COMMISSION OF THE EUROPEAN COMMUNITIES 
DIE l!ITERtJAL fUER6X !!ARKU 
CCo~lasion Working Oocuoentl COM(88l 238 final 
Brussels, 2 May 1988 
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The Internal Energy narket 
Contents Page 
-Introduction 2 
-Part One: The general probleas involved 
1 The specific features of the energy market 
2 What is at stake 
3 The framework of the exercise 
(a) Energy's strategic nature 
(b) Framework of action 
(c) Economic and social cohesion 
4 Suggested approach 
-Part Tuo: The priorities 
1. Application of the "White Book" 
A) Removal of technical barriers 
8) Removal of fiscal barriers 4 
4 
5 
7 
7 
9 
10 
11 
13 
14 
14 
16 
2. The application of Community Law 18 
A) Free movement of goods 18 
8) State monopolies of a commercial character 20 
C) Rules of competition 22 
D) State aids 22 
3. Environmental protection 24 
4. Areas specific to energy 
A) Costs, prices and tariffs 
8) Infrastruture 
-Annexes: Inventory of potential obstacles 
I. 
II. 
I II. 
IV. 
v. 
VI. Solid fuels 
Oil 
Natural gas 
Electricity 
Nuclear energy 
TabLes 26 
26 
27 
31 
39 
56 
67 
78 
83 
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The Internal Energy Market 
Introduction 
1. 
2. 
3. 
4. 
1) 
2) "There arc still considerable barriers to trade in energy products 
within the Community. If this state of affairs does not alter and if a 
common energy market is not achieved in the near future, the degree of 
integration achieved in this sector may well be jeopardized." These are 
the opening words of a communication sent by the Commission to the 
Council in 1968 outlining the first guidelines for a Community energy 
pol icy. Significant headway has been made since then, particularly 
towards a better ·joint definition of the major priorities for the 
Member States' domestic energy policies. Nevertheless, in the last 20 
years there has been little progress towards a genuine common market in 
energy although the example of the United States or Canada shows that in 
those States with a federal structure a common energy market can have 
favourable consequences. 
With the adoption of the Single Act in Oecembff 1985 and especially with 
the recent decision by the European Council to assign the resources 
needed for the Community to make a success of the Single Act, the way is 
at last clear for making a reality of the European internal market. 
Completion of the large market by the end of 1992 has become a key 
objective and the focal point of the revival of the European Community. 
The energy o~fctives for the Community adopted by the Council in 
September 1986 explicitly mention the need for "greater integration, 
free from barriers to trade, of the internal energy market with a view 
to improving security of supply, reducing costs and improving economic 
competitiveness". r. 
On the basis of this objective, the Commission asked the Energy 
Ministers to pay particular attention to this question. At the Energy 
Council meeting on 2 June 1987, the Ministers therefore supported "the 
Commission's wish first to draw up, with the help of the parties 
concerned, an inventory of the existing obstacles and then in due course 
to submit to the Council appropriate proposals for the progressive 
elimination of such obstacles before the end of 1992". Around the same 
time the European Parliament and the Economic and Social Committee 
expressed their interest in this endeavour. 
European Council meeting in Brussels from 11 to 13 february 1988. 
OJ No C 241, 25.9.1986. 
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5. The findings of the work carried out by the Commission are su~~arized in 
this communication which is based both on the Commission's own 
experience and on the experience of the public authorities and market 
operators. Consequently, in line with the June 1987 conclusions, it is 
important to emphasize that the Member States were asked for their 
comments. In addition, a hundred or so organizations and enterprises 
representing all the Member States, all the energy sources and both 
energy producers and energy users submitted contributions at the 
Commission's request. 
6. This communication is based on the most complete and clear inventory 
possible of the various existing or potential obstacles to a single 
energy market. This inventory, which inevitably can be no more than an 
outline, is set out in the Annexes covering the various energy sources. 
In the main body of the communication the following are examined: 
(a) the general proble~:~s regarding the inclusion of energy in the 
single market concept, and 
(b) the main subjects which the Commission feels should be given 
priority attention and the guidelines which should be laid down as 
a result. 
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PART ONE: 
THE GENERAL PROBLERS INVOLVED REGARDING THE INCL~SION 
OF EUERGY It~ THE Slt~GLE ~RKET CONCEPT 
7. The specific features of the energy market help to determine what is at 
stake in a more integrated European energy market. However, this should 
not hide the fracework <Legal instruments and constraints) which must be 
taken into account. The proposed method of making a reality of the 
single energy market is based on the specific features in question, on 
what is at stake and on the constraints on the energy market. 
1 The specific features of the energy earket 
B. The convnonly used expression "energy market" could give one the 
impression that energy is a comparatively homogeneous sector. However, 
if one looks at this sector in greater detail it is quite evident that 
this market is extre~:~ely diverse in terms both of products and of 
end-uses. It should be stated first of all that while energy is by 
nature a product its marketing involves a considerable service element 
which varies, however, considerably from one energy source to another. 
9. Quite apart from the physical distinctions between the different energy 
sources, it should be mentioned that the end-uses of energy sources are 
not homogeneous either, as an energy product may be used as a fuel, as a 
raw material or as motive power depending on how it is processed. Some 
energy end-uses therefore inevitably involve virtually captive markets 
such as· road transport or petrochemicals. Others, e. g. furnace and 
steam end~uses, are more open to competition. The gas and electricity 
distribution monopolies, whether statutory or de facto also contribute 
towards the creation of captive markets, hav1ng an effect on the 
competitive situation in the Community. 
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10. There is also a considerable amount of diversity as regards energy 
carket operators, which range from small and medium sized enterprises 
(SM£) to multinationals, with a host of national, private and public 
companies in between. In view of their very different statuses, each 
operator has different rights, facilities and obligations when operating 
on the market. 
11. Political traditions, taxation habits and energy resources also vary 
very considerably between Member States. Consequently, rules and 
behaviour have developed in ways which are at times very different. 
12. The above factors demonstrate that it is rather the very nature of 
energy products and the conditions under which they are produced and 
used which explain the differences from one country to another. 
Accordingly, more often than not the specific features of each of the 
domestic markets and their historical development explain why, today, 
the energy market is still comparatively partitioned in the Community 
and there are therefore many barriers to the free movement of energy 
products. 
2 What is at stake 
13. The single market is a means of cementing the economic integration of 
the Community and, more prosaically and in the shorter term, a means of 
making it more COI!petitive in a world which is increasingly open to 
demanding competition. 
14. Hence, a more integrated European energy market should reduce energy 
costs, to the direct benefit of individual consumers but also of user 
industries. (Energy represents 25 to 30X of costs oi production in the 
steel, glass, aluminium and building materials sectors). 
The industries in question will, as a result, become more viable and may 
increase their competitivity, and the economic growth thus generated 
will have favourable effects on employment, etc. 
15. The single market should also have a beneficial effect on the structure 
of the Comaunity's energy industry: it will make it possible to derive 
greater advantage from the complementarities, improve the cost structure 
and rationalize energy production, transmission and distribution 
activities. In short, it will encourage the maintenance or development 
within the Community of healthy and prosperous energy enterprises which 
are better able to deal with international competition and benefit from 
attractive and secure supply conditions. 
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16. It must be acknowledged that a more integrated energy market is a 
significant additional factor as regards the security of supply for all 
Member States. Greater interconnection of equipment would make it 
possible to increase both the solidarity between Member States and the 
flexibility of the industry. It would therefore increase the emergency 
resources available in the event of a crisis and create the possibility 
of additional trading. 
17. An increase in trading between Member States is one of the results which 
might be expected from the internal energy market. It would therefore 
make a greater contribution than at present to a reduction in costs. 
In this are a, there would seem to be room for improvement in the 
Co1Tf!1unity, although the situation varies fairly considerably from one 
energy source to another. In 1986, for example, trade in crude oil (from 
the United Kingdom) represented nearly 15X of refinery processing, and 
trade in oil products represented over 20X of internal deliveries. In 
the same year, trade in gas (from the Netherlands) amounted to 
approximately 12.5X of Corrrnunity consumption. On the other hand, in 
that year there was much less intra-Comunity trade in coal (less than 
3X of total consull;)tion), although it has to be admitted that the room 
for increase is limited. Intra-Community trade amounted to less than 
5X of total Comll'\ity consumption in the case of electricity (a very 
great proportion of which was in the form of balanced exchanges) a 
sector where, despite the inherent features of electricity, an increase 
in trading, based on the advantages of situation, would have a 
significant impact on average costs. 
18. The establishment of a more integrated energy market is of vital 
irnportance to the future of our Cornmll'lity. We should therefore 
endeavour to identify all the potential or existing obstacles 
confronting the various energy sources and the various Member States. 
The credibility of the exercise depends to a large extent on this desire 
for transparency without reservations or taboos. 
19. The "cost of non-Europe" in the energy sector is affecting our economic 
performance, even if it is difficult to evaluate the implications. 
First estimates indicate that, excluding the "public market procurement 
effects", it could amount to at least 0.5X of the Community's GOP. The 
potential benefit of "more Europe" would be twofold: a reduction in 
costs as a result of greater competition and a reduction in certain unit 
costs as a result of the effect of scale and the optimization of 
investment or management. 
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20. A desire for transparency, with no concessions but also without 
preconditions, guided the drawing-up of the inventory of obstacles set 
out in the annexes. These are potential obstacles to a more efficient 
European industry, and systematically, and for each obstacle, a 
comparison should be made of the costs and benefits of removing them. 
21. Not all the obstacles can be removed overnight. In addition, the 
progress towards a single market for energy must also take into account 
the objective constraints on achieving the objectives in question. 
3 Fra~ework of Exercise 
22. The legal instruments available to the Community for the attainment of 
the internal energy market are no different from those which allow the 
realisation of Europe without frontiers. In this respect energy products 
and the services connected with them are in the same category as other 
products and services. 
There are however particular constraints which apply to the attainment 
of the internal market in the energy area: in addition to the general 
problem of the economic and social cohesion of the Community, there is 
also the specific problem of security of supply and the strategic 
aspects of energy products. 
a) Energy•s strategic nature 
23. The strategic nature of energy is self-evident and goes a long way to 
explaining the attention which countries (and not only in the Community) 
have always paid to energy, especially since 1973. 
Even if this role is bound to change with the advent of the single 
market and in view of the objectives of the Community programme, certain 
imperatives described below will remain. 
24. ·The single energy market should contribute to the attainment of the 
Col:tl!unity's energy policy objectives, the most recent of which (for 
1995) were approved by the Energy Council in September 1986. 
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Hence, for example, a single energy market must not result in a 
watering-down of the diversification objective and in particular, even 
in the present circumstances, the objective of limiting to approximately 
one-third net imports of oil and petroleum products relative to total 
energy consumption. 
The energy policy of the Community rests on an appropriate combination 
of the play of market forces, observed in particular by the internal 
market provisions, and the political measures guaranteeing or providing 
for Community supplies. 
25. The public authorities will still have a role to play. Their 
responsibilities may change, however, or the level at which authority is 
exercised may alter (e.g. responsibilities may be transferred to 
decentralized regions or to the Community). In certain areas, it will 
remain essential, whilst respecting the Treaty rules, in order to 
monitor the safety of installations or guarantee public safety, 
(particularly concerning the environment) to ensure that the quasi 
public service nature of energy continues to apply (continuity of 
supply), to fulfil certain obligations directly (by continuing to 
promote innovative energy technologies in order to prepare for the 
future independently of short-term market signals) or to take due 
account of the social and/or regional aspects of energy. 
There will therefore still be a role for the public authorities but it 
is evident that the very spirit of the large market presupposes that the 
responsibilities in question will increasingly be exercised in a 
Community perspective and less and less simply on the basis of domestic 
cons ide rations. 
26. In addition, a single European market is not automatically synonomous 
with unconditional or unlimited opening-up of the market vis-a-vis the 
outside world. 
To be sure, in view of its trade aspects, there is inevitably an 
international side to energy. The Community cannot disregard this 
basic fact: it depends on outside suppliers for nearly one-half of its 
energy supplies. At present the degree of dependence is ?OX in the 
case of oil, 35X in the case of gas and solid fuels, and by the end of 
the century could still amount to at least ?OX in the case of oil and 
perhaps 40;c or more in the case of natural gas and solid fuels. 
It is also true that the Cormllrlity is not irrrnutable and that further 
enlargement cannot be ruled out. Furthermore, there are certain links 
already (e.g. electricity transfers between the Scandinavian countries 
and the potential for greater integration among the Mediterranean 
cc·~ntries) extending beyond the Community: it will be in the interests 
oi all concerned to strengthen these links rather than to loosen them. 
Where energy and other goods and services are concerned, the Corrrnunity 
is in favour of free trade by the very nature of the Community and the 
objectives which it pursues. 
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However, this natural inclination must not backfire on the Community and 
turn it into a sort of free-trade dumping ground for unscrupulous 
competitors who continue to protect their markets to some extent. In 
the energy sphere, the ConrnU1ity should therefore adopt a cor=on 
external and coECercial policy to enable it, where necessary, to obtain 
reciprocal concessions from its partners, on the lines of the Uruguay 
Round. This notion of reciprocity is essential. 
27. This raises the parallel question of the Coe:=unity•s energy industry. 
Here too, joint ventures with other countries and within the Community 
itself should be encouraged: this is a potential factor in security of 
supply as a result of the flexibility which it would entail and the 
pooling of interests which it would encourage. However it would not 
bechawinistic of the Community but rather realistic to impose, or at 
least consider irrposing, limits and there also reciprocity should be 
sought with our external partners. 
This is, however, a problem which transcends the energy sector and on 
which the Community will have to state its position. 
As a matter of priority, the European internal market must benefit 
European consumers but also ConrnU1ity energy industries which need 
fortifying in order to play a bigger role in Europe and beyond in an 
environment of greater international competition. 
Cb> FraDeuork of action 
28. The attainment of the internal energy market depends first and foremost 
on the accomplishment of the provisions concerning the energy sector in 
the 1985 White Book. In the first place, it concerns the application of 
Community Law (cf. paragraphs 152-159 of the White Book). It then 
concerns the application of the other priorities contained in the White 
Book, such as the removal of technical barriers (harmonisation of rules 
and norms, paragraphs 67-80; opening up of public procurement, 
paragraphs 81-87) or the removal of fiscal barriers <notably the 
approximation of indirect taxation, paragraphs 185 and following). 
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29. Beyond the framework fixed by the White Book, it is necessary to study 
the other obstacles to the internal energy market which are specific to 
energy. These obstacles have been identified and are presented in the 
inventory given in the second part of this paper. They must be made the 
subject of an in-depth examination designed to define their character, 
their or1g1n and their economic consequences for the Community. 
Complementary studies will be required to decide the necessary action in 
this regard. One can take as an example, among the obstacles, exclusive 
rights given in respect of the construction or use of infrastructures 
which, in certain cases, can have results having the effect of 
quantitative restrictions to energy imports or exports. 
In studying these cases, the Commission must take into account the 
reasons for such measures with regard to the general objectives of 
Community energy policy, always respecting Community Law. 
Some of the cases identified in the annexes are already under 
examination by the Commission o· the basis of these principles. 
30. Moreover, the Community, principally on the basis of Article 100A of EEC 
Treaty, can apply the necessary judicial instruments for the reconciling 
of the objectives of free circulation and the constraints of security of 
supply. 
(c) Econoaic and social cohesion 
31. Another limit must be borne in mind in connection with a more integrated 
energy market: the need for econoaic and social cohesion, the 
importance of which is vigorously and clearly stated in the Single Act. 
This imperative must not serve as an excuse for~inaction, but it will be 
necessary to ensure that the transition proceeds smoothly. 
A very important factor in this connection is the Commission's desire, 
in reforming and increasing the Structural Funds, to give fresh impetus 
towards a more homogeneous economic and social area within the 
Community. The first two objectives in this connection is the expansion 
and adjustment of structurally backward regional economies and those 
affected by industrial decline. No less important is the very clear 
support for these objectives given by the European Council at its 
meeting in Brussels in February 1988. 
In this context, a major political concern in the energy sphere is that 
the completion of the energy market, within its objective of reducing 
unit costs, should contribute to the diminution of differentials in 
terms of wealth and living standards within the Community. 
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32. This will be a major challenge, and it will be difficult to strike a 
balance between efficiency and equity. The Valoren programme adopted by 
the Council at the end of 1986 has opened up a path which should be 
followed. The proposal of the Commission concerning the reform of the 
Structural Funds (COM 88/144 dated 23 March 1988) should allow a 
betterlink between regional policy and other Community policies <notably 
environmental protection and technological development) including energy 
policy. These proposals envisaged, in effect, that Community policies 
and priorities would be taken into account at the overall planning stage 
of interventions (COmmlllity support framework) rather than at the stage 
of preparing and drawing up of concrete interventions. 
4 Suggested approach 
33. These general considerations whose relevance to energy is increasi~9 
because of its strategic role, and the various general objectives 
which influence the energy policies of Member States, fully justify the 
necessity for Europe to bring about a genuine single market in the 
energy sector. 
34. To succeed, the approach adopted requires the fulfilment of a certain 
number of preconditions. 
The first precondition is the greatest possible transparency with regard 
to potential obstacles: this is the purpose of the descriptions given 
in the annexes. The second precondition is adequate consultation with 
and information from the various parties concerned, such as has already 
been undertaken during the preparation of the inventory of obstacles. 
Means of discussion must be established in which contradictory opinions 
can be expressed in order to contribute to the search for appropriate 
solutions based on the widest possible information. 
35. Subject to these provisos, the Commission has four sets of actions in 
order for the Commlllity to benefit from the potential added value 
attaching to the existence of the Community. 
3) First, there is the application of the provisions of the Treaties and 
secondary legislation which give the Commission its 6wn powers to ensure 
corrpetition is respected and solidarity is implemented. This set of 
actions should allow the elimination of many of the obstacles listed in 
the annexes. 
See the report on the 1995 objectives and the review of the Member 
States' energy policies. COM 88/174 of 6 April 1988. 
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Then, there is the application of the prov1s1ons concerning energy 
contained in the White Book. In this context, the Single Act has 
introduced an innovation in making more frequent the possibility of 
taking majority decisions and in strengthening the influence c-f the 
Parliament in these decisions. 
Third, there are the new provisions in the Single Act concerning 
environmental protection. 
finally, if necessary and when the complementary studies have been 
carried out, new Commission initiatives in the specific domain of energy 
may be justified. This final set of actions, in which the Commission has 
been particularly active in the energy field in the course of the last 
fifteen years, has allowed the Community to affirm its identity in this 
specific area, whilst respecting certain differences. 
36. In the light of the inventory in the annexes, the priorities set out 
below and the application of its own areas of competence, the Commission 
~ill draw up a progress report on this matter before the end of 1989. 
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PI.RT TUO 
SUGGESTED PRIORITIES REGARDING THE OBSTACLES RELATING TO 
THE ESTABLISHAENT OF A SINGLE EH[RGY MARKET 
37. The barriers are very diverse in type and in significance: this explains 
why the Cormlission hopes that some of them may be mitigated or even 
disappear simply as a side-effect of the progress towards a large 
internal market. 
The origins of and reasons for these hnrriPrs vary a grrat deDl. Most of 
them are the end-product of domestic rules and r~gulations originating 
in an often distant past predating the European idea: this applies for 
example to all the potential obstacles arising from purely domestic 
monopolies. Others, which are more obscure but no less effective in 
impeding intra-Corrrnlrlity trade, have to do with_r, technical 
specifications. Some of the obstacles are highly political: r for example 
the aid given to national energy producers, in particular the coal 
industry, which can obviously have an impact on electricity trading. 
Last but not least, some of the obstacles arise from quasi-psycholordcal 
concerns generated by markets which have traditionally been extremely 
partitioned: an extreme example of this is the behaviour of many 
national electricity companies which strive to be self-sufficient on a 
national basis. 
38. The achievement of the internal energy market depends on four sets of 
actions: 
the carrying out of the provisi0ns concerning the energy sector in 
the 1985 White Book; 
the determined application by the Commission of the provisions of 
Corrrnun ity Law; 
the attainment of a satisfactory equilibrium energy/environment; 
the definition of appropriate means, to be selected case by case, 
in areas specifically related to energy policy. 
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1. Application of the "White Book• 
Here the aims are the removal of technical barriers (whether they 
concern the harmonisation of rules and technical norms or the opening up 
of public procurement) and the removal of fi seal barriers (notably by 
the approximation of indirect taxation>. 
A) Recoval of technical barriers 
a) Ha~onisation of rules and technical nor•s 
39. The national differences in rules <Legally binding) and technical norms 
<whose application is usually voluntary) constitute a barrier to the 
realisation of the internal market in general and to the energy area in 
particular. These differences affect equally the making of energy 
equipment used by the energy industry as well as equipment destined for 
energy users. 
In this field the "neu approach" adopted by the Council in 1985 (Council 
Resolution of 7 May 1985- OJ C 136 of 4/6/85) should allow a 
harmonisation of technical rules by the adoption of the Community 
directives envisaged in the White Book. A first directive has already 
been adopted by the Council in June 1987 concerning ordinary pressure 
containers, other directives were proposed in 1987 and more will be put 
forward in 1988. These concern principally machines, electronic 
measurement instruments and gas appliances. 
40. The "new approach" directives should lay down the essential requirements 
for health and safety, their application can be facilitated by the use 
of harmonised norms established by CEN and CENELEC the European 
star.dards organisations. 
The object of these directives is to guarantee the free circulation of 
goods as well as guaranteeing health and safety. It is necessary to 
underline the importance of harmonised norms and standards to ensure the 
opening up of public markets. 
41. The differences in the specification of petroleum products can result in 
adverse economic effects on the oil-refining industry which is obliged 
to split up production on the basis of the requirements of the national 
markets. These differences, which affect all Member States, are the 
result of national legislation or inter-industry agreements. Their 
perpetuation runs counter to the objective of the free movement of 
goods. 
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The Co.munity legislation only harmonizes a small number of aspects: 
for example, the standard EN-228 concerning lead-free petrol defines a 
number of joint specifications for motor spirit but leaves other 
specifications to the discretion of the Member States. 
Differences in specifications could be maintained provided that there 
are acceptable reasons for doing so. For example, the differences in 
climate within the Community might warrant the existence of two or even 
three zones with separate specifications for certain liquid fuels 
(transport diesel>, although two such zones should be adequate in any 
given country. 
b) Opening up of public procureaent 
42. The vast majority of purchases of energy equipment Cin the broadest 
sense) are the subject of operations conducted by public enterprises. 
This is therefore an extremely vast area which is little known and where 
intervention by the public authorities, such as it is, is rarely 
official. It may, nevertheless, be very effective and, in a Community 
which is still in the making, national chauvinism is often a natural 
reaction. The Commission should examine if these practices constitute an 
obstacle to a reduction in energy prices/costs, the first and foremost 
objective of the internal energy market and if tney are compatible with 
the Treaty rules. 
43. These attitudes or rather the behavioural anomalies undoubtedly exist in 
the case of all energy equipment and all Member States. 
44. So far the Community directives on public procurement do not apply to 
energy. 
This state of affairs must change. Both the 1985 White Paper and the 
various subsequent political decisions taken by the Council have 
confirmed this. Apart from the general improvement of the contract-award 
rules, in particular as a result of greater transparency regarding works 
and supply contracts, it has therefore been decided that the energy 
sector i.e. energy production, processing, carriage and distribution 
should be included in the new Community provisions regarding the award 
of public contracts. 
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45. The Corrmission will submit to the Council before mid-1988 proposed 
legislation on sectors excluded at present, including energy. 
The provisions liable to be included in these proposals where the energy 
sector is concerned are at present the subject of detailed 
interdepartmental discussion and talks with the parties concerned Cin an 
ad hoc advisory committee). 
46. There is a specific problem where purchases are concerned: namely 
purchases of energy for transformation or resale by energy sector 
undertakings which in many cases represent a major proportion of their 
activities. To include energy purchases whether they be fuels or 
electricity within the provisions to open up public markets offer 
certain advantages such as a coherent and global approach yielding 
financial benefits. However, the inclusion of these purchases raises 
questions which go far beyond the objectives sought in the pol icy of 
opening public markets. Indeed a Community policy for these purchases 
largely falls within COil1lllrlity energy policy. Their inclusion in the 
measures envisaged to incorporate the excluded sectors in the area of 
public purchasing risk to ·complicate and delay final adoption of those 
measures. A specific policy for such purchases should be considered 
independently of proposals being prepared concerning public markets for 
supply and work. 
B) Renoval of fiscal barriers (Approximation of indirect taxation) 
47. The differences in the way in which energy is taxed in the Member States 
is very widely considered to be a major obstacle -possibly the biggest 
-standing in the way of an internal energy market. 
4) The Corrmission has state9 its position on this, and its August 1987 
proposal to the Council will of course provide the basis for work in 
this connection. In particular, the discussions in the Council will 
make it possible to shed light on the method of harmonizing petroleum 
excise duty. 
COM<&7)320 to 327. 
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48. Energy is concerned both by the VAT c;spect and by the harmonization of 
excise duty on petroleum products. The differences at present are quite 
considerable in this respect. For example, at the end of 1987 3the tax 
<VAT and excise duty) on preaiun. petrol was less than 250 ECU/m in one 
Member State but over 650 in another, compared with a Community average 
of around 400 (the range being -40X to + 60X). At the same time, the 
excise duty on heavy fuel oil ranged between 0 and nearly ECU 50/tonne. 
49. -18 -
2. Energy and the application of CoEmunity Law 
In the White Book on the achievement of an 
Commission indicated that a strong competition 
essential role in keeping and reinforcing the 
particular to ensure freedom of movement. internal market the 
policy will play an 
internal market, in 
In the annexes of this communication the obstacles to trade in energy 
between the Member States have been described. In its efforts to 
eliminate such obstacles, the Commission is guided by the same approach 
which has been outlined in the White Book on the internal market. In 
cases where such obstacles constitue a violation of the Treaties it will 
take the necessary steps to eliminate such infringements. 
To follow this approach the Commission has in the EEC Treaty essentially 
four sets of instruments. Those which ensure the free circulation of 
goods and services, those in respect of state monopolies of a commercial 
character, the rules of competition and the state aids. The powers of 
the Treaty in these respects are autonomous powers of the Commission and 
tiave been included in this part of the Report for the sake of 
completeness. 
A. Free aovenent of goods 
50. The provisions of the Treaties designed to ensure the free move•ent of 
goods are Articles 30 to 36 EEC Treaty and Article 4a ECSC. Articles 30 
to 36 EEC apply equally to trade in energy except for coal, for which 
Article 4a ECSC provides a special provision, laying down the same 
principles. As for nuclear minerals and fuels there are the special 
provisions of Chapter VI of the Euratom Treaty which regulate the 
market. 
51. The provisions of the EEC and ECSC Treaties prohibit any measures by the 
Member States which either directly or indirectly, 5)actually or 
potentially constitute a barrier to intra-community trade They lay 
down the principle that every product which is legally manufactured and 
commercialized in one Member State may circulate freely within the 
Con'tllunity, unless mandatory requirements for the common good or the 
re~ui~emegp of Article 36 EEC Treaty justify derogations from this 
pnnc1ple • 
) 
6) A large veriety of measures are covered by these Treaty provisions, 
regardless of whether they distinguish between national products and 
imported ones. 
Case Dassonville 8/74, 1974 ECR 837. 
Case de Dijon 1979 ECR 649. 
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52. Such measures include for example: 
53. 
54. 
7) the requirement of import licences, 
the requirement to present a certificate of or1g1n, 
any rules which require mutuality for imports of exports, 
any rules which lay down different requirements of imports or exports, 
any restrictions or requirements for the storage of goods, 
restrictions on the use of national utilities, 
incitations to purchase national, 
certain price controls, or 
regulations which Lay down technical requirements for a product. 
Those measures constitute an infringement of the abovementioned Treaty 
rules, unless there are reasons to justify them. Such reasons are either 
the mandatory requirements accepted by the Court of Justice, which 
include the effectiveness of fiscal supervision, the prevention of 
unfair competition, the protection of the environment and consumer 
protection, or those contained in Article 36 EEC. The exceptions to the 
free movement of goods justified under Article 36 include public 
morality, public policy, public security as well as the protection of 
health and Life of humans, animals and plants. r.easures to safeguard the 
supply of energy, which have a restrictive effect on7)trade might 
therefore be justified on the grounds of public security • Imported 
products from third countries which are in free circulation within the 
Corrvnunity may be subject to restrict ions through safeguard measures 
under Article 115 EEC or 71(3) ECBS respectively. 
However, there are limits to the Member States' freedom to adopt 
measures on these gounds. They do have to respect the principle of 
proportionality. The measures have to be a suitable means of achieving 
the ligitimate aim which is pursued and they have to be necessary to 
pursue this aim. If there are other measures which could be taken to 
achieve the Legitimate aim which are Less restrictive of trade between 
Member States then only these measures ~lill be acceptable in Community 
Law. However, the second sentence of Article 36 indicates that such 
measures may not serve as a means for arbitrary discrimination or 
disguised trade restrictions. 
Case Campus Oil 72/83, 1984 ECR 2727. 
-20 -
B. State ~onopolies of a con~~rcial character 
55. Two considerations should govern reflections in this respect. 
(1) In accordance with the particular characteristics 
sector, there has been a large recourse to 
monopolies <with very diverse characteristics) in 
such as petroleum, gas and electricity. of the energy 
such national 
several fields 
<2> Such monopolies are subject to the rules of the Treaty and more 
particularly Article 37, which provides that when the transition 
period has ended no discrimination regarding the conditions under 
which goods are produced and marketed may exist between nationals 
of Member States. 
56. In the annexes the different types of existing monopolies are explained 
in detail as ~ell as the potential obstacles that they can present to a 
better integration of the Community energy market. 
This is a fundamental area as much for its diversity and judicial 
complexity as also for the potential effect that each important change 
could bring about in the Community's energy structure. 
57. The Commission considers therefore that this is a priority area. It 
considers also that for the reasons detailed above a definitive solution 
merits a more careful examination. 
58. For the moment the Commission proposes in this regard the following 
orientations: 
59. Oil r~onopol i es 
The adjustment of the exclusive rights for imports and distribution of 
petroleum products coming from r.ember States must be carried out in 
conformity with the principles contained in Article 37 of the EEC Treaty 
and the corresponding articles of the Accession Treaties (Spain, 
Portugal) which deal explicitly with Articles 37 and 90. 
The situation in regard to nine Member States has been examined for 
conformity with Article 37 and this process is underway in Greece, Spain 
and Portugal. 
-21 -
In the application of this provision it has not in the past been 
envisaged to act against the exclusive rights which can exist vis-a-vis 
the refining and/or distribution of national products or products 
imported from third countries. 
It remains therefore to be examined if these rights conform to the 
integration of energy markets as envisaged up to 1992. 
60. Exclusive rights to iaport and export other products 
Member States have reserved for themselves or delegated to public or 
private enterprises exclusive rights for the importing or exporting of 
other energy products. This is particularly the case in the gas and 
electricity fields. 
The Commission should examine in what manner these measures are 
compatible with the provisions of Article 37 and the actions it may be 
suitable to take in this respect. 
61. Exclusive rights of transport and distribution 
For certain energy products such as electricity and gas for example, the 
States or the regional entities give exclusive right of transport and 
distribution to public and private enterprises. 
It is appropriate to make an inventory and to examine in what sense 
these exclusive rights prevent or make more difficult exchanges between 
Member States. It is accordingly appropriate to examine if such a 
situation is compatible with the rules of the Treaty and more 
particularly with Articles 30 and 37. 
More specifically in the transport domain and in regard to the 
distributior. of electricity and gas (even if these two sectors have 
characteristics which set them apart) two essential economic problems 
seem to dominate: 
how to encourage the free transit of natural gas and electricity 
inside the Community while having a high level of security of supply 
and having the conditions of transport on an economic basis? This 
would permit a transport or distribution company to have direct 
access to a resource. 
mder what possible conditions direct access to a resource might be 
extended to a large industrial consumer. 
c. 
62. 
63. 
64. 
65. 
D) 
66. 
8) -22 -
Both these two options imply that third parties could have the 
possibility to have access, on payment of a reasonable tariff, to 
existing transport networks (ie "coi!.:Don carriage" -common transport for 
third parties). 
Rules of co~etition 
The rules of competition contain rules for undertakings as well as for 
Member States. These rules allow the Commission to act against all 
barriers to exchanges between Member States caused by undertakings 
whether private or public. In the energy sector the Commission will be 
inspired by these principles in the examination of particular cases that 
it will take up. 
In the case where barriers to exchanges between Member States result 
from the activities of an enterprise it is Articles 85 and 86 and 
Council Regulation 17 of 6/~f2 (O.J. 13, 21/2/62 p. 204) which apply. 
In its decision of 27/1/87 the Court of Justice confirmed that these 
rules apply to all sectors with the exception of those that are 
subject to a special regulation as in the case for agriculture, and 
road, rail, sea and air transport. The Court expressly added that 
Article 85.3 allowed the characteristics of the sector in question to be 
taken into account without it being necessary to resort to a regulation 
under Article 87.2 (c). 
Also public undertakings and undertakings to which Member States grant 
special or exclusive rights remain subject to the rules of competition 
and in particular Articles 85 and 86 within the limit of the specific 
derogation provided for in Article 90 (2). 
In the Coal Sector the provisions of the ECSC Treaty (Articles 65 and 
66) relating to cartels and mergers will be applied. 
State Aids 
To reinforce the internal market, it is particularly important to 
respect Community discipline in the domain of State aids. This implies a 
rigourous application of the rules of the Treaty with a view to 
eliminate the distortions of competition and to permit increased 
competitivity. 
Case 45/85, Verband Der Sachversicherer E.V. against the Commission -
Competition -recommendation in relation to fire insurance premium. 
-23 -
67. In the coal area, state aids are the concern of decision 2064/86/ECSC. 
The essential aim of this decision is to ensure transparency in aids, to 
allow them to be controlled and to facilitate the restructuring process 
in the industry. In conformity with that decision the Commission will 
make a report to the Council before the end of 1990 on any problems 
encountered in its application. 
68. The other energy sectors are embraced by the rules of the EEC and 
Euratom Treaties. The Commission is going to examine the situation of 
State aids to energy producers, where direct aids are concerned, (for 
example for investments) or indirect (for example for research and 
development on nuclear). Secondly the Commission wishes to examine on a 
case by case basis the use of energy tariffs as a means of giving aids 
to energy consumers and particularily in the sectors where energy costs 
are an important factor. The Commission has already taken certain 
decisions in this area, for example gas pricing in the horticulture and 
fertiliser sectors. 
69. Finally the Commission is in the process of drawing up an inventory of 
aids existing in the different economic sectors, including energy. This 
work will be based in particular on the indications given in the annexes 
to this document. 
70. The application to the energy area of Community Law and particularly all 
the provisions relative to the free circulation of goods and services, 
to State monopolies of a commercial character and to the rules of 
competition is without any doubt, one of the essential ways to arrive at 
a better-integrated energy market. The Commission intends therefore to 
continue to apply itself to this task with determination, account being 
taken of the special characteristics of the energy sector. 
Concerning exclusive production rights, the Commission will study their 
economic implications. 
-24 -
3. Environcental protection 
71. There have been major developments in recent years in energy sector 
standards designed to protect the environment. The Commission has 
submitted to the Council a proposal designed to lay down emission 
standards for large combustion plants, and progress has been made in the 
discussions on this delicate matter. The Commission will also be 
proposing emission standards for small and medium-scale combustion 
plants. 
72. An essential element of a unified energy market is harmonisation of 
safety standards and their application. However, the legal framework in 
this sense is largely limited to radiation protection aspects as set out 
in Chapter III of the Treaty entitled "Health and Safety". 
73. The Commission is also concerned about the effects of applying such 
standards to the cost of producing and using energy. For example, it has 
reported to the Council on the impact of the rules adopted by certain 
Member States with regard to refining. The Commission has established 
that legislative differences can have a major impact on costs: it has 
suggested that the completion of the large market would put an end to 
this situation. The Single Act allows Member States which so wish to 
apply more stringent standards for the characteristics and composition 
of certain potentially polluting products (Article 100 A 4). 
74. The Council has already in the area of increased en vi ronmenta l 
protection confirmed the principle of the existence of different 
standards within a range, for example, the Council Directives on the 
lead content of petrol (85/310/EEC) and the sulphur content of gas oil 
(87/219/EEC). This raises two problems: 
(a) In Member States with stringent standards, will it be possible to 
market products complying with less stringent standards, bearing 
in mind the objective of free movement of goods by 1992? 
(b) In Member States with less stringent standards, there is already 
an influx of lower quality products which are disturbing trade. 
These various problems raised by the two requirements to complete the 
internal market and to increase environmental protection were solved by 
the provisions of Article 100 A 3 of the Single Act 1.1hich states "The 
Commission in its proposals envisaged in paragraph 1 concerning health, 
safety, environmental protection and consumer protection, will take as a 
base a high level of protection". 
-25 -
75. In general, the Commission, working in conjunction with the parties 
concerned, will give detailed consideration to the question of how, at 
Community Level and with regard to the energy/environment relations, to 
reconcile the requirements of a high level of protection and the 
possibility for certain Member States of adopting more stringent or less 
stringent measures than the Community average. 
-26 -
4. Areas specific to energy 
Two areas emerge as priorities: energy prices and infrastructures. 
A) (costs) price~ and tariffs 
--=:::. 
76. Clearly, the differentials within the Community between energy costs, 
prices and tariffs are decisive factors in the development of energy 
trade. 
In theory, the problem is sirr.ple: "realistic•• costs, prices and tariffs 
-meaning that they are established under objective conditions <in 
particular without interference from the public authorities, more often 
than not for reasons that have nothing to do with energy) and 
transparency -should provide the driving forces for competition and 
trade. 
In actual fact, things are not quite so simple: the annexes to this 
communication set out as complete an inventory as possible of obstacles 
in this connection to a more integrated energy market. 
77. In the replies to the Commission•s request for comments on existing 
obstacles there are a number of recurring themes such as the 
discrepancies in cost structures in certain Member States, the lack of 
transparency in pricing (in particular in the case of large energy 
users) and certain apparent inconsistencies between the respective price 
and tariff structures for the various fuels (in particular in the case 
of gas and electricity) and between the price levels in different Member 
States. 
78. There is, to be sure, a certain amount of "cast> law11 on the matter: 
general Council conclusions, recommendations and resolutions, and the 
Council•s 1981 and 1983 recommendations concerning electricity and gas 
tariffs. The discussions on a Commission communication to the Council 
submitted in September 1984 (C0M(84)490) on the application of 
the Community•s energy pricing principles in Member States were 
indicative of the problems involved: in June 1985 the Council was 
unable to reach a consensus on the conclusions to be drawn from this 
paper. 
With regard to pr1c1ng in general, fresh progress is essential in order 
to give an impetus to the internal market concept. 
-27 -
79. With this aim in view, the Commission: 
will submit to the Council during the second half of 1988 a 
detailed comparative analysis of energy prices plus conclusions 
and proposals regarding transparency of prices, in particular for 
large industrial users. A specific method should, in this case, 
make it possible to combine a minimum of transparency with 
dialogue between the parties concerned and a normal degree of 
confidentiality (secret statistics>, while . paying special 
attention to the economic importance of large energy consumers in 
the Colllllunity. 
will examine the price structures in the Member States: 
in order to verify that the approaches to allocation between 
industrial and domestic users, between industdal sectors 
and uithin ll given industrbl sector are holtlogeneous and 
compatible with the co~~letion of the internal energy 
market, and also in order to see how the pricing principles 
already adopted can be made more convergent. 
will examine the conditions, costs and pricing principles applied 
to transfers of energy. 
will examine in detail and in conjunction with the parties 
concerned the cost structures in the various energy sectors and 
assess these cost structures in order to determine whether they 
are compatible with the principles regarding transparent and 
realistic costs. The electricity sector could serve as a test case 
for this exercise. 
B. Infrastructure 
I 80. The existence of adequate infrastructure is a sine qua non for the 
transfer of energy and hence a prerequisite with a view to securing 
flexibility, greater security of supply, and in the final analysis a 
more integrated Community energy market. 
Fortunately, the Cormn.nity already has considerable facilities in this 
area. There are already major European networks for electricity (UCPTE, 
UFPTES, SUDEL and NDRDEL grids>, natural gas, and even crude oil and 
petroleum products. This is the result of international cooperation 
between national enterprises (mostly public ones), and the 
infrastructure in question has been made possible as a result of the 
economic and commercial viability of the operations. 
-28 -
81. However, it should be possible to go further in this area with the 
prospect of a more integrated Community energy market. To be realistic, 
however, we must bear in mind the need to reconcile two imperatives: 
firstly, the infrastructure operations must satisfy (and continue to 
satisfy) nininu~ econoaic and co~ercial viability criteria; secondly, 
these operations, in which cost is important, should be major factors 
presupposes that they should be encouraged). 
82. To this end, two additional possibilities could be envisaged. Firstly, 
it is worth trying to use for this purpose a proportion of the 
structural Funds, EIB and other financial instruments designed to 
revitalize developing regions in view of the need for greater economic 
and social cohesion. The recent decisions taken by thcEuropean Council 
undoubtedly increase the scope for action in this connection. Secondly, 
it should be possible to declare certain Large-scale energy 
infrastructures as being of Co~unity interest. They can then receive 
special treatment once the Council has adopted the Commission proposals 
concerning large-scale infrastructure of Community interest (docs. 
COM(86)727 and COMC87)724). 
83. Three major types of infrastructure should be considered: reception 
infrastructure, storage infrastructure and transmission and distribution 
infrastructure. Special attention should be paid to natural gas and 
electricity. 
The process of integration of the European gas pipeline network must be 
continued in order to establish a genuine common market in natural gas. 
This is a matter which concerns the countries which are not yet linked 
up to the European network, namely the United Kingdom, Ireland, Spain, 
Portugal and Greece. The Community's natural gas industry could, for 
example, also set up a flexible joint body to deal with carriage and 
the administration of the European gas pipeline network, access to which 
would be open to all transport companies in the Community. 
The problem is much the same where electricity is concerned. 
utilization of infrastructure should be sought through further 
interconnection (Ireland and Greece) or by striving 
"Europeanizing" the existing networks to some extent and, 
appropriate, increasing their capacity. All this would increase 
electricity transfers and improve the administration of such transfers, 
while facilitating transmission and/or transit operations. Optimum 
network 
towards 
where 
-29 -
84. The Cormdssion therefore wishes to encourage all measures which would 
promote optimum utilization of existing energy infrastructure in the 
Col!lllunity: 
(a) Where reception infrastructure is concerned, the Commission will 
examine the possibility of encouraging the development of port 
reception infrastructure for coal (coal terminals: main ports or 
dispersal ports) and natural gas <natural gas terminals: for 
deliveries in the unaltered state or as LNG). 
(b) Where carriage is concerned, the Commission will draw up a report 
on the possibility of having recourse to the "European Economic 
Interest Grouping" status, whereby various interested parties can 
participate, so as to promote the Europeanization of the existing 
networks, an increase in their capacity or the development of new 
networks. 
Such developments could concern virtually all forms of energy: 
solid fuels (pipeline transport of water-coal mixtures or fuel 
oil-coal mixtures), petroleum products (possible extension of 
existing networks), and electricity(widespread interconnection; 
development of intra-Colllllunity transfers taking into account the 
surplus production capacity in certain countries). 
(c) Where storage is concerned, the Commission will investigate the 
possibility of establishing a Corrrnmity oil-storage capacity and 
for natural gas which, by virtue of its location and its size, 
could reduce costs and increase security. 
85. After making appropriate contacts and on the basis of the requisite 
studies, the Commission will report to the Council by the end of 1989 on 
all these aspects of energy infrastructure in the light of the internal 
market. 
-30 -
ANNEXES 
Page 
I Solid fuels 31 
II Oil 39 
III Natural gas 56 
IV Electricity 67 
v Nuclear 78 
VI Taxes 83 
-31 -
ANNEX I 
SOLID FUELS 
Contents 
A. SOLID FUELS IN THE CO~UNITY EUERGY nARKET 
1. Contribution made by solid fuels 
2. Situation of the industry 
B. pOTEPITIAL OBSTACLES UITifiU THE SOLID FUELS SECTOR 
3. Community legal framework 
4. Intra-Community trade 
5. Vertical agreements between producers and consumers 
6. Vertical agreements between producers and coal traders 
7. Free movement of coal imported from non-Community 
countries 
8. Technical barriers 
C. SUGGESTED PRIORITIES IN THE SOLID FUELS SECTOR 
9. Application of the Treaty and of Community legislation 
-32 -
SOLID FUELS 
A. SOLID FUELS IN THE COF'o~~UtliTY ENERGY RARKET 
1 ' 1. Contribution ~ade by solid fuels. 
In 1986, solid fuels accounted for about 30% of Community energy 
production. 
The production of conl (203 mill ion tonnes coal equivalent (tee) 1 in 
1986) breaks down geographically as follows: 
United Kingdom 
Germany 
Spain 
France 
Belgium 43% 
41% 
7% 
64 
3% 
The production of peat and lignite/brown coal (46 million tee in 1986) 
is concentrated chiefly in four Member States: 
Germany 
Greece 
Spain 
Ire land 684 
16% 
9% 
44 
1\s far as supplies arc concerned, coal irrports have been increasing 
throughout the Co!Mlunity for many yenrs now. Since imports have risen 
faster than consurrption, the shnre of irrported coal in total coal 
consumption increased from 104 in 1973 to more than 304 in 1986. The 
Community's main suppliers are, in decreasing order of importance, the 
United States, Australia, South Africa and Poland. 
Intra-Community trade in 1986 was about 10 million tee or 3% of the 
total Community consumption of solid fuels. Most of this trade 
consisted of traditional supplies of coking coal and coke from Germany 
and, to a much lesser extent, some deliveries of steam coal from the 
United Kingdom. 
2. Situation of the industry 
Except in the United Kingdom, where major restructuring has taken place 
over the last two years, the financial situation of the coal industry 
worsened in 1986, chiefly as a result of a fall in the prices of 
1 tee= 0.7 toe. 
-33 -
imported coal, expressed in national currencies, on which the prices of 
much Corrrnunity-produced coal are a l igncd. 
(ECU/tonne) 
Financinl situation of the co~panies 
Production costs Revenue 
1984 1985 1986 1984 1985 1986 
Germany 108 108 116 96 98 103 
Belgium 107 121 120 73 78 63 
France 99 105 100 67 69 60 
United Kingdom 137 130 78 70 74 62 
Spain 80* 56* 
* Spain = estimate 
Private, public and semi-public companies are involved. 
There are eight German companies. Ruhrkohle AG is owned by a variety of 
shareholders, the chief of which is VEBA (37X). The other shareholders 
are Beteiligungs-Gesellschaft fur Energieunternehmen mbH (22%), Thyssen 
Stahl A.G. <12%), Societe nouvelle Sidechar (8%), 
Montanverwaltungs-Gesellschaft mbH <10%) and Verwaltungsgesellschaft 
Ruhrkohle-Beteiligung mbH (10%). Saarbergwerkc is owned by the State 
<74%) and by Saarland (26%). The majority (96.5%) of the capital of 
Eschwei ler Berwerks-Verein Ag is held by Arbed SA Luxembourg. Auguste 
Victoria is owned by BASF while the majority shareholder of Sofia Jacoba 
is the Dutch group Robeco. Preussag Kahle, a subsidiary of Preussag AG, 
is a private company, 25% of whose shares are held by the Gesellschaft 
fur Energie und Versorgungswerke mbH, a subsidiary of the Westdeutsche 
Landesbank. Two small private companies, Dr. Arnold Schafer gmbH and 
Merchweiler Berwerksgesellschaft mbH, produce a total of 500 ODD tonnes. 
Brown coal is extracted by Rheinische Braunkohlenwerke AG, a subsidiary 
of the largest Germany electricity producer Rheinische-Westfalisches 
Elektrizitatswerk AG. 
In the United Kingdom, British Coal -known until 1985 as the National 
Coal Board was created in 1946 by the 1946 Coal Industry 
Nationalization Act. This Act transferred to British Coal all the 
mining assets which had been nationalized by the 1938 Coal Act. As 
defined in the 1946 Coal Industry Nationalization Act, the functions of 
British Coal include coal production in the United Kingdom, the 
efficient development of the mining industry and the supply of coal in 
the best interests of the corrrnl.J'lity both in terms of quantity and 
quality. ~bre than 95X of all deep mines are worked by British Coal but 
-34 -
a few small independent producers operate under licences granted by 
British Coal pursuant to the 1946 Coal Act. Open-cast mining accounts 
for some 15X of all coal production in the United Kingdom and it is 
undertaken by private operators: 90X of such production is carried out 
under contr<lct to British Coal while the rest is carried out on the 
operator's own account under licence. The producers in question form 
the National Association of Licensed Opencast Operators (NALOO). 
In France, almost all coal production is the responsibility of the 
nationalized company "Charbonnages de France" (Cdr>. The exceptions are 
the Arjuzanx lignite mine <owned by Edf) and a few other very small 
private collieries. 
In Belgium, coal production is concentrated in the Campine coal field. 
The mining company, Kempense Steenkohlenmijnen, is a semi-public company 
in which the State has a controlling interest, holding about 77X of the 
capital. 
In Spain, coal production is shared among 235 firms. Half this 
production is publicly owned while the other half is shared by a large 
number of private firms each producing at least 5 000 tonnes per year. 
The leading Spanish mining company, HUNOSA, is publicly owned. All the 
other mining companies except ENDESA, FIGAREDO, HULLASA and ENCASUR are 
privately owned. 
In Portugal, coal is produced by the Empresa Carbonifera do Douro SA, 
which belongs to a public holding company. 
In Greece, lignite is mined by the Public Power Corporation (DEI), which 
is publicly owned. 
In Ireland, peat is extracted by the public company Bord na Mona, set up 
in 1946 by the Act of the Oi reachtas for the purpose of developing peat 
resources. 
B. OOSTI\CLES \JITUIU TUE SOLID FUELS SECTOR 
3. Co~unity Legal fraaework 
Assessment of the potential obstacles calls for three preliminary 
remarks: 
solid fuels are covered by two Treaties: the Treaty of Rome <EEC) in 
the case of peat and lignite/brown coal and the Treaty of Paris 
(ECSC) in the case of coal, brown-coal briquettes and semi-coke 
derived from brown coal; 
-35 -
Article 71 of the Treaty of Paris provides that the powers of the 
Governments of Nember States in matters of commercial policy shall 
not be affected by that Treaty; 
the Single European Act does not alter the provisions of the Treaty 
of Paris. 
Theoretically, potential obstacles might occur: 
-at the level of intra-Community trade, 
-do~nstream of the coal industry, 
-at the level of Member States' importing policies. 
The technical and economic characteristics of lignite/brown coal and 
peat offer little financial incentive to intra-Community trade or 
imports from non-Community countries. 
4. Intra-COEnunity trade 
The entry into force of the Treaty of Paris created a single 
unrestricted market within the Community. It should also be noted that 
relatively small and ever-decreasing quantities of coal arc involved in 
i nt r a-Community trade. 
5. Vertical agreecents betueen producers and consu~ers 
The purpose of these agreements is: 
to provide coal producers with a long-term guaranteed market 
enabling them, in principle, to maintain production capacities in 
the long term: they largely rule out competition from other coal 
suppliers and other forms of energy; 
to provide users with a supply of coal guaranteed both in terms of 
quantity and quality, regardless of market fluctuations and, in the 
case of the iron and steel industry (Huttenvert rag in Germany), 
regardless of short-term fluctuations in its own demand. 
Such agreements often mean that prices are fixed at levels which do not 
necessarily correspond to market realities. 
In GerDany, the "Jahrhundertvertrag" requires that electricity producers 
undertake, regardless of their requirements (until 1995) and the current 
economic situation (until 1991), to consume about 640 million tee of 
german coal until 1995. A compensation fund financed by a 7.25~ 
-36 -
charge on electricity consurrption (Kohlepfennig) refunds to the 
electricity producers, in respect of 22 million tee/year, the price 
difference between Community coal purchased at cost price (Schwantag 
formula) and that of heavy fuel oil and, in respect of 
11 million tonnes, the price difference between Community-produced and 
irrported coal. 
In the United KingdoD, there is an understanding between British Coal 
and the Central Electricity Generating Board CCEGB) whereby the CEGB 
will, Lntil 1991, consume as much coal as technically possible and 
obtain 95X of its supplies from British Coal. For the financial year 
1986187, this understanding meant that British Coal would supply the 
CEGB with 72 million tonnes of coal at a price based on three quality 
brackets. For 1986187, the average price of deliveries was about 
UKL 42.2/tonne or 172 pence/gigajoule. 
In Spain, a new method of awarding contracts for coal supplies to power 
stations was agreed in 1986 between CARBUNION and the association of 
electricity producers UNESA. Under ·this agreement, all producers or 
groups of producers whose production exceeds 50 000 tonnes/year may 
conclude long-term contracts with the electricity producers at a 
reference price. Thest> agreements are subject to certain requirements 
such as improved efficiency of the mining companies or, failing that, 
lower production levels. After negotiation between the parties 
concerned, the contract is submitted for approval to the Spanish 
authorities. Mining companies whose production costs exceed the 
reference price may ask the electricity producers for a price supplement 
to cover the gap between their production costs and the reference price. 
The additional price paid by the electricity producers will be 
reirrbursed from a fund to which the electricity producers pay 
contributions. 
These agreement do not explicitly rule out the use of Community-produced 
coal from other countries and therefore do not, in principle, constitute 
barriers to the free movement of Community coal: houever, they do 
considerably restrict competition from imported coal and from other 
energy sources. 
The support provided for the coal industry by such agreements serves 
virtually the same purpose as the approach adoptt>d by other 
coal-producing Member States where the price of nationally-produced coal 
is aligned on irr;:>orted coal prices, the price difference being met 
directly from public funds. 
6. Agreeaents between coal producers and traders 
The purpose of these agreements is to cut the cost of marketing coal for 
household, tertiary and small-scale industrial consurr;:>tion. To this 
end, the market is walled off by granting exclusive territorial rights 
to coal traders. In addition, the sale and resale prices are frequently 
fixed by the producer, thus eliminating any possible price-based 
competition from other coal traders. 
-37 -
These practices constitute a barrier to the free movement of coal, 
chiefly within the Member States but also occasionally between 
~1embe r States. 
7. Free oovecent of coal i~orted froa non-Coc=unity countries 
The problem arises from the fact that the ECSC Treaty differentiates, in 
its provisions, between the Community-produced coal and coal imported 
from non-Cormnrlity countries: it establishes a common market for 
Community-produced coal <Art. 2 and 4 ECSC) whereas imported coal is 
governed by the commercial pol icy of each Member State (Art. 71 ECSC). 
Some countries impose no restrictions whatsoever on imports while others 
have introduced systems of licences and/or quotas or have made irrports 
subject to monitoring by a public body. 
In Gerncmy, coal imports are subject to restrictions on the basis of 
Article XIX of the GATT. This quota, broken down by consumption 
sectors, is fixed at 23 100 000 tonnes/year until 1990: 35X is 
earmarked for heat production and 35X for thermal power stations. 
In France, all imports are carried out by the Technical Association for 
Coal Irrports (Association Technique pour l'Importation Charbonniere: 
ATIC) and are subject to licences. 
In the United Kingdon, coal imports are covered by the open general 
import licence system and in practice, therefore, are unrestricted. 
In Belgiuo, importers may import coal on presentation of the purchase 
contract; import licences are issued as a matter of course. 
In Spain, a quota is laid down annually, broken down by consumption 
sector. Imports are subject to licences issued by the Ministry of the 
Economy and Finance, after approval by the Ministry of Industry. 
The free circulation in the Commtnity of irrported coal from third 
countries poses problems in relation to National measures of commercial 
policy set out above. 
In the past, such conflicts have been settled by decisions of the Court 
of Justice or by the Commission authorizing derogations, based on 
Art. 71 (3) ECSC, <mutual assistance). 
-38 -
8. Technical barriers 
In addition to these problems of a purely commerical nature, various 
technical barriers still exist in the different Member States, 
encouraging the use of national technologies. The market penetration of 
solid fuels should be improved by removing such barriers, since this 
will lead to increased colfl)etition between producers of equipment for 
burning solid fuels and thus to lower capital costs. 
C. SUGGESTED PRIORITIES IN THE SOLID FUELS SECTOR 
9. Application of Co~unity legislation 
Between 1965 and 1986, some SO 000 million ECU were spent on aid schemes 
and other measures to suwort current production and this figure has 
recently increased significantly as a result of the fall in world prices 
for coal and the value of the dollar. Whereas, in 1986, the average 
price for imported coal was about USD SO/tonne (approximately 40 Ecus>, 
the average cost price of CollTTlunity-produced coal was more than 
USD 100/tonne (approximately 80 Ecus>. 
Commission Decision No 2064/86/ECSC establishing Cotrrnunity rules for 
State aid to the coal industry allows the Commission to authorize such 
aids only where they contribute to the achievement of one of the 
following aims: 
improvement of the competitiveness of the coal industry, which will 
help to ensure greater security of supply; 
creating new capacities, provided that they are economically viable; 
solving the social and regional problems related to developments in 
the coal industry. 
Although these aids and measures draw on limited public funds and are, 
in some cases, a less than optimum use of available resources, this does 
not mean that, today they contravene the competition rules within the 
coal industry because in practice there is only local supply markets 
available for some local enterprises. In assessing the distortions of 
competition which such aids or schemes might cause within the Community 
energy sector, account must be taken of the advantages and direct or 
indirect assistance from which, in some cases, other branches of the 
energy industry might benefit. 
-39 -
APlNEX II 
OIL 
Contents 
A. OIL Itl TUE C~UNITY EfiERGY MARKET 
1. The contribution made by oil 
2. A sector which is already to a large extent subject to competition 
3. Prices paid by consumers 
4. Discrimination against oil 
B. POTENTIAL OOSTACLES UITiiHI THE OIL SECTOR 
5. Exploration and production monopoly 
6. Exploration licensing procedures 
7. Oil-field development conditions 
8. Taxation of oil production 
9. The landing obligation 
10. Restrictions on imports of crude oil and/or petroleum products from 
certain non-Community countries 
11. The obligation to accept crude oil acquired by the State 
12. The obligation to use national-flag shipping for the carriage of 
crude oil and/or petroleum products by sea 
13. The obligation to use a national carrier for the inland transport 
of oil products 
14. Exclusive right of refining 
15. Exclusive right to market the output of national refineries on the 
domestic market 
16. Quantitative restrictions on the importation of EEC oil products 
17. Import licences and declarations for EEC oil products 
18. Prohibition of trans-frontier deliveries affecting distributors not 
approved in the country of destination 
19. Differences in rules and technical norms applicable to different 
petroleum products 
20. Differences in compulsory storage arrangements 
21. Pricing systems 
22. Differences in indirect tax systems with regard to oil products: 
Excise duty and VAT 
-Harmonization of excise duty 
-Approximation of VAT 
23. Existence of other indirect taxes Cparafiscal, counter-cyclical, 
etc.) 
C. SUGGESTED PRIORITIES IU THE OIL SECTOR 
24. The harmonization of taxation 
25. Other obstacles in the oil sector 
*** 
-'·0 -
OIL 
A. OIL IN TBE COrolUNITY EtiERGY ftARKET 
· 1. The contribution ~ade by oil to the Community's energy supplies is very 
large at present and is likely to remain so up to and beyond the year 
2000. In 1986 oil covered about 46X C32X of that imported) of the 
primary energy needs of the ConrnLnity. In the same year, total oil 
consumption (including international bunkers) in the Community was 
approximately 500 million tonnes. The latest estimates from the 
Commission's departments indicate that total energy consumption is 
likely to increase and that the share of oil in primary energy 
consumption should fall only slightly, to between 42 and 45X in 1995. 
The share of oil products in energy consul!l)tion varies according to the 
sector of activity, from 12X in electricity generation to 97X in 
transport. Unlike the other sectors, where substitute energy sources 
exist and are already extensively used, in transport the consumption of 
oil products has grown continuously since 1973, a trend which is likely 
to continue. 
2. The oil sector can be regarded as one which is already to D large extent 
subject to cocpetition within the Community energy sector as a whole. 
A number of factors have helped to bring this about, including: 
global integration of the markets for crude oil and petroleum 
products; 
the large number of operators in the oil industry in the Community, 
be they integrated multinational oil companies, national companies or 
independent distributors; 
the ample supply of petroleum products from Community refineries, 
whose aggregate capacity is big enough to satisfy demand, and from 
refineries in non-Community countries; 
the rumerous ways and means of moving products: 
waterway, rail, road and pipeline; by sea, inland 
lack of a network structure; with oil, unlike natural gas and 
electricity, the consumer can choose between a number of competing 
suppliers; 
-41 -
price transparency, be it of international prices Cas quoted on the 
Rotterdam and Genoa oil markets) or those paid by final consumers 
(the Corrrnission's Weekly Oil Bulletin). Nevertheless, the 
representativeness of prices quoted on the international market might 
be questioned, in any case in respect of certain products in which 
the N.Jmber of transactions is limited, e.g. with naphtha at 
Rotterdam. 
There are nevertheless still a number of obstacles to completing the 
internal market, and they must be removed by 1992. 
3. The table in Annex VI shows the difference in the pric~s <net of tax) 
paid by consu~ers in the twelve Member States, and reflects the 
situation as at 14 September 1987. 
As can be observed from the table in Annex VI, ther~ are major 
differences, even if account is taken of differences in distribution 
costs, which are included in the figures in the table. 
The removal of the remaining obstacles, and the increased competition on 
oil markets which should result from it should help bring about an 
alignment of pre-tax prices and of prices inclusive of tax owing to the 
proposed tax harmonization. 
4. Place of oil in the energy balDnce 
By recommending that the share of (imported) oil be limited and that it 
should be replaced by other forms of energy, the Corrrnunity's energy 
objectives have introduced an element of discrimination against oil 
which has taken the practical form of: 
a statutory limit on certain uses (Directives on the use of oil and 
natural gas in power stations); 
subsidies for competing forms of energy; 
higher taxes than on competing forms of energy; and 
restraints or bans on publicity for certain oil products. 
-42 -
The new energy objectives for 1995, which the Council adopted in 1986, 
recommend in particular that oil's share in primary energy consurrption 
should be limited to 40~, the share of imported oil to 33X and that the 
contribution of oil and natural gas to electricity generation should not 
exceed 15~. 
As these objectives are intended to bring about more diversification and 
enhanced security of energy supply for the Community, they should not be 
called into question by the completion of the internal market; after 
1992, therefore, oil products could still be subject to higher taxation 
than competing energy products. 
With a view to completing the internal market, however, it has to be 
stressed that measures taken by the Member States to limit oil 
consumption must be applied in a coordinated and harmonized way, so that 
they do not cause any unacceptable upheaval in energy markets. The 
proposals which the Commission has already put forward for harmonizing 
indirect taxation (see paragraph 22) will serve that end. 
B. POTENTIAL OBSTACLES l!ITIIIU TUE OIL SECTOR 
Potential obstacles to the completion of the internal market in the oil 
sector, which are listed below, are set out in an order running from the 
activities of the upstream industry, namely oil exploration and 
production, to downstream activities, namely refining and marketing of 
petroleum products. The removal of these obstacles will help to 
approximate conditions of competition among the integrated oil companies 
and also between them and the independents. 
5. Exploration and production monopolies 
Member States concerned: Denmark, Greece, Ire land, Italy and the 
Nether lands. 
These Member States reserve certain exploration and production rights to 
their national oil companies. 
In Denmark, Greece, Ireland and the Netherlands, the national oil company 
has a right to participate in any commercial oil discovery. 
In Italy the Po Valley region and some of the Adriatic offshore areas are 
reserved for the national oil company which has a prospecting monopoly 
throughout the Italian offshore area. When exploration areas 
areallocated, it has the right to retain 25~ of the areas prospected. t!m-lt:. 
also has the right of pre-emption over any oil or natural gas produced in 
Italy. 
-43 -
6. ExplorDtion licensing procedures 
Member States concerned: 
conducted. all those where oil exploration activities arc 
Non-discrimination in access to the Community's oil resources is an 
important element in maintaining free competition between operators in 
the oil sector. 
Exploration-production licences (concessions> should be issued according 
to criteria which are both transparent and non-discriminatory with 
respect to co!ll)anies from the Conrnunity. 
Reciprocity clauses violate these principles of transparency and 
non-discrimination. 
7. Oil-field developaent conditions 
Member States concerned: all those where oil development and production 
activities are conducted. 
The requirements laid on companies for the development and exploration of 
oil fields are often associated with "unwritten clauses" under which they 
are obliged or encouraged to order services and purchase equipment from 
national suppliers. 
Interference of this kind by the authorities in order to direct the 
choices made by companies which have received licences should be cut out. 
Consideration will have to be given to whether the rules on transparency 
which are to be introduced in respect of public procurement contracts 
could be made to apply in such cases. 
As part of this exercise, practices of these kinds have been pointed out 
to the Commission specifically in connection with bringing oil and gas 
fields into production. 
8. Taxation of oil production 
Member States concerned: all those where oil is produced. 
Without a detailed study of taxation on oil production, it is difficult 
to discover how various tax systems affect the development of fields and 
affect the conditions of competition. 
Since the fall in oil prices in 1986, however, diverging trends have been 
evident, with some countries reducing taxation to stimulate exploration 
and development and others keeping it unchanged. 
-44 -
It would appear to be difficult to harmonize taxation levied on crude oil 
production, for account has to be taken of differences in the costs of 
developing different oil and gas fields, which vary according to their 
location and characteristics; it could, nevertheless, have a beneficial 
effect on competition and on Community production capacities. 
9. The landing oblig~tion 
Member States concerned: Italy and the United Kingdom. 
Both these countries impose an obligation to 
offshore within their jurisdiction at a port under 
before it is dispatched to any other destination. 
it is possible to apply for an exemption. land petrol produced 
their own jurisdiction 
In the United Kingdom 
Even if it is the case that up to now exemptions have been granted, this 
obligation could, in some cases, also increase costs. 
10. Restrictions on ir:ports of crude oil and/or petrol~a products froa 
certain non-Co~unity countries. 
Member States concerned: Spain, Greece, France and Portugal. 
Spain, Greece and Portugal restrict the right to import petroleum 
products from non-Comrrrnl.l"lity countries to the company which is managing 
the monopoly or entities acting in place of the monopoly. Operators 
independent of the monopoly are not allowed to import products from 
non-Corrrnun ity countries. 
France has limitations on the entry into its territory of crude oil and 
products iiJl)orted directly from non-Comml.l"lity countries. 
The creation of an internal space without frontiers makes it necessary to 
develop common arrangements and a common pol icy for trade in oil and 
petroleum products with non-Community countries. 
There is also a need for harmonization of the rules governing ong1n in 
relation to imports of oil products from non-Community countries; at 
present national rules apply, namely: 
in France, oil products are deemed to originate in the country which 
produced the crude from which they are derived; and 
in the other Member States oil products are deemed to originate in the 
country where the last substantial processing operation was carried 
out on the crude in question. 
-45 -
11. The obligation to accept crude oil acquired by the State 
Member States concerned: Spain and France 
These countries require their oil refiners to accept oil which has been 
acquired by the State. 
The pol icy of State-to-State procurement of oil grew up in the years of 
the oil crisis as a means of ensuring a country's oil supplies. In the 
present, and foreseeable, state of the oil market it is no longer 
warranted. It might add to the oil companies• costs, because in 
State-to-State contracts the purchase price of the oil in question is 
generally higher, and so might have an impact on competition between 
companies. 
12. The obligation to use nationnl-flag shipping for the carriage of crude 
oil and/or petroleum products by sen. 
Member States concerned: Spain, France and Portugal. 
A home-flag obligation applies: 
in Spain, for supplies of crude oil and petroleum products; 
in France, for two-thirds of crude oil supplies; and 
in Portugal, for supplies of crude oil and certain petroleum 
products. 
At the end of 1986 the Council adopted Regulation (EEC) No 4055/86 
applying the principle of freedom to provide services to maritime 
transport between Member States and between Member States and third 
countries (OJ of 31.12.1986). 
The Regulation provides for the elimination of unilateral national 
restrictions on the carriage of certain goods, conveyance of which is 
entirely or partially reserved to ships flying the home-flag, which were 
in operation before 1 July 1986, on the following timetable: 
before 31 December 1989 for transport operations between Member States 
performed by ships flying the flag of a Member State; 
before 31 December 1991 for transport operations between Member States 
and third countries performed by ships flying the flag of a Member 
State; and 
before 1 January 1993 for transport operations between Member States 
and third countries performed by other ships. 
The Member States concerned may not introduce home-flag obligations which 
are more restrictive than those in operation on 1 July 1986 and they must 
remove existing obligations of this kind by the date laid down in the 
Council Regulation. 
-46 -
This Council Regulation does not relate only to the carriage of oil and 
products but covers all merchant fleets and makes provision for the 
ending of restrictions on transport operations between Member States and 
also between a Member State and a third country; it also applies to 
transport operations performed by ships which are not flying the flag of 
a Member State. 
13. The obligation to use ~ national carrier for the inland transport of oil 
products 
Member State concerned: Germany 
German law requires oil products to be carried by national inland 
waterway, rail and road carriers. 
This obligation runs counter to the objective of having freedom to 
provide services, in the transport area, which is envisaged in the 
Treaty. 
This obligation does not apply, however, to imported products which have 
been loaded outside Germany (e.g. in the Netherlands) which could take 
advantage of more attractive terms (e.g. on the Rhine, owing to the 
greater competition that prevails on that waterway). 
14. Exclusive right of refining 
Member States concerned: Spain, Greece, France and Portugal 
The adaptation of oil monopolies has so far affected only commercial 
aspects, in particular the liberalization of trade in refined products 
between Member States. The monopoly on refining (i.e. production), 
whether it involves only one company -as in Portugal -or several -as 
in Spain, Greece and France -has remained outside the scope of the 
various adjustments of monopolies. 
15. Exclusive right to market the output of national refineries on the 
dol'lestic carket 
Member State concerned: Spain 
In Spain the State has vested in one company (Campsa) the exclusive right 
to market the output of Spanish refineries with regard to the chief 
products intended for the domestic market. 
This prevents any other distributor from obtaining the chief oil products 
direct from a Spanish refinery in order to sell on the domestic market. 
-'·7 -
This exclusive right should be abolished (Article 37 of the EEC Treaty) 
before the end of the transitional period on 31 December 1991. 
16. Quantitative restrictions on the i~ortation of EEC oil product~ 
Countries concerned: Spain, Greece, Ireland, Italy and Portugal 
In Spain imports of EEC oil products are limited by quotas agreed in 
the Accession Treaty. These quotas are increased each year. Any 
restriction on imports will have to be abolished not later than the 
end of the transition period on 31 December 1991. 
In Greece, imports of oil products are limited owing to the continued 
existence of an obligation to purchase from State-owned refineries. 
For the first half of 1987 it was obligatory to buy 40X of quantities 
released for consu~tion. The Commission has initiated infringement 
proceedings against this quantitative restriction on imports. 
The Greek Government has made provision for the phasing-out of the 
purchase obligation at present laid on oil products distributors in 
Greece. 
In Ireland oil distribution companies are required to purchase <35% of 
quantities released for consu~tion) from the country's only refinery. 
The Court of Justice of the European Communities took the view that, 
subject to certain conditions, the restriction of i~orts could be 
accepted for the sake of security of supply. 
In Italy, according to information supplied to the Commission, it is 
believed that the legislation presently in force prohibits the 
bringing into refineries of semi-finished products from other Member 
States. In the case of finished products, the prohibition is believed 
to be total and to cover products from other Italian refineries as 
well as those from other f'1ember States. This situation is presently 
under examination by the Commission services. 
In Portugal the situation is similar to that in Spain except that the 
transitional period will end on 31 December 1992. 
-48 -
17. Inport licences and declarations for EEC oil products 
Member States concerned: Belgium, Spain, Greece and Portugal. 
In Belgium there is still in operation a system of automatically-issued 
import licences for oil products, which operates in the framework of 
controls on imports of harmful substances. The Commission has opened an 
infringement file. 
In Spain and Portugal there are import licences under the system of 
i~ort quotas for the transitional period. 
In Greece licences have been replaced by prior declarations by importers. 
These declarations, which are used to monitor imports statistically, 
should be replaced as soon as possible by the use of a single 
administrative document. 
18. Prohibition of trans-frontier deliveries affecting distributors not 
approved in the country of destination 
Member States concerned: Spain, Greece, France and Portugal. 
In these Member States legislation relating to oil provides for a special 
status for importers/wholesale distributors of oil products. Only 
undertakings which are approved on this basis are permitted to market 
products in the nation's territory. 
"Trans-frontier" deliveries by distributors who are approved in or who 
operate in another Member State, but are not approved in the country of 
destination- as is generally the case -are thus prevented. 
19. Differences in rules and technical nor~s applicable to petroleu~ products 
Member States concerned: all. 
Different specifications for oil products are brought in by national laws 
or by agreements between industries. 
Corrrnunity law harmonizes only a few aspects (e.g. the 
petrol) and in some cases even permits a choice between 
given characteristic (e.g. the sulphur content of 
Member States may choose between 0.3 and 0.2). lead content of 
two values for a 
gas-oil, where 
These differences in standards add to costs during production, storage 
and transport of oil products. The extra costs are chiefly borne by those 
companies which supply several national markets from one refinery or a 
small number of refineries. 
Nevertheless, there remains the problem of permitted ranges in Co~~unity 
standards: for example, will it be possible for gas-oil with a 0.3~ 
sulphur content produced in accordance with the standard (be it Community 
or national) in one Member State to enjoy freedom of movement and be used 
in a country which requires the lower maximum content namely: 0.2~? 
A final point is that some differences in specifications which are based 
on climatic factors could be upheld. 
20. Differences in co~ulsory storage arrangecents 
Member States concerned: all. 
Corrrnunity law on security stocks requires ~lember States to hold stocks of 
the three main categories of oil products equivalent to not less than 
90 days of consumption at the preceding year's rate. Community law also 
allows stocks of crude oil to be taken into account and allows reductions 
of the storage obligation for Hember States where this is 
warranted by indigenous production. It allows bilateral agreements 
between ~1ember States under which part of the compulsory stocks may be 
held in another Member State. 
The ~1ember States have passed on this obligation to the oil companies 
(refiners and/or distributors) in various ways. In general terms, the 
Member States fall into two categories: 
those which have set up a central storage agency which administers 
part of the obligation <D, NL, OK, F-from 1 January 1988). In Greece 
and Portugal stocks belong to the State; 
those in which the entire obligation is the responsibility of the oil 
companies (B, F -up to 31 December 1987-IT, IRL, ES and UK). 
Differences in national law and in procedures for holding security stocks 
often mean that oil companies operating in one Member State are in a 
different situation from those operating in other Member States, from 
both an operating and financial point of view. 
These differing situations result in differing costs which help to cause 
differences in price net of tax on the various markets. 
-so -
The Commission has already informed Member States of its preference for a 
system with a central storage agency, both from an operational point of 
view (should the safety stocks be drawn upon) and from the point of view 
of aligning the costs incurred as a result of the obligation to retain 
minimum stocks. 
Should all Member States accept the Commission's point of view, 
consideration could then be given to harmonizing the way in which the 
central stocks are financed and the way in which the obligation is 
allocated between the central agency and the oil companies. 
In addition, the objective of completing the internal market makes it 
necessary to review certain provisions which are currently accepted: 
Will it be acceptable for certain countries (i.e. Denmark and 
Portugal) to impose more stringent obligations? In Portugal at present 
it is 120 days' stocks. 
Will it continue to be justified for certain producer Member States to 
enjoy a reduction in their stocks obligation -amounting to 15X at the 
most-or, conversely, should not all Member States be granted an 
average reduction based on Community oil output? 
At present the obligation on the United Kingdom is to maintain 
76.5 days' stocks. For the other producer Member States it is between 
76.5 and 90 days' stocks. 
Is it still necessary to have bilateral agreements between Member 
States so that stocks can be held in another Member State? In any 
event, will it be acceptable under such agreements for certain Member 
States to authorize a company's undertakings in another State to hold 
stocks on their premises, but not to permit their own undertakings to 
hold stocks in the partner's Member State (so-called "one-way" 
agreements)? 
The obligation to maintain stocks is based on the quantities consumed 
on the home market. Might it not be necessary to extend this 
definition to cover quantities consumed on the home markets of other 
Member States, given the prospect that internal frontiers will be 
eliminated in 1992? 
21. Pricing systecs 
Member States concerned: Spain and Greece. 
In Spain prices at which oil products are sold to consumers are set by 
the authorities in accordance with national criteria; a single price is 
fixed for each product. An infringement procedure has been initiated by 
the Corrvnission. 
-51 -
In Greece the maximum selling prices to consumers are based on a pricing 
formula. The Commission has disputed certain aspects of these pricing 
arrangements and has initiated an infringement procedure. 
Some of the other Member States have a maximum-price system (Belgium, 
Ireland, Italy, luxembourg and Portugal). 
A system under which a maximum selling price to consumers is set may be 
compatible with Community rules if it actually permits operators to 
import EEC products, i.e. if the maximum price is sufficiently high to 
permit operators to include in their selling price the (extra) costs of 
importing. 
In the other Member States there is no form of price control (Germany, 
Denmark, France, the Netherlands and the United Kingdom). 
22. Differences in indirect tax systeas with regard to oil products: Excise 
duty zmd VAT 
In August 1987 the Commission submitted to the Council a series of 
communications and proposals concerning indirect taxation with a view to 
completing the internal market: 
COMC87) 320: Completing the internal market: approximation of indirect 
tax rates and harmonization of indirect tax structure. 
COMC87) 323: Completing the internal market -The introduction of a VAT 
clearing mechanism for intra-Community sales. 
CCX.H87) 324: Proposal for a Council Directive instituting a process of 
convergence of rates of VAT and excise duties. 
COMC87) 327: Proposal for a Council Directive on the approximation of the 
rates of excise duty on mineral oils. 
Where oil products are concerned, the Commission's proposals can be 
summarized as follows: 
Har~cnization of excise duty 
(a) As from 31 December 1992 t1ember States would apply common rates of 
excise duty calculated as follows: 
in the case of petrol and LPG motor fuel, the arithmetic average 
of the excise duty charged on each product in the Member States, 
in the case of gas oil for heating and transport and heavy fuel 
oil, the arithmetic average of the excise duty chnrged on each 
product in the Member States. 
-52 -
As an indication, and on the basis of the excise duties in force in the 
Member States on 1 April 1987 and the consunption structure tor 1985 as 
use'd to calculate the averages for the Commission's Oil Bulletin, the 
common rates of excise duty would be as follows: 
Leaded petrol and medium oils per 1 000 litres 
used as motor fuel 
Unleaded petrol per 1 000 litres 
LPG per 1 000 litres 
Diesel per 1 000 litres 
Heating gas oil and medium oils per 
1 000 litres used as fuel 
Heavy fuel oil per 1 000 kg 340 ECU 
310 ECU 
85 ECU 
177 ECU 
50 ECU 
17 ECU 
These common rates could be altered on the basis of a different date and 
a different consumption structure. 
(b) In the meantime, the ~1ember States will not introduce new excise 
duty and cannot alter the existing excise duty except to bring it 
into line with the above common rates. 
Approxiaation of VAT 
(a) As from 31 December 1992 Member States would charge VAT rates in the 
following ranges: 
reduced rate: 4 -9% 
standard rate: 14 -20X 
The reduced rate applies to energy products for heating and 
lighting. 
(b) In the meantime, the Member States have the option of bringing their 
rates into line, as follows: 
Convergence as regards the number of rates; 
Member States with three or more rates can reduce these to 
two, i.e. a reduced rate and a standard rate; 
Member States with a single rate can increase the number of 
rates to two, i.e. a reduced rate and a standard rate. 
-53 -
Convergence with regard to the level of rates 
Member States can alter the level of the reduced rates and the 
standard rate, provided that they are within or closer to the 
proposed limits; 
Member States can reduce or abolish their increased rat~s. 
23. Existence of other indirect taxes (parafiscal, counter-cyclical, etc.) 
Member States concerned: Spain, Greece, France, Italy and Portugal. 
Several Member States have counter-cyclical taxation systems which make 
it possible to keep the final consumer selling prices constant 
(recommended price in Spain and maximum price in the other countries 
concerned), while allowing fluctuations in ex-refinery prices. 
The provisions in question are as follows: 
the monopoly revenue in Spain (monthly variation), 
the adjustment of excise duty in Greece (quarterly variation>, 
the special petroleum tax in Portugal (monthly variation), 
tax changes in Italy <weekly variation). 
In France there is a parafiscal levy which accrues to the Institut 
Fran~ais du Petrole. 
Other indirect taxes might continue to apply in certain countries. 
In the Commission's proposal excise duty is set at a common rate for all 
countries, and variations in one or Member States will no longer be 
allowed. 
Similarly, counter-cyclical taxation would be prohibited unless it was 
accepted by all Member States and applied simultaneously. 
C. SUGGESTED PRIORITIES IN THE OIL SECTOR 
24. The approxiaation of taxation 
The approxir:aation of taxation (see paragraphs 22 and 23) is a priority 
objective for the Commission and the Community. Attainment of this 
objective will make it possible to eliminate a major component of the 
divergence between prices Call taxes included) of oil products on the 
consumption markets. Tax accounts for some two-thirds of the final price 
-54 -
in the case of petrol (from 56~ in Luxembourg to 79~ in Italy) and about 
one-half in the case of automotive gas oil (from 42~ in Luxembourg to 62~ 
in Ire land). 
The Cocoission's proposal concerning tax approximation will be discussed 
in the Council; the proposal in question is a middle-of-the-road 
solution, since the excise duty and VAT rates proposed are averages for 
the rates charged in the Member States. Although the tax burden would be 
virtually unchanged for the Community as a whole, the Commission's 
proposal might entail significant changes for certain Member States. In 
addition, the impact of the Commission's proposals on the tax revenue of 
the Member States cannot be assessed simply on the basis of oil products. 
Account should also be taken of the changes entailed by the approximation 
of taxation on alcohol and tobacco and the general approximation of VAT 
rates on all products and services. 
Last but not least, it is not uninteresting to report that certain energy 
sector operators, particularly in the oil sector, are in favour of a 
diff~r~nt appro8ch to th~ approxiaation of taxation, based on the 
criterion of inter-fuel taxation equality for identical applications. In 
more practical terms, this principle of neutrality of taxation vis-a-vis 
competing energy sources would be reflected as follows: 
In the transport sector, by taxation Cexci se duty plus VAT> of an 
equal Cor similar) level for petrol, automotive gas oil and LPG motor 
fuel. 
In the residential sector, the abolition of excise duty on heating gas 
oil and the equalization of VAT rates as between heating gas oil, fuel 
LPG, natural gas and electricity. 
In industry and power stations, the abolition of excise duty on fuel 
oil and the equalization of VAT rates for fuel oil, coal, natural gas 
and electricity (for large consumers). 
Some Member States have in fact already adopted a more neutral taxation 
policy vis-a-vis energy sources. The problem posed by this alternative 
approach is that it would rule out an effective means of discouraging 
certain oil end-uses and encouraging the rational use of oil. 
25. Aaong the other obstacles Dentioned in the oil sector, the Coamission 
considers that the following should be reaoved as a matter of priority: 
The differences in rules and technical norms applying to petroleum 
products. 
-55 -
The obstacles as the result of the existence of oil conopolies. In 
this area, the Commission proposes: 
to complete the adaptation of commercial monopolies, in particular in 
the new Member States: irrport restrictions (paragraph 16), import 
licences (paragraph 17) and price systems (paragraph 21) and to review 
certain provisions concerning the monopolies which are at present 
accepted: exclusive right of refining (paragraph 14), exclusive right 
of marketing national products (15) and prohibition of cross-frontier 
deliveries (paragraph 18). 
Obstacles to internal transport (paragraph 13> as part of the 
liberalization of services. 
-56 -
NATURAL GAS 
Contents 
A. UATURAL GAS IU THE COMMUNITY ENERGY MARKET 
1. Contribution made by natural gas 
2. Situation of the industry: 
-Production 
-Transmission and distribution 
-Penetration of the energy market by natural gas 
3. Structure of the gas market in the EEC 
4. Future demand 
B. POTENTIAL OBSTACLES WITHIN THE UATURAL GAS SECTOR ANNEX Ill 
5. Integration in the gas sector: extent and limitations 
6. Towards a European purchase price 
7. Further integration of the European gas grid 
8. Price transparency 
9. Harmonization of taxation 
10. Technical standards 
11. Opening-up of public contracts 
12. Constraints on the free movement of natural gas 
-at community level 
-at national level 
13. Exploration and production 
14. Transport 
15. Storage 
16. Distribution and marketing 
17. Imports and exports 
C. SUGGESTED PRIORITIES IN THE NATURAL GAS SECTOR 
18. Prices and taxation 
19. Gas pipeline network 
20. Decompartmentalization of the natural gas markets: Common carrier 
-57 -
NATURAL GAS 
A. NATURAL GAS HI THE CO~:..~UNITY ENERGY UARKET 
1. Contribution aade by natural gas 
Until the late 1950s the gas industry in Western Europe produced mainly 
manufactured gas derived from coal and, later, oil. In the early days, 
Europe's natural gas industry was confined to sites close to the fields 
in Italy Cthe Po Valley) and France Clacq). The natural gas boom in 
Europe started in 1959 with the discovery of the giant Groningen field in 
the Netherlands, followed by other significant strikes under the 
North Sea. Groningen gas provided the driving force for the development 
of Europe's natural gas industry, as it was exported to Belgium, France, 
Germany, Italy and Luxembourg in particular. In 1986, gas exports from 
the Netherlands to other Member States accounted for almost 26X of all 
gas imports in the Community. On the other hand, the Community now 
depends on imports from non-Community countries (the Soviet Union, Norway 
and Algeria) for 35:1: of its gas supplies, with the figure expected to 
rise to 40X or more from the year 2000. 
In the space of 15 years (from 1971 to 1986) natural gas's share of 
primary energy consumption in the Community doubled from 9X to 18X. 
Abundant resources in Western Europe, particularly in Norway but also in 
the Netherlands and the United Kingdom, and from the Community's 
traditional outside suppliers (the Soviet Union and Algeria) coupled with 
the environmental advantages suggest that natural gas should remain a 
major contributor to the Community's primary energy supplies in the 
future. 
2. Situation of the industry 
Production 
Private or public, multinational or national oil companies produce 
virtually all the natural gas in the Community. 
Transaission and distribution 
National or regional monopolies or virtual monopolies dominate the 
natural gas transmission and distribution industry in Europe. Primarily 
for economic and technical reasons gas producers hold a monopoly over 
transmission, distribution and, in some cases, imports. However, this 
-58 -
is not a monopoly in the strict economic sense since they have to compete 
against other energy sources on each of their end-use markets. 
With the exception of the United Kingdom and, to a large extent, France, 
where a single undertaking controls imports, transmission and sales to 
end-users in industry or the home, all the Community Member States have 
opted for a two-tier supply structure: 
1. Gas-transaission undertakings buy gas from producers under long-term 
<20-25 year) contracts, transmit it and resell it in large 
quantities to industrial users, power stations and public 
distributors. Each of these Member States apart from Germany has 
just one transmission undertaking. Some of them are public-sector 
undertakings, others are privately owned and the rest are a mixture 
of the hto. 
2. Public distribution undertakings resell relatively small quantities 
of gas to members of the public and small industrial consumers. 
Every Member State (apart from the United Kingdom and, to a large 
extent, France) has several different public distribution 
undertakings, most of them public or semi-public undertakings 
operating on a regional or Local basis. 
These public distribution and 
exclusive operating concessions 
authorities. transmission undertakings are granted 
by the national, regional or local 
Penetration of the energy aarket by natural gas 
The share of the Member States' primary energy supplies taken by natural 
gas also varies widely. The role of natural gas in each Member State's 
economy depends primarily on the indigenous gas resources available and 
on the vintage of the gas industry. 
There is a marked difference between Member States with a relatively 
long-established gas market, such as France, Italy, Germany, the 
United Kingdom and Belgium and those relatively new to gas, such as 
Denmark, Ire land and Spain. Greece and Portugal are planning to 
introduce natural gas to their primary energy supplies in the future. 
-59 -
3. Structure of the gas aarkct in the EEC 
The structure of the gas c:~arket also varies widely from one Community 
country to another. In practice, the relative share taken by the three 
main end users -the domestic and commercial market, industry and power 
stations -depends on a wide range of factors, such as indigenous 
resources available, import opportunities, the relative competitive 
position of different sources, environmental legislation, industrial 
structures, population density, geographical features and government 
policy. 
4. Future deDand 
Natural gas consumption in the European Community totalled 199 mtoe in 
1987 or 18X of the primary energy supply. Looking ahead, gas consumption 
is generally expected to rise moderately to around 200 mtoe by 1990 and 
reach 210 mtoe by the year 2000. New markets are opening up in Denmark 
and will, in the near future, open up in Greece and Portugal. Elseuhere 
the market and infrastructure are expanding, as in Italy and Spain. 
A number of potential developments, particularly 
legislation and in technologies for burning natural 
consumption well above the latest forecasts. in environmental 
gas, could push 
Although the future of natural gas in the Community looks reasonably 
optimistic, natural gas nevertheless faces a host of challenges. Fierce 
inter-fuel competition on end-user markets, stronger energy saving 
campaigns or slower economic growth than forecast could all curb its 
growth. 
B. POTENTIAL OBSTACLES WITHIH THE NATURAL GAS SECTOR 
5. Integration in the gas sector: extent and lic:~itations 
Developments in the natural gas sector are favourable for the creation of 
a genuine common market in natural gas: 
The cross-frontier cooperation which has gradually developed between gas 
companies on the continent with a view to moving the gas bought, often 
jointly, as safely as possible. Gas-transmission undertakings carry 
-60 -
natural gas to the consumer countries via international pipelines, often 
managed by subsidiaries jointly owned by the gas companies in each 
country concerned (see Annex VI). This extensive interconnection of the 
gas grids in Europe reflects the growing interdependence of the gas 
industries in the Community, with the notuble exception of the United 
Kingdom, Ireland and Spain, none of which is yet connected to the 
European grid, plus Greece and Portugal, both of which plan to introduce 
natural gas into their primary energy balance in the near future. 
A study for the Commission by the Economic Research Committee of the Gas 
Industry <COMETEC-GAZ) on the European gas pipeline grid's contribution 
to security of supply in the Community has reported in detail on the 
degree of cooperation between gas companies in Europe. 
For example, their collaboration has opened up enough outlets in Europe 
to make it economic to develop the vast Troll field in Norway and to 
exert pressure on the purchase price. Troll gas will significantly 
improve security of supply in the Community in the long term {2020 and 
beyond). 
6. Towards a European purchase price 
Recently, in a situation characterized structurally by a small number of 
gas-importing companies and suppliers, and in market terms by the 
switch from a seller's to a buyer's market, similar terms, more in line 
with the new conditions on the market (collapse in oil prices>, have been 
obtained by importing companies from one and the same seller. The next 
stage in this process could be a European purchase price, a sure sign of 
the progress being made towards a genuine common market in gas. 
7. Further integration of the Europe~n gas grid 
Over the years the gas pipeline grids have gradually been interconnected 
as trade in natural gas has expanded. Already the Community imports a 
little over one-third of its gas from outside the Community. By the 
year 2000 this figure could reach 40X or more. New supply contracts 
concluded by the gas companies will increase the volume of gas crossing 
the Community's frontiers and are bound to encourage further integration 
of the grid. 
1 
2 -61 -
The1 latest communication from the Commission to the Council on natural 
gas stressed that "a fully integrated grid is a necessary condition for 
the development of a truly common market for natural gas" 
(paragraph 13(ii)) and that "the Community should encourage and, where 
possible, facilitate further integration" (paragraph 61). This applies 
in particular to the countries not yet linked to the European grid, i.e. 
the United Kingdom, Ireland, Spain, Portugal and Greece. 
The conclusions of the Energy Council meeting on 2 June 1987 stressed 
that "the Community and the Member States should encourage further 
integration of the gas grid, having regard at all times to the 
geographical situation of certain Member States." They also stated that 
"the gas industry should continue the process of integrating European gas 
grids" and that "cooperation between Member States' gas companies is 
particularly important." 
8. Natural Gas -Price transparency 
There are sound technical and economic reasons for the existence of 
monopolies or virtual monopolies in the natural gas transmission and 
distribution sector (to avoid a jumble of pipelines on the same territory 
and the resultant costs to the consumer). However, in situations like 
this it is essential to ensure compliance with the rules on co~petition 
so that a genuine common market in natural gas can be created. The 
Commission has various ways of ensuring this: 
The price-transparency principle is enshrined i2' the April 1983 Council 
Recommendation on natural gas prices and tariffs • Price transparency is 
essential for fair competition on the gas market. 
Transparency is particularly difficult to achieve in relation to 
off-tariff sales to industrial consuaers. 
Practices vary widely from one ~1ember State to another. Sales to 
industrial consumers are based on pre-set tariffs in France, Italy, the 
Netherlands and Belgium. But in the United Kingdom and Germany 
individual contracts are concluded. Even the countries with industrial 
tariffs grant $pecial rates to very large consumers or to groups of 
undertakings from the same industry. 
COM(86)518, 11.12.1986. 
OJ No L 123, 11.5.1983. 
-62 -
The Commission's efforts to improve the transparency of off-tariff sales, 
mainly in Germany and the United Kingdom, have yet to bear fruit, mainly 
because of the objections raised concerning the confidentiality of 
individual contracts. 
In this connection, it must be stressed that the Commission has no 
intention of publishing individual rates. It fully understands the need 
for a degree of business secrecy. Nevertheless, further progress could 
be made if every effort were put into seeking an appropriate solution to 
this problem. 
In practice, unclear pr1e1ng hampers consumers from exercising their 
right to ensure that their rivals enjoy no artificial price advantages. 
It is equally unacceptable from the Community point of ~iew 
or undertaking to take advantage of price and tariff 
guaranteed in another Member State to attack tariffs decided 
country as incompatible with Community legislation, 
transparency is lacking in the former country. 
9. Harnonization of taxation for any State 
transparency 
in the other 
while such 
Natural gas taxes vary sharply from one Community country to another. 
Annex VI gives details. These taxes should be harmonized, following the 
broad lines of the Commission's recent proposals on the convergence and 
approximation of VAT rates. Other specific taxes in certain countries, 
such as the tax on large industrial consumers in France <see Annex), Lead 
to discrimination between natural gas consumers in different Member 
States. 
10. Technical standards 
Common standards should be encouraged. There are a certain number of 
technical barriers in existence and currently the Commission and the 
European gas industry are working on a Directive on the safety and 
inspection of gas appliances. This Directive is to be based on the new 
approach to technical harmonization and standards laid down in the 
Council Resolution of 7 May 1985 (OJ No C 136, 4.6.1985). 
-63 -
11. Opening-up of public contracts 
In 1985 the Community's gas transmission and distribution undertakings 
invested nearly 5 billion ECU, mainly in high-pressure and low-pressure 
pipelines, storage facilities and gas terminals. Some of this equipment 
comes from high-tech sectors in which very few firms compete. Also, some 
large transmission undertakings have subsidiaries specializing in 
installation design and manufacture (as in France, Italy, Germany and the 
United Kingdom). The question whether new rules should be applied to the 
gas sector in relation to purchasing procedures is being considered as 
part of the overall policy that the Commission is currently preparing for 
the sectors excluded from the present directives. Concrete proposals will 
be made shortly. 
12. Constraints on the free ~ove~ent of natural gas 
3 At Co~ounity level there is the 1975 Council firective on the restriction 
of the use of natural gas in power stations • In 1988 the Commission 
will examine the need to reconsider the use of natural gas in power 
stations. 
The national legislation varies considerably, as described below. The 
biggest barriers to the free movement of gas in Europe are government 
controls on natural gas imports and exports and undertakings holding a 
monopoly or dominant position enabling them to block movements of natural 
gas. 
13. Exploration and production 
The possibility of exploring for and extracting natural gas is based on 
licences, concessions or authorisations granted by the State. 
Typically, there is a two-phase procedure involving a licence to explore 
for oil and gas and secondly a concession to exploit the gas found. The 
licences for exploration vary considerably from one Member State to 
another. The length of their validity varies considerably. In Italy, 
the national oil company has been given exclusive rights to search for 
gas on the Italian Continental Shelf and is the sole concessionaire in 
the Po Valley. The national oil company has first option on gas from the 
Italian offshore fields and according to certain operators, the purchase 
conditions of this gas are fixed case by case. 
OJ No L 178, 9.7.1975. 
-64 -
Licences for both exploration and exploitation are granted under a series 
of differing conditions. Some Member States seem to require that the 
licensee is a legal entity registered in the Member State (France and 
Spain) and others (Italy) forbid any change in the participation of the 
licensee without the permission of the State. A combination of these 
factors can give rise to the situation that there must always be local 
participation in the corporate structure of the licensee. 
14. Transport 
Transport of gas in the Member States is characterized by the existence 
of statutory or de facto monopolies in the market place. Only in 
West Germany are there a number of actors but even here there is one 
dominant transport enterprise. In the UK, a new legal instrument has 
been introduced in the form of the Common Carriers provisions of the 1986 
Gas Act, which require pipeline owners to carry for third parties under 
certain conditions but as yet no use has been made of these provisions. 
In the Federal Republic of Germany, there is no Legal mechanism outside 
of competition rules, for the dominant transporters to carry gas for 
third parties. Italy has, however, provisions which come close to this. 
In Trentino-Alto Adige and Sicily, Legislation provides that, where the 
transport concessionaire is not the lessee of the gas field itself, the 
lessee of the field has the right to make use of the pipeline within the 
limits of available capacity. The conditions for such carriage are to 
be laid down by the "Assessore" for Industry and Trade. 
The presence of dominant or monopoly transmission undertakings in each 
Member State gives rise to segmentation of the Community market; these 
undertakings can restrict the through transport of gas and even where no 
specific legislation exists, can block the import and export of gas. 
15. Storage 
The Member State's legislation on the storage of gas, where it exists, is 
principally concerned with questions of safety and environmental 
protection. The different Laws arc also a reflection of the differing 
underground storage possibilities in the different Member States. 
These laws can only be considered as a barrier to trade where the 
possibility of granting exclusive licences to the use of the substrata in 
question exists or where, as in Italy, the applicants for a licence to 
store gas underground must prove that they are in a position to carry 
out, directly or through an intermediary, a programme of gas transport 
and distribution for public purposes, taking advantage of the proposed 
st ornge. 
-65 -
In Belgium, Ulder certain conditions, the owner of a cancelled mining 
concession is given priority when it comes to awarding a licence to use 
the mine as a gas storage site. One reason for this appears to be the 
old mine owner's continued responsibility for the upkeep of the mine even 
when the concession to store gas in the mine has gone to another. This 
provision could theoretically be a barrier to the establishment of a gas 
network where storage was needed. 
16. Distribution and aarketing 
Characteristiciilly there is in the EC a clear distinction between the 
transport of natural gas and its distribution to end consumers. 
Distribution companies tend to be restricted to a local area and locally 
owned, usually by the local administrative body. Again, legislation in 
this area is mainly concerned with safety, the right to enter property, 
to dig up roads, the obligation to supply, etc. 
Geographical concessions to supply gas to final consumers are usually of 
a long period c. g. seventy-five years in Spa in. Of interest in Spain is 
Article 64 in the State Contracts Law which provides that these lengthy 
administrative concessions are not to be considered as monopolies. The 
exact meaning of this provision is not clear. 
National legislation concerning tariffs is usually targeted on the 
distribution companies as the legislation is designed to protect small 
consumers. 
17. !~ports and exports 
There is some form of effective control in all Member States on the 
import or export of natural gas. Even Luxembourg, which does not export 
natural gas, has effective control over the import by means of its 
controlling interest in SOTEG, the sole importer. This control is 
either specifically provided for in national legislation or is a 
condition of production licences or transport concessions. In the UK, 
exports are subject to the discretion of the Secretary of State. 
The legal basis for the import and export control by 
always clear. In the Netherlands, for example, 
exclusive right to import and purchase gas and thus has 
right to export. the State is not 
Gasunie has the 
de facto the sole 
-66 -
C. SUGGESTED PRIORITIES Ifl THE flATURAL GAS SECTOR 
Most of the measures listed below will have to be taken by the industry 
itself, mostly following a common policy agreed at Community Level. In a 
few cases, however, the Commission will have to propose legislation to 
bring about greater integration on the gas market. 
18. Prices and taxation 
The points on which progress is most urgently needed are: 
<a> Greater price transparency for off-tariff sales in the countries 
where there is not yet enough transparency Ci.e. United Kingdom and 
Germany>. 
(b) Harmonization of taxation. 
19. Gas pipeline network 
Interconnection of the European gas pipeline network must continue as the 
market expands (see the abovementioned conclusions of the Energy Council 
on 2 JU'le 1987). 
20. Decoapartc~ntalization of the natural gas aarkets: Coamon carriage 
(a) The exclusive transmission concessions must be checked to see how to 
facilitate the free movement of natural gas whilst maintaining a 
high level of security of supply and economic transmission 
conditions. Transmission or distribution undertakings could be 
allowed direct access to the resources in question. 
(b) The prospect of extending direct access to resources to large 
industrial consumers should be considered in the Light of the 
results obtained in connection with point (c). 
The above two points both hold out the possibiLity of glVmg third 
parties access to the grid as against payment of a reasonable charge <the 
"common carrier" system). 
-67 -
ELECTRICITY 
Contents 
A. ELECTRICITY IN THE CO~UNITY ENERGY MARKET 
1) Contribution made by electricity 
2> Situation of the industry 
3) Network interconnection: extent and limits 
4) Future demand 
B. POTENTIAL OBSTACLES WITHIN THE ELECTRICITY SECTOR 
5) National legal framework 
6) Public electricity generation 
7> Fiscal treatment and access to the financial market ANNEX IV 
8) Consent procedures for the construction of new power stations 
9) Producers' access to primary fuels 
10> Safety standards and environmental protection 
11) The interconnection network 
12> Compartmentalization 
13) Common carriage 
14> Supplies to distribution utilities 
15) Supplies to large consumers 
16> Electricity distribution to consumers 
17> Taxation of electricity 
18) Improvement of price and cost transparency 
a) electricity prices 
b) transfer prices 
c) fuel prices 
d) production costs in individual power stations 
C. SUGGESTED PRIORITIES IN THE ELECTRICITY SECTOR 
19) Fiscal treatment and access to the financial market 
20) Standards and administrative constraints 
21) Monopolies and exclusive rights 
22) Electricity prices and costs 
23) Infrastructures 
-68 -
ELECTRICITY 
A. ELECTRICITY IN THE COMMUNITY ENERGY r.ARKET 
1. Contribution aade by electricity 
Electricity represents a vital and integral part of the energy balance of 
the Community. Not only docs electricity use make a major contribution to 
industrial productivity and the quality of life but electricity also 
provides the principal vector for the contribution to energy use of 
primary energies such as nuclear, solid fuels, hydro and other renewable 
energies and enables dependance on oil to be reduced. Over 33X of total 
primary energy use in the Community was devoted to the production of 
electricity in 1986, as Table 5 (Annex VI> indicates, the actual 
proportions varying in the Member States up to almost 47X in France. The 
table also indicates that electricity's share of Community final energy 
consumption was 16.4X and that the average annual electricity 
consumption/inhabitant in the Community was 4287 KWh, varying 
significantly between Member States C36X above the average in Germany, 61X 
below the average in Portugal). 
2. Situation of the industry 
In considering the Internal market in electrical energy and how to achieve 
acceptable levels of economy, security of supply and freedom from 
unacceptable restrictions of competition, the special characteristics of 
the sector must be borne in mind. Not least of these are the technical 
requirements which arise from the necessity, for economic and statutory 
reasons, to ensure acceptable levels of reliability and security of 
supply. Furthermore, electricity cannot be stockpiled, unlike other 
energies, and there is thus a requirement to match supply and demand at 
all times. The ownership patterns and operational structures of the 
distribution, production and transmission elements of the electricity 
sector differ between Member States, having varying degrees of horizontal 
and vertical integration and reflecting the historical development of the 
sector. 
3. Network interconnection: extent and li•its 
The nature of electricity production, in suitable and separated locations, 
requires that electricity be transmitted to the point of use within areas, 
regions and Member States and also across frontiers. This imposes 
technical requirements for the operational management of such 
transmissions to reduce the inevitable power losses to a praetical 
m1n1mum, in the interests of economy and energy efficiency. Electrical 
interconnection across national frontiers has developed over many years as 
a logical extension of local, regional and intra-national 
interconnections, driven by the economic and technical advantages of more 
economical use of production facilities and increased reliability of 
supply. In the EEC this has resulted in one of the most closely 
-69-
integrated high-voltage international networks in the world, although 
Ireland and Greece, are still not directly interconnected with any other 
neaber States. Table 6 (Annex VI) gives, for 1986, both the balanced 
interchanges with other countries (including non-EEC) and the net exports 
or imports of electrical energy for each Member State together with, as an 
indication of the orders of magnitude, the relationship between the net 
exports or imports and the total electricity consumption in each country. 
International exchanges are managed, without executive powers, ~Y 
co-ope~ative or~nizations of4 electricity utilities. These are UCPTE , 
UFPTES, SUDEL and NORDEL • The utilities themselves enter into 
commercial arrangements for the exchange and net transfer of electrical 
energy. Commercially, transfer arrangements are of three types: 
hour-by-hour exchanges on a cost basis 
contracts (usually short-term) for net transfers 
permanent arrangements for the transfer of energy from 
jointly-owned production plant in a neighbouring country. 
Furthermore, it should be noted that all the elements of the international 
interconnection system are owned by monopolies, and transfer arrangements 
are co-operative and not mandatory. These interconnections do not, by any 
definition, constitute a co~~on carrier systea. 
4. Future deaand 
Current indications for the future are of continuing, steady increases in 
overall electricity demand, some 2X/annum, up to the year 2000 and an 
increasing share of electricity in final energy demand. There are, 
however, uncertainties concerning the future development of the prices of 
primary energies for electricity production which will clearly affect not 
only the relative electricity production costs in the Member States but 
also the economics and dynamics of electricity exchanges between regions 
and Member States with differing electricity production costs. 
1 UCPTE 
2 UFPTES 
3 SUDEL Austria, Belgium, France, Germany, Italy, Luxembourg, Netherlands, 
Switzerland, Greece, Portugal, Spain, Yugoslavia. 
France, Iberian Union. 
Austria, Italy, Yugoslavia. 
4 NORDEL -Denmark, Norway (+Finland and Iceland). 
-70 -
B. POTENTIAL OBSTACLES \IITJIHl TJIE ELECTRICITY SECTOR 
5. National legal framework 
The Commission is currently carrying out a study of the statutory and 
administrative framework within which the electricity utilities in the 
Community operate. The results of this study are not yet available and 
hence detailed references to these in this text are limited. 
Furthermore the text is oriented towards highlighting the principle 
issues, to assist in the debate of these issues, and to suggesting 
priority areas of consideration. The comments which have been made to the 
Commission by interested parties, in response to the Commission's request 
for views on the development of the internal energy market, have been 
taken into consideration •. This section deals with di~tinct aspects of the 
electricity sector. 
6. Electricity generation by public enterprise~ 
The concept of an open internal market in electricity production implies 
the production of electricity on an economically competitive basis, 
subject only to the protection of the environment and the requirements of 
the Community energy policy. The public electricity producers have noted 
that there exist inequalities of treatment of electricity producers within 
the Community, amongst which are: 
7. differences of fiscal and financial treatment of producer utilities. 
Leaving aside differences of ownership structure, which are not relevant 
to this discussion, differences of fiscal treatment of producer companies 
<whether publicly or privately owned) and differing criteria of access to 
capital markets and State aids, eventually benefitting electricity 
utilities, result in distortions of overall production costs. <This 
aspect applies also to distribution and transport companies). 
Furthermore, the financial situation of utilities is influenced by the 
treatment of asset evaluation and depreciation policy and conditions of 
access to capital markets, for which the rules vary between Member States. 
All these factors are determinants of the revenue required by utilities 
and thus influence the pre-tax prices of electricity and hence 
competition. The extent to which har•onization of these factors would be 
conducive to ~ nore open narket is an issue for further consideration. 
-71 -
8. differences in the consent procedures for the authorization of new 
construction, particularly site authorization, which result in differences 
between utilities in their ability to properly manage their investment 
programmes, with the possible over-or under-supply of production 
facilities and the consequential effect on overall production costs. Such 
consent procedures, varying as they do from Member State to Member State, 
are arguably not always best suited to the subject of power station 
construction. It can also be argued that, apart from land-use, energy 
policy and environmental questions, authorization should always be granted 
provided that a real market for electricity production can be 
demonstrated. This is also an issue for further study; 
9. the cost of electricity production depends on the cost of fuels, 
particularly in conventional power plants. The opening of the internal 
market in other energies would imply equivalence of access conditions to 
fuels for electricity production by production utilities in all Member 
States. Apart from Community policy considerations, there exist statutory 
or de facto restrictions on the fuels <imported coal, natural gas) to 
which the electricity producers may have access as well as certain 
requirements to use quantities of high-cost indigenous coal <i.e. in 
Germany and the United Kingdom). Such restrictions are at the root of 
many of the differences in pre-tax electricity prices which exist 
throughout the Community and result, in general, from national rather than 
Community energy policies. Within the concept of an open market in energy 
it is ~ssential to find an acceptable solution to this issue within the 
Co~~unity energy policy; 
10. differences which exist between Member States concerning standards of 
environmental protection and other security measures affect, 
differentially, the costs of electricity production. Such requirements 
affect capital, operational and maintenance costs, may affect the output 
capacities available and arise in general from differing national 
policies. An open internal ~arket would ieply so~e degree of hareonization 
of such require~ents. 
-72 -
11. The electricity interconnection network 
Internal high-voltage system interconnection within national boundaries is 
highly developed in most Member States. Ownership patterns vary, with 
single ownership of the entire high-voltage networks in F, IT, IRE, PT and 
EL and multiple ownership of regional sections of the networks in the 
other Member States. Whatever the ownership, the operation of the 
networks is generally managed on a national basis except in Germany, where 
the structure is more decentralized. It is known that some systems (e.g. 
U.K., D, IT) have a certain degree of common carrier obligations but all 
systems are effectively concessionary monopolies. 
12. Coapartaentalization 
The national and international interconnection systems operate at present 
principally as links between producer/distributor systems (largely within 
national frontiers> rather than as systems linking all distributors with 
Lowest cost-generation sources on an international basis. These is no 
obligation to use international interconnections, although it is true that 
such interconnections are used to achieve better economy and security of 
the national systems and have significant influence on the requirements to 
maintain peaking and reserve levels of production capacities. It is, 
therefore, an issue for consideration as to whether a change in the 
operational Cns distinct froa the ownership) systea would be conducive to 
further opening of the internal aarket. This would imply some separations 
between the operational aspects of production and interconnection such 
that the interconnection system would, irrespective of Member State, seek 
to provide the most economic (based on comparative advantages) and secure 
supplies to the distribution utilities on a more Community-oriented basis; 
13. Comaon carrier 
Arguments in favour of the use of all the interconnection systems on a 
"common carrier" basis <although this is not well defined) have been put 
forward, particularly by large electricity consumers and large 
auto-producers. The benefits of such an approach are said to include the 
ability of consumers (or distribution utilities) to obtain supplies from 
any suitable low-cost production source. It must be noted that the 
arguments put forward by the electricity producers concerning the 
technical problems of management and security of supply are very powerful 
and are borne out by experiences in other countries. The definition of 
the obligations and application of the concept of a "common carrier" is 
not simple. Nevertheless, this is an issue for consideration. 
-73 -
14. Supplies available to distribution utilities 
In any event, to be consistent with the principle of an open market, 
distributors should charge prices which, inter alia, accurately reflect 
the cost of the aost econoaic electricity supplies avai table to them, 
consistent with supply security. Supplies may be avai table to 
distribution utilities from the high-voltage transmission system and from 
production units delivering directly to the distribution network, the 
latter including private industrial auto-producers and private producers 
using renewable energy sources <wind, small hydro, etc.). Concerning 
industrial auto-producers and other private producers producing 
electricity from sources desirable in energy policy terms <combined heat 
and power, renewable energies and waste), it is clearly desirable that the 
delivery of electricity froa such producers to the public network should 
not be unjustifiably hindered. To this end, the Commission is preparing a 
draft Framework Recommendation concerning cooperation between public and 
private producers, which will shortly be submitted to the Council for 
approval. Supplies from many such producers are delivered directly into 
the distributor utilities• networks whilst other such supplies are 
delivered into the high-voltage transmission system; this aspect is 
discussed above <see Para 12). 
15. Electricity supplies to large consuaers 
Large electricity consumers are particularly sensitive to industrial 
competition and the effect of differences in electricity prices throughout 
the Community. Such consumers have made known their view that they should 
be able to obtain electricity supplies from any production source, not 
only their (monopoly) distributing utility, if a more economic source can 
be found. This implies that such supplies should be transported via the 
distribution and transmission networks on the basis of a supplier/consumer 
contract. The public supply utilities argue against such arrangements, 
pointing to the technical problems which may arise in ensuring continuing 
security and ret i ability of the distribution and transmission networks. 
It can also be argued that the "creaming-off" of the most economic 
-74 -
production sources by consumers having the most purchasing po\.ler would 
result in the inequable treatment of less powerful consumers <including 
domestic), whose electricity prices would be more influenced by the 
production costs of the less economic production sources. 
The technical argument of network reliability is a powerful one and the 
question merits further study. This is, nevertheless, ~ significant issue 
which cust be considered in the context of the monopoly situations of the 
distribution utilities. 
16. Electricity distribution to consuoers 
In every ~1ember State, the distribution of electricity to consumers 
(usua tty at low or medium voltage) is a statutory monopoly or a de facto 
monopoly (e.g. by contract to municipalities in Germany) of a distribution 
utility. This situation has existed for many years and can be said to 
have certain advantages. It would be absurd to suggest multiple 
connections from different distributors to a consumer's premises. 
Furthermore, distributors have, in most cases, a statutory obligation to 
maintain acceptable levels of security of supply and supply conditions <of 
voltage, frequency, etc.); although there are significant variations in 
the nature of such supply conditions uithin the Community, and this 
reinforces the need for the level of technical and operational control of 
the distribution systems by the distribution utilities currently executed 
within the monopoly systems. There is, however, an argument for a degree 
of harvonization of the behavioural patterns of distributors towards 
consuoers, in terms of the technical conditions of supply and pricing and 
tariff structure practices. The latter is already the subject of an 
existing Council Recommendation (81/924/EEC) but the issue of a core 
regulatory approach eight ucll be considered, for example by limiting the 
duration of exclusive contracts. 
17. Taxation of electricity 
Electricity prices to consumers vary widely between Member States. 
Pre-tax prices depend on a number of factors which are discussed above 
(Paras. 6-11) but there arc also significant variations of post-tax prices 
introduced by differences in the rate of Value-Added Tax and other 
specific taxes in different Member States. Indications of these 
variations are given in Annex. In cases \.there VAT is deductible, the 
approach to deductibility varies between Member States. The magnitude of 
these variations is sufficient to induce distortions of cODpetition, 
unrelated to the economics of electricity production or transport. The 
Commission's attention has been drawn to these factors by Member States, 
electricity producers and consumers and they clearly represent an issue of 
concern, even though they may not affect electricity transfers between 
systems or Member States. 
-75 -
18. Improvecent of cost or price transparency 
It is difficult to argue in favour of an open market in electricity on the 
grounds of increased competitiveness and economy whilst discounting the 
importance of transparency. Transparency is a significant issue and 
includes the following elements: 
a) electricity prices: with one exception, electricity prices have 
b) already a high degree of transparency. The exception is prices to 
certain large electricity consumers, which these consumers argue 
should be non-transparent for commercial reasons. However, 
electricity consumption by large consumers, although they are small in 
number, can represent a significant proportion of total consumption; 
electricity 
transferred 
Such prices 
from these 
relationship 
or potential transfer prices: prices at which electricity is 
between systems (or across frontiers) are not transparent. 
cannot be directly related to prices to consumers supplied 
systems. It is thus not possible to assess the 
between these prices and production costs nor the actual 
impact of electricity transfers on consumer prices; 
c) fuel prices for ~lectricity production: the prices paid by producers 
for fuels are not transparent, thus inhibiting comparison of such 
prices within the Community and assessment of the reasons for 
differences; 
d) production costs: production costs from individual production units 
are not transparent, although this would appear to be an element in 
the appreciation of electricity transfer possibilities. 
It would seem appropriate to consider 
transparency on an overall energy basis, 
contribution to a more open energy market. the issue of price and cost 
in the light of its potential 
C. SUGGESTED PRIORITIES IN THE ELECTRICITY SECTOR 
From the above it is clear that, in the electricity sector, a number of 
issues arise in the context of a more open internal market in electricity. 
Whilst further study may be required to assess the relative impact of 
these issues in this context, the potential problem areas which impact on 
the economic and competitive aspects of electricity and are suggested for 
priority consideration are summarized below. 
-76 -
19. Fiscal treatcent and access to the financial carket 
Differential fiscal impositions on electricity prices and the 
modalities of such impositions. 
Differing financial treatment of and requirements for electricity 
utilities. 
20. Standards and ad~inistrative constraint~ 
Lack of harmonization of technical requirements for electricity supply 
to consumers. 
Differing standards for environmental protection and security 
requirements for electricity production plant. 
Differing requirements for the authorization of the construction of 
power plants. 
21. Monopolies and exclusive rights 
Monopolies of electricity distribution to consumers. 
Exclusive rights of the use of distribution and interconnecting 
transmission systems, particularly insofar as this affects consumers' 
ability to obtain supplies from sources other than their allotted 
distributor. 
Exclusive rights of operation of high-voltage interconnection systems, 
particularly insofar as this affects the use of the lowest-cost 
production sources and the supply of electricity to distributors under 
the most economic conditions. 
Lack of liberal access to fuel supplies by electricity producers. 
22. Prices and costs of electricity 
Lack of harmonization of pricing and tariff structure practices. 
Lack of transparency of electricity prices to large consumers, 
electricity production costs, prices for electricity transfer between 
systems and fuel prices for electricity production. 
General consideration of the role of transparency in an open internal 
rr.arket. 
-77 -
23. Infrastructure 
Lack of high-tension electricity interconnection of Ireland and Greece 
with other Member States. 
The existing limitation of the operational aspects of the high-voltage 
interconnection system <see also Para 17 above> insofar as they affect 
aspects of the common carrier concept and the economics of electricity 
supply to consumers. 
Operational aspects of the high-voltage system affecting the producers' 
requirements for peaking and reserve capacities. 
-78 -
ANNfX V 
NUCLEAR ENERGY 
Contents 
A. NUCLEAR ENERGY IN THE COM~UNITY ENERGY MARKET 
1. Contribution made by nuclear energy 
2. Development and sec~rity 
3. Competitiveness and costs 
B. POTENTIAL OBSTACLES UITHIN THE NUCLEAR ENERGY SECTOR 
4. Community legal framework 
5. Enrichment and reprocessing 
6. Prospecting and extraction of uranium 
C. SUGGESTED PRIORITIES IN THE NUCLEAR ENERGY SECTOR 
7. The market for equipment and components 
-79 -
UUCLEAR ENERGY 
A. UUCLEAR ENERGY Ifl THE COMMUNITY Et~ERGY MRKET 
1. The different sensitivities which exist between Member States with regard 
to nuclear questions have had an effect on the development of different 
national regulations in this area, creating therefore, certain barriers to 
the internal market. 
The following text refers only to technical obstacles constituting a 
barrier to the internal market in nuclear materials. 
2. Co~tribution cade by nuclear energy 
In 1987, nuclear energy accounted for 14~ of total energy production <2X 
in 1970) and 35X of electricity production. However, the situation varies 
considerably from country to country: in France and Belgium almost 70~ of 
electricity is nuclear-generated whereas in Denmark, Greece, Ireland, 
Luxembourg and Portugal nuclear energy is not used at all. The Member 
States which use <or envisaged having recourse) to this energy form have 
(or did have) important research and development programmes. The Community 
is in the same position. 
In 1995 some 40X of all electricity produced in the Community will be 
nuclear in origin. 
3. Developcent and security 
The Community's energy objectives for 1995 recognize the importance of 
nuclear power in supplying the Community with energy and they stress the 
need to ensure that all aspects of the planning, construction and 
operation of nuclear plants satisfy optimum security conditions. 
4. Co~petitiveness and costs 
Electricity costing studies in respect of base-load plants due to enter 
service in 1995 show that electricity can be generated more cheaply from 
nuclear fuel than from coal and even more cheaply than from other fossil 
fuels: electricity generated from coal is estimated to be between 18r. and 
70~ more expensive than nuclear-generated electricity, the figures varying 
from country to country. 
Nuclear power requires a more complex series of fuel-processing operations 
than is the case with other energy sources and it depends on 
sophisticated power stations. These characteristics are reflected ,in the 
structure of electricity costs. Only 10~ of those costs are accounted for 
by expenditure on the raw fuel (uranium): 18~ are accounted for by the 
various fuel-processing operations. The largest proportion (57~) relates 
to the capital costs of nuclear power stations. The balance <15~) 
represents the running costs of those power stations. 
1 -80 -
B. POTEUTIAL OGSTACLES WITIIIN THE UUCLEAR ENERGY SECTOR 
5. ComQunity legal framework 
The legal basis for the single market in nuclear fuels is Chapter VI of 
the EURATOM Treaty, ~hich enshrines the principle of, and lays down the 
procedures for, the regular and equitable supply of ores and nuclear fuels 
to all Community users. 
In 1984, the Member States defined and published a joint position1 stating 
the conditions under which nuclear materials must be transferred between 
Member States in order to comply with the non-proliferation policy of each 
of those States. Thanks to the implementation of that declaration, 
nuclear materials move freely within the Community provided that a set of 
non-discriminatory precautions, known in advance, are adhered to. 
The declaration, which is essential to the continued unity of the market, 
has not yet been enshrined in Community La~. 
In practical terms, however, trade is becoming compartmentalized and 
inflexible although this is, generally speaking, not the result of 
obstacles to the internal market. 
6. Enrich~ent and reprocessing 
At the most important stages of the fuel cycle, such as enrich111ent or 
reprocessing, where massive non-adaptable investment is required, 
producers have sought long-term contractual commitments and even financial 
contributions from their trading partners in a number of ~lember States. 
Consequently, market shares are now frozen and short-term competition is 
limited although the market is unquestionably operating successfully. 
Market developments can take place only in the long term, once the current 
contracts have expired or when new plans are made leading to new 
arrangements for industrial cooperation. It will then be up to the 
Comml.l'lity to promote potential economies of scale and to ensure, as 
hitherto, that there is no discrimination between operators. 
Declaration on politicial cooperation, 20 November 1984. 
-81 -
7. Prospecting and extraction of uranium 
On thr. othor httncf, tHl rnuardn urDnfu1:1 pro~:pe>ctlnu and rxtractfon, It It-lo 
be feared that the situation in certain lOuntrics presents u potential 
obstucle to the completion of the internal market. The incomplete 
information currently available shows that certain countries impose 
restrictions on the activities of foreign companies or explicit conditions 
relating to the nationality of company managers. In other countries, 
discrimination may arise from particular conditions attaching to the 
granting of authorizations. 
C. SUGGESTED PRIORITIES HI TilE PIUCLEAR Et~ERGY SECTOR 
B. narkct for equipcent and coaponents 
One of the objectives for the internal energy market is to cut costs and 
increase economic competitiveness. In the case of nuclear electricity, 
its costs are dominated by the investment cost of power stations and their 
finance. This is why particular importance attaches to cost transparency 
and the market for equipcent and components. This subject may appear to be 
only marginally relevant to this document but it is of such fundamental 
importance that it cannot be omitted and deserves to be treated at greater 
length, perhaps elsewhere. 
An examination of the current situation shows that the notional carkets 
are, for the most part, ualled off. This is an established fact in 
France, Germany, Italy and the United Kingdom, but the Belgian and Spanish 
markets also show signs of inflexibility. Even subcontracting accounts 
for a very small proportion (3 to 4r.) of the Community market and has been 
in decline for the last 10 years. Faced with shrinking Community and 
world markets for equipment, national industries have consolidated their 
self-sufficiency. 
At the present time, however, there is a very considerable production 
overcapacity, making it even more desirable that the industry should be 
technically rationalized and its structures simplified, as was stressed in 
the illustrative nuclear programme under Article 40 of the EURATOM Treaty 
(COM(85)401, paragraph 76). The heavy electrical engineering industry 
seems likely to undergo this type of restructuring. 
One of the problems to be overcome in harmonizing the various industries 
is to ensure that the different national systems of construction end 
safety standards are mutually compatible. 
-82 -
This is one of the aspects ~hich must be taken into account when updating 
some features of the 1985 programme: the Commission is undertaking this 
task in 1988, in preparation for the single market. 
Another important aspect will be the scope and impact of extending to the 
energy sector the Directives concerning the procedures for awarding public 
wo~ks and supply contracts, as is shortly to be proposed by the 
Commission. 
-83 -
ANNEX VI 
Contents= 
1. Consumer prices for petroleum products (net of duties and taxes) at 
14 September 1987 
2. International gas pipelines in Western Europe 
3. Taxation of natural gas 
4. Taxation of electricity (1986) 
5. Electricity in the Community energy market 
6. Cross-frontier transfers of electricity <including non-EEC) 1986 
Price net of tax 
EEC average 
in ECU (*) 
CX) 
BELGIUM 
DENMARK 
GERMANY 
GREECE 
SPAIN 
FRANCE 
IRELAND 
ITALY 
LUXEMBOURG 
NETHERLANDS 
PORTUGAL 
UNITED KINGDOM -84 -
1 -Consumer prices for petroleum products 
(net of duties and taxes) 
Situation at 14 September 1987 
Premium Regular Automative Heating 
petrol petrol gas oil gas oil 
1 000 L 1 000 L 1 ODD L 1 000 L 
187 164 188 156 
102 110 104 96 
115 132 114 115 
92 90 94 93 
87 89 69 83 
104 110 102 104 
95 114 101 114 
128 140 133 119 
102 99 102 97 
114 124 101 113 
106 98 100 
109 113 97 
106 114 1 OS 116 
Source: Commission Oil Prices Bulletin No 403 Residual fuel 
oil, high 
sulphur 
tonne 
107 
94 
108 
92 
87 
96 
93 
142 
94 
101 
104 
133 
112 
('~) The average is obtained by weighting the quantities consumed in each 
country in 1985. 
-85 -
2-International gas pipelines in Western Europe 
I. Existing p1p!l1nes 
Country of Name of international Transit country Member State 
origin of gas pipeline of destination 
Netherlands Distrigaz network Belgium Belgium + 
(Slochteren> North-South <Poppe l- France 
Blaregnies) 
Netherlands TENP Germany/ Germany + 
Switzerland Switzerland + 
Italy 
Norway Gasunie network Netherlands Netherlands + 
Belgium 
Norway Gasunie network Netherlands Netherlands + 
+ SOGEO (Belgium) + Belgium Belgium + 
France 
USSR ME GAL Germany Germany + 
France 
USSR TAG Czechoslovakia/ Italy 
Austria 
USSR WAG Czechoslovakia/ Germany + 
Austria France 
Pipelines managed by joint subsidiaries of gas companies 
TENP 
TAG 
~1EGAL 
WAG 
SEGEO 
II. Planned pipelines 
Country of origin of gas 
Norway 
(Sleipner + Troll via 
the Zeepipe) SNAM/Ruhrgas 
SNAM/~MV (Austria) 
Ruhrgas/GDF/t)MV 
Ruhrgas/GDF/l>MV 
GDF/Distrigaz 
Transit country 
Belgium Member States of 
destination 
Belgium + France 
(+ possibly other 
customers, e.g. Spain) 
-86 -
3 -Taxation of natural gas 
I. Valu~ added tax CVAT) on sal~s of gas (as p~rcentage of price net of VAT) 
1987 
Germany 
France 
Italy (domestic) 
Italy (non-domestic) 
Netherlands 
Belgium 
luxembourg 
United Kingdom 
Ireland 
Denmark 
Spain 
Portugal 
Greece 14 
18.6 
9 
9 -181 
20 62 
17 
6 
0 
10 
22 
12 
8 
? 
VAT is deductible in the case of industrial and commercial consumers who 
are subject to the general tax arrangements. 
II. Specific taxes 
1 
2 (a) France 
On 1 January 1986, a domestic tax was introduced on the consumption 
of natural gas used as a fuel where deliveries to the users exceed 
5 million kilowatt hours. In 1988 the tax is 0.56c/kWh. 
(b) Italy 
A consumption tax of Lit 301m3 is levied on sales of natural gas for 
domestic uses: domestic users in the Mezzogiorno are exempt from 
this tax. It is included in the basis of assessment of VAT. 
-87 -
(c) Netherlands 
3 An environmental tax is currently levied et e rate of 0.05 ct/m end 
is included in the basis of assessment of VAT. The tax applies to 
all consumers. 
(d) Spain 
A municipal tax is chargee: at the rate of 1.S:C of the price net of tax 
and is included in the basis of assessment of VAT. 
-88 -
4 -Taxation of electricity (1986) 
1. Value added tax (VAT) 
VAT is calculated and applied to the price excluding VAT but including 
any specific taxes, except in Francr where VAT is calculated on the price 
including specific taxes. The rates are as follows Cat 1.1.1987): 
Belgium- 17~; France- 18.6%; Italy (domestic)- 9r.; Italy (non-domestic) 
9X-18X; Holland- 20X; Luxembourg- 67.; UK-07.; Ireland- OX; 
Denmark- 22%; Spain-12%; Portugal- 8%; Greece- 18%; Germany- 14%. 
2. Specific taxes 
Gercany - A compensatory tax is levied to promote the use of Community 
coal in power stations <since 1975). The rate varies throughout the 
country, the Federal average is 3.3% and is likely to increase. 
France- Municipal and Departmental taxes are levied which aggregate, 
depending on the area, to between 4% and 13.2%. 
Italy - A state tax is levied which, depending on the region, varies 
between 0.55 and 1.1 LIT/KWh for domestic consumption and, depending on 
the region and the level of consumption, between 0.325 ~nd 1.1 LIT/KWh 
for non-domestic consumption. Certain types of consumption are exempt 
from this tax. In addition, a Municipal tax is applicable to domestic 
consumption <block of 75 KWh/month) at 13 LIT KUh and Municipal and 
Provincial taxes applicable to non-domestic consumption (1000 KWh/month) 
at 5.5 LIT/Kllh. 
Den~ark - A Government tax, deductible in the same way as VAT, applies at 
the rate of 19 ore/Kllh. 
Greece- A ~tamp duty, applicable to domestic consumers only, is levied 
at the rate of 1.2%. 
Portugal: An inspection tax is levied at the rates of 7.5 esc/aonth for 
domestic consumption and 37.5 esc/month for industrial consumers. 
5 --'·Elettricity -in the-·ComrtUnity energy market 
1 9 8 6 
C 1) Member S t a t e D F IT NL } B L lK. IRL IK E. ES p EUR 12 
-------------------~----------------------------------------------------------------------------------
(2) Eleotricity d~nd (~h) 383,7 316,8 199,9 66,9 53,9 3,8 282,8 11,3 28,8 27,3 119,7 21,2 1516,3 
(J)% Share of electricity 
in final energy 16,8 18,5 16,2 8,9 14,3 11,1 16.,3 13,6 16,6 18,2 . 20,5 21,9 
consumption 
(4) Consumption• inhabitant 5851 5318 3194 4414 5162 102971 4240 2912 5254 iS01 2790 1862 
(1@1/ annu:n) 
(5) %of total pr~ry 
energy devoted to 45,0 46,7 24,0 22,0 31,6 5,1 35,9 28,3 38,1 37,6 34,1 23,5 
electricity production 
6 -Cross-frontier tnnsfera of electricity (including non-EEC) 1986 
Balanced interchanges consist of·equal quantities exported and ilnported at differing tlines. The one-~y quantities 
of these exchanges ·are given in (2) belcrw). The additional net linport or export quantities are given in (3) below. 
( 1) Y.:mb e r State D F IT NL B L lK. IRL IK E. ES p 1c.i,4 
4287 
33,1 
EUR 12 
------------------------------------------------------------------------------------------------------(2) Balanced exchanges 
(1\\h)2 1~,5 7,6 1,8 0 5,3 0,4 -- 0,7 0,3 2,9 1,0 61,6 
(J) Net ilnport (+)/ 
~port (-) (~h) +4,6 -25,5 +22,1 +2,3 -0,2 +3,5 +4.2 -+1,4 +1,2 +1,2 +1,9 +14,2 
(4) (3) as '!<.age of total 
electricity consumption 1,1 7,6 10,3 3,3 0,3 78,0 1,4 ·- 4,5 4,0 0,9 8,6 0,8 
(1) Luxembourg is exceptional in that 63% of electricity consu:r;>tion is in the i~dustry sector, ccmpared with 45% for EUR 12 .. 
(2) 1\l.h -KY.J-! x 109