ARCHIVESHISTORIQUES
DELACOMMISSION
COLLECTION RELIEEDES
DOCUMENTS "COM"
COM(77)188
Vol.1977/0076

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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(77)188final.
Brussels.27May1977*
PROTECTION ANDPROMOTION OPENERGY-RELATED INVESTMENTS
-GUARANTEED MINIMUMPRICEFORENERGYPRODUCEDINTHE
COMMUNITY
(WorkingpaperbyCommissiondepartments)
COM(77)188final.

WORKINGPAPERBYTHESER1/TGESOPTHECOMMISSION
ι
PROTECTION ATiDPROMOTION OFMERGY-RELATED INVESTMENTS
Guaranteed MininrumPriceforEnergy -
producedintheCommunity
Introduction
OverthenexttenyearsdevelopmentoftheCommunity'senergyresourceswilldemand
theinvestment ofmorethan200000millionu.a.
Ifindustryistobeabletofinanceinvestment onthisscalethefirstessentialis
forthisinvestmenttobeassuredofaneconomicreturnthroughpriceswhichwill
coverthelong–termdevelopmentcostsofthenewenergyresourcesconcerned.
TofacilitatethefinancinginvolvedtheCommissionconsidersthatitwouldbe
necessaryontheonehandtograntloansorloanguaranteestofirmswhichcouldnot
raisethenecessarycapitalonthemarketsolelyonthebasisoftheirassetsand,on
theother,toprovideamechanismfortheprotectionoftheinvestments concerned
againstuncertainties affectingtheworldoilprice.Protectionmighttaketheform
oflong-termpurchasecontractsbetweenproducersandconsumersorofaprice
guaranteeforenergyproducedintheCommunity.
TheCommissionispresentingseparatelyacommunication totheCouncilregarding
thegrantofloans,orloanguarantees,totheenergysectorandothersrelatingto
theconclusionoflong-termcontracts.Thepurposeofthispaperistoanalysethe
variouspossiblemethodsforprovidingaguaranteed minimumpriceforenergy
producedintheCommunity.
Theobjectives offqiaranteed minimumpricearrangements forener/r/producedinthe
Community^
Communityproducerswouldhaveanassurancethat,intheeventofafallinoilprices
ontheworldmarket,theiroutputwouldcontinuetosellinallMemberStatesata
pricenotlessthanguaranteed minimumlevel,whichwouldthusactassomethingofa
"safetynet"forCommunityinvestors.Thisisoneoftheproposalswhichthe
CommissionputtotheCouncilinJanuary1976(Doc.COM(76)20).(Seealsofootnote 1
below).
(1)MemberStatesoftheInternational EnergyAgencyhaveundertakenthatimport' 1crudeoilwillnotbesoldontheirmarketsbelowasetprice(MSP).This
providesanindirectguaranteefordomesticenergyproductionbutnotforthat
tradedbetweenMemberStates.Anexceptionismade,howevor,foroilsold
betweenMemberStatesofacustomsunion,.ifprotectionisprovidedbymeannof
commercialpolicymeasures.

Aguaranteeofthiskindwouldhavethefollowingadvantages i
-itwouldpreventafallinworld-market pricesfromcausingthedecline
ofhigh–costenergysourcesandslowingthedevelopment ofnewenergy
sourcesneededtoprovidesuppliesinthelongterm;
–itwouldavoidanopen-ended "burdenonnational "budgetstosupport
energyproductionwhichhad"becomeuncompetitive .
Possibleprocedures
Forestablishing aguaranteed minimum ■pricemechanismintheCommunity,
thereisachoice "betweentwokindsofmeasure:
–commercialpolicymeasuresvis-a-vismembercountries,aimedatprotecting
Communityproduction ;
-anobligationtobuycrudeoilproducedintheCommunityatapricenot
lessthantheguaranteed minimumlevel.
ConsumptiontaxeswouldaffectbothCommunityproductionandimportedproducts
andcouldhavenoeffectuponthepromotionofCommunityinvestments.For
thisreasonsuchameasurewouldnotservethedesiredobjectiveunlessit
wereaccompanied bysubsidiesinfavourofCommunityproducts.

-3-
a)Commercialpolicymeasures
Theguaranteewould "benefitallenergyproducedintheCommunity.Protectioncould
taketheformofacustomsduty,importleviesorimportquotas.
Animportlevycanbeappliedmoreflexibilythanacustomsdutysinceitenables
protectiontobevariedinaccordancewithactualmarketprices;thelevymaybe
collectedeithercargobycargooronthebasisofpricesaveragedoveradayora
week.Furthermore ,theCommunityhasexperiences ofthissortofmechanismsinceit
isverygenerallyusedfortheprotectionoftheagricultural market.
Theimpositionofquotasonimportsallowsinternalproducerstochargepriceshigher
thanthoserulingontheworldmarket.Theseinternalprices,however,arenot
fixedwithcertaintyanditwouldbenecessarytoensurethattheystayedwithinthe
limitBsetbytheguarantee.
Commercialpolicymeasures,however,cannotbetakenvis–a–visnon–membercountries
withwhichtheCommunityhasfreetradeorpreferenceagreements ,e.g.theEFTA
countries,theLomeConventioncountriesor-fromI98O-theMahgrebcountries,
etc.^TheCommunitycouldifnecessaryaskforthesafeguardclausesinthe
agreementsinquestiontobeapplied,butthiswouldbeanextremecoursewhichthe
Communitycouldtakeonlyafterallotherpossibilities cffindingasolution
throughconsultation andcooperationhadbeenexhausted(seeAnnexIItothe
CommissionCommunication totheCouncilof17March1977(COM(77)71final).
b)ObligationtobuyattheGuaranteedMinimumPrice
Theguaranteewouldbenefitonlyoil.
Underthisscheme,purchaserswouldberequiredtopayapricenotlessthanthe
guaranteed minimumforcrudeoilproducedintheCommunityorproductsderived
fromit.
Disparities betweenthetermsonwhichdifferentcompaniesobtaintheirsupplier;cou
could,ifnecessary,becorrectedeitherbysubsidiesfromthegovernments ofthe
purchasingcountries,tocoverthedifferencebetweentheguaranteed minimumpriceof
oilproducedintheCommunityandthelowerpriceofimportedoil,orbyasystem
1In1975theCommunityimportedfromthesecountries74milliontonnesofcrudooil
and10milliontonnesofpetroleumproducts.

-A-
ofcompensation "betweenrefiners(l)(2).
Establishment ofaprice-guarantee mechanismintheCommunity
AlthoughitwouldbemoreinkeepingwiththeobjectivesoftheTreatyforthe
guaranteemechanismtobeuniformthroughouttheMemberStates,itisalsopossible
tovisualiseitsvaryingfromonetoanother,witheachcountrytakingthemeasures
bestsuitedtoitsownmarket.
Thechoicebetween"uniform"and"variable"application dependsonthekindof
measureenvisaged ;
-theintroduction ofacustomsdutyorimportlevyrequiresaCouncildecisiontake
byaqualifiedmajority(Article113)*Protectionwouldapplyuniformlytoall
MemberStates;
-thefixingofimportquotas,ifgeneral,mustbedecidedintheCouncil,However,
sinceoilisnotyetsubjecttoacommonimportregime,MemberStatesmayalso
modifytheirnationalimportregimesinaccordancewiththeprocedureslaiddown
intheCouncilDecisionof19December1972,inrespectofGATTcountries(and
thosetreatedinthesameway)orintheCouncilDecisionof27March1975»in"the
caseofState-trading countries.Ifindirectimportstendtounderminethese
measuresandtheaimsbeingpursued,protectioncanbeprovidedunderArticle115«
-incertainmemberstatesthepossibilityexistsofimposinguponenterprises an
obligationtobuyataguaranteed minimumpriceatalevelwhichtheCouncil
woulddetermine.
Oncethekindofguaranteehadbeensettled,itwouldstillremaintodeterminea
numberofpointssuchas:
-thechoiceofthereferencecrudeoil;
-thepricerelationships betweenthevariousqualitiesofcrudeoilandthe
principalproductsderivedfromthem,andthereferencecrudeoil;and
-theinclusionorotherwiseofpetro-chemical feedstocks.
[1)Acompensation mechanismofthiskindiscurrentlyusedintheUnitedStates,toequalis
thetermsofacquisitionofdifferentcategoriesofcrudeoil,namely"old"and"new"
domesticoil,andimportedoil.
[2)MemberStatesbelongingtotheIEAwhichoptedforthisschemewouldalsohavetotax
productsattheconsumerlevel,inordertobringdomesticpricesuptothelevelfixed
fortheMSP.

-5-
Procedureswouldlikewisehaveto"belaiddownforrevisingtheference
level.
Conclusions
Inviewofwhathasbeensaidabove,itwouldappearthatonlytwoschemescan
beconsideredfortheCommunity:
-foruniformapplication :animportlevy;
-forapplicationvaryingfromcountrytocountry:importquotasorthe
obligationtobuyataguaranteedminimumprice.
ThetableinAnnexIsetsoutthevariousprocedureswhichcouldbeusedto
provideaguaranteedpricemechanismandtheiradvantagesanddisadvantages .
BecauseoftheimplicationsfortheCommunity'srelationswiththirdcountries,
theCommunitycouldforthetimebeingonlytakeadecisionwhichwouldestablish
theprincipleofaguaranteed minimumprice.
Astothekindofmechanismtobeprovidedanditsestablishment ,itwouldbe
necessarytoagreeupon aCommunityprocedurepermittingthe
appropriatedecisionstobemadeswiftlyandincompliancewiththeTreaty.
ShouldtheCouncildecideuponauniformapplication intheformofanimport
levy,aprocedurewouldhavetobeprovidedforbringingtheschemeintooperation
andforsuspendingit.
IftheCouncilweretoprefernon–uniformapplication oftheguaranteeitwould
sufficefortheMemberStatestoinformtheCommissionofhowtheyintendedto
complywiththeirobligations }theCommissionwouldhavethe.taskofensuring
thatthemeasuresenvisagedwiththeprovisionsoftheTreatyincludingthe
rulearegardingcompetition.

âT.TfTT7V T
Pissible Guaranteed Minimum Price Proceedures
Proceaure Décision Application Kind ofProtection Energy
Sources
ProtectedAdvantages (A)and/or
Disadvant ages(D)
Customs dutyCouncil Decision Uniform throughout
theCommunityImports from non-memoer
countries with theexcep­
tion ofcountries having
preference agreements with
theCommunity (l)A11
Energy
SourcesD-Koflexibility according
toorigin
Inroort levy ftI
i
itf t!A–Protection can be
adjusted from cargo to
cargo
Import quota(s ) ffQuotas bycountry tt w
ttDecision taKen separ­
ately byeach ''ember
Statef! «9 II
!D-Nor.it ormg ofproduction
costs required
A-Application varying to
suit each Member Stats
D-Monitoring ofproduct ;ion
costs required
'..axes onconsump­
tiontf Application varymg
tosuit each
countryAll consumption A-Canbeused tosupplement
Scheme 5below
D-Provides noguarantee for
Community production
Obligation topur­
chase atthe guaran­
teed minimum price»t Application varying
to3uit each country
(subsidies orcomp­
ensation between
refiners )Community production and ,
ifnecessary ,that of
certain non-member
countries (tobe
negotiated ).Cilonly A-Application varying to
suit the Member State
A-Smaller increase inprices
paid byconsumers
l)Excert that thesafeguard clauses intheagreements inquestion night becrcught into operation .