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. Last Updated: 07/27/2016

New EU Rules to Take on Gazprom

ReutersJose Manuel Barroso, center, addressing a news conference in Brussels with Andris Piebalgs, left, on Wednesday.
BRUSSELS -- The European Commission took on Russia and dominant European power giants Wednesday in a new move to open gas and electricity markets to more competition while limiting foreign ownership of EU assets.

The European Union executive adopted hard-fought energy proposals aimed at forcing big utilities such as Germany's E.On and Electricite de France to separate power generation from their distribution networks.

Under the plan, generators will be forced to sell their transmission networks or hand over control to an independent operator, which the Commission argues will boost investment in infrastructure and allow new entrants into the sector.

But gas monopoly Gazprom, which supplies about one-fourth of the 27-nation bloc's gas, and Algeria's state-owned Sonatrach will not have free rein to buy pipelines and power grids.

In a statement issued before the proposals were published, Gazprom stressed that it was a reliable gas supplier to the EU and wanted a say in future regulation.

"Gazprom has an important contribution to make to the debate about regulation of the energy sector in Europe and feels certain that its voice will be heard," company spokesman Sergei Kupriyanov said.

The new rules will bar foreign firms from controlling European energy networks unless they play by EU rules and their home country reaches an agreement with Brussels, Commission President Jose Manuel Barroso said.

"In practice, third-country individuals and companies should not be able to acquire control over Community transmission networks unless there is agreement between the Community and their country of origin," he said.

A Commission statement said Brussels could intervene when a potential purchaser "cannot demonstrate both its direct and indirect independence from supply and generation activities."

The Commission argued over details of the package up to the last minute in a sign of their political sensitivity.

Transport Commissioner Jacques Barrot of France wanted utility groups to have more say over transmission networks, even if they were run by an independent operator, EU sources said. Energy Commissioner Andris Piebalgs and Barroso reject that view.

The Commission has long favored full "ownership unbundling," which would force companies to sell their pipelines and grids.

But several EU states, including France and Germany, oppose it, so the Commission offered an alternative of an independent system operator to run distribution networks. Each member state would be free to choose between the two options.

Piebalgs insisted that the Commission had not watered down its proposal on the independent operator.

Barroso said he was confident that a clear majority of member governments would support the energy package, but said, "Now discussion starts on the concrete proposals and let's be honest: It will be a tough, long, difficult negotiation."

Other elements of the new rules include strengthening the role of national electricity and gas market regulators and the formation of an Agency for the Cooperation of Energy Regulators. Legal issues surrounding the creation of the agency were also still being debated, the EU sources said.

"This is one salvo in a long-running battle in which Russia is seeking markets and customers and Europe is seeking diversity of supplies," said Matt Thomas, a an oil and gas analyst at Morgan Stanley.

Reuters, Bloomberg