogg, chairman of the UK's energy regulator Ofgem, put it last Thursday: "British customers are paying a high price for the lack of effective competition in the European energy market."

Sir John put that price at nearly GBP1bn this winter, largely because of the failure of the Belgium-UK pipeline interconnector to import gas at its full capacity. If the same thing happens next winter, he warned, British wholesale prices could be up to GBP3bn higher.

Ofgem's chairman is in no doubt the challenge of delivering a more liberalised and effective market in continental Europe "is likely to face stiff resistance from major European energy companies."That resistance will get even stiffer if the biggest players grow even bigger.

There is now a real risk that this argument will become subverted by growing rows about who should be allowed to buy what in Europe's energy sector. E.ON's dramatic bid for Endesa has already sparked two kinds of reaction from analysts. The first is that the German giant will have to pay more than the 27.50 euros a share in cash it is already offering if its bid is to succeed.

But the bigger worry is that much of the early reaction is suggesting that, while corporate consolidation in energy markets within EU` market states is selfevidently a bad thing, consolidation across members states, even on the scale E.ON is aiming for with this bid, is absolutely fine.

Even if E.ON has not a single customer on the entire Iberian peninsula, how can it possibly be fine for Brussels to sanction such massive corporate consolidation when it has just launched a major series of anti-trust investigations aimed at the behaviour of companies just like E.ON?

Having decided to take on the major energy players over the way long-term contracts are set and how storage and pipeline capacity is hoarded, Brussels should not be frightened to push this massive bid into the long grass until its anti-trust investigations are completed.