ARCHIVESHISTORIQUES
DELACOMMISSION
COLLECTION RELIEEDES
DOCUMENTS "COM"
COM(77)184
Vol.1977/0073

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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(77)184 final.
Brussels.1June1977»
COMMUNICATION FROMTHECOMMISSION TOTHECOUNCIL
Firstreflections onthedevelopment andtheprotectionofenergy
investmentintheCommunity
, ''
CCM(77)184final.

PIPol 1R^I,;':CTTO>T:j ON
THE DEVELOPMENT AND THE PROTECTION OFENERGY INVESTMENT
INTHE COMMUNITY
Sii^ce thebeginning of1975 ,Community institutions ,including
theEuropean Investment Bank ,have made available around
600M.EUA perannum ofloan finance totheenergy sector prin­
cipally byborrowing andrelending .This amount hasbeen
divided inabout equal proportions between projects inthe
field ofcoal production ,oilandgasproduction anddistri­
bution ,andelectricity production anddistribution .
On29March 1977 ,theCouncil adopted aEuratom loan scheme
which initially provided for thelending ofthe sumof
500M.EUA tonuclear power station projects and toindustrial
nuclear fuel cycle installations (including uranium mining ).
This level ofactivity ,ifmaintained atthepresent level
andinreal terms until 1985 ,would imply that 2-3%ofthe
total requirements forfinance forenergy investment which
have been forecast byMember States fortheperiod 1976 -1985
would bechannelled through Community institutions ,
For th'." .•■•ason-j £iven "below ,theinstruments laywhich theCommunity gives
suppoi :V -."•*f.itiuont in .theenergy •field ,could beusse^ili'.y «i:rongthened
xnthi " "
(a, it;,oral lending andloan guar "-tee?;
(f •'*.Lenient cfrisk sharing inappro pr!at--,j.&r.s;
(c' ",>u-:aj£;;icr.w cflong-term cor .tracts toi^uce *:he
~otnu"tricks ofCommunity iucp.rs .

-2-
■Communityloansandloanpgjoranheesinthecnorfysector
5.Byborrowingontheinternational capitalmarketforrelending,theCommunity's
institutions cantoothincreasethevolumeofloanfinanceforinvestmentinthe
energysectorand,insomecases,makeitavailableonmoreattractiveterms
thantheindividualenterprisecouldobtain.
6.HowevermostofthisisatpresentdoneunderEIBorECSCauspices,andthe
scaleoflendingislimitedbytheneedtomaintaintheCommunity'sborrowing
status.Difficulties mayariseifthereistoolargeortoorapidanincrease
oriffundsarechannelledpredominantly towardsenergyenterprises mostinneed
ofadditional finance.
coiifiic?er^°tfc^° retechnicalandfinancialexamination,theCommissionloansaridloanguaranteessecuredonthegeneralbudgetoftheEECandtheEAEC
canbeonewaytoovercometheseproblems-firstlythroughdirectlendingor
guarantees ,andsecondlythroughguaranteeing loansbytheotherCommunity
institutions ,tohelpmaintaintheirborrowingstatusonthemarket.Thenewly
decidedEuratomloansareafirststepinthi3direction.
8.Asfarastheneedrequiresandthecapitalmarketpermitstheactivityofthe
Community'sinstitutions inthisfieldcanbeincreasedprovidedthatCommunity
loansandloanguaranteesarecomplementary toandnotcompetitive withthe
effortsofindividual memberstatesandenterprises ,andthatthereareno
unacceptable budgetimplications consequentuponthegrantingofsuchloansor
loanguarantees . •
9.Theoverallproblemsofincreasing Communityloansanddevelopingloan
guaranteeswillbedealtwithinaseparatecommunication oftheCommission .
Thepresentpaperdiscussestheneedforloansandloanguaranteesintheenergy
sectoronly.
Thenatureoffinancialrequirements intheenergysector
10.Forecastsmadebymemberstatesforeseealikelyinvestmentofabout220-230.000
M.ELJA(1977prices)intheenergysectorduringtheperiod1976-1985*This
wouldrepresentabout25%ofallindustrialinvestmentintheCommunity.The
Communityislikelynevertheless tofallshortofitsobjectivetoreduce
dependenceonimportedenergyto$0%oftotalrequirements .Toachievethat
objectiveby1985orsoonafter,investmentmayhavetoreachlevelsupto20'fo
more,oraround260.000M.EJA.
11.Anumberoffactorswillmakeithardtorealisesuchhighlevelsofinvestment
inpractice.Theycanbesummarizedasfollows:
(a)onpresentindications ,theslowdownininvestmentinthenuclearand
electricitysectorsmaynotfindadequatecompensationinincreasedinvestment

-3-
elscwhore -incoal andenergy saving forexample .Instead there may be
areduction intotal investment inthe energy sector ;
(b)those countries whoareorwhowilj ."bemost dependent onimported oilare
often those inwhich itisthemost difficult toamount therequired
investment effort ,not least because ofthe balance ofpayments problems
created bythecost ofimported energy ;
(c)there arelimits tothecredit-worthiness ofindividual enterprises which
areaccentuated insectors where the investment effort must belarge in
relation topast levels ofactivity andwhere theability toauto-finance
investments istending todecline ;
(d)there isaninertia built into patterns offuel production andconsumption
which creates commercial risks insome sectors where aparticular investment
effort isnowrequired .Tothese ,insome cases ,must beadded important
technical risks .Thecapital market maynotbewell-equipped toprovide risk
capital onthe scale required .
12.Based onthese broad considerations ,"theCommission isexamining at
present' anextension oftheactivity ofCommunity institutions foranumber of
specific purposes .Three areas ofimmediate interest canbeidentified .First
there will beacontinuing need tofacilitate theavailability ofloan finance to
thenuclear sector .Secondly there maybeaseries ofproposals designed to
encourage energy transportation ,e.g. byfinancial participation ininter­
connections between oil andgaspipeline networks intheCommunity .Thirdly
loan finance from Community sources could berequired tosupport investment
programmes forenergy saving ,e.g. themedium-term programme tosave energy by
modernising existing buildings which isproposed bytheCommission .*)(seealso
Annex I).
13.Ithasemerged from this analysis that asubstantial increase inthelevel of
borrowing forrelending orofloan guarantees from thepresent level of600M.ELJA
per annum ,seems tobenecessary .This includes an .assumption that thepresent
authorisation of500M.HJA fortheEuratom loan scheme will berenewed inl'979/80»
14.Inspecial cases ,further measures such asinterest rebates mayberequired to
ensure that funds areconcentrated predominantly towards areas ofgreatest need .
*)Doc.COM (77)186

Anexamination ofrinks "inthefieldofener,"?/andtheirconr-inc'uenoes
15*Uptonov/,theriskoflosstoCommunityinstitutions onloansinthe
energysectorhas"beenminimal,becausetheloanshavebeenfullycovered
"byguaranteesgivenbyMemberStatesGovernmentsorbyfirstclasspledges
ofassetsandpremiumspaidintoaguaranteefund.
16.Infuture,therewillstillbealargenumberofprojectsforwhichfull
guaranteescanbeobtained.Mostofafuturelevelofborrowingfor
relendingandofloanguaranteesmightbeexpectedtobeprojectsofthis
kind.Howeverthereareotherprojects,worthwhilefromanenergypolicy
viewpointbutcontaininganelementofrisk,whereaCommunityguarantee,
whichmightbesecuredontheEECbudgetwouldpermit"thelender(SIB,ECSC
orprivatesectorbank)toacceptless.rigorousguarantees(suchasalien
onoilintheground)fromtheborrowingenterprise.
17.Fortheseprojects,providedthefinancialneedandenergyimportance was
clearlyestablished ,theCommunitycouldofferthelenderaguaranteethat
incaseofdefaultbytheenterprise ,theCommunitybudgetwouldtakeover
theobligations tothelenderforrepaymentintheirentirety.Howeverit
isrecognisedthatforsuchaschemetobeworkable,theriskoflosstothe
Communitybudgetwouldhavetobedefinedandlimitedveryprecisely.There
wouldbeadoublelimitation-firstastothekindofrisksforwhichthe
Communityguaranteewouldbeoffered,secondlyastotheshareofthe
liabilityarisingoutoftheriskwhichwouldbeshoulderedbytheEuropean
Community.
18.Adistinction existsbetweenfour,kindsofrisk:
1.Theriskoftechnicalorgeologicalcontingencies whichdelaythe
startofproduction ,reducethecapacityoftheplantorevenresult
initbeingabandoned.
2.Theriskofcostescalationduringtheplantconstruction period.
3.Theriskofoperatinglossesduringtheplant'soperationbecauseof
changesinmarketconditions .
4.Theriskofexchangelossesduetounforeseenmovementsinexchange
rateswheremoniesareborrowedontheinternational market.
19.Certainkindsofriskcanbeexcluded-notablyrisksoflossarisingout
ofcurrencyexchangeratemovementsorchangesintariffpolicyortaxation,
whichmustbe3ealtwith"bytheMemberStates.Risksarisingonprojects
outsidetheCotammity ?sjurisdiction (e.g.coalo~>^raniutfexplorationin

-5-
i
third countries )have tobeexamined with particular care .
Therole ofanr.nc»r /?ypricing policy and lonff-term contracts
20.Thelong-term upward trend ofenergy prices isitself aninsurance against risk
ofloss .Nevertheless progress towards anenergy pricing policy fortheCommunity
would provide another element ofstability andpredictability totheeconomic
evaluation ofaproject ,andthus reduce therisk ofloss forenergy investors
ingeneral andbythat fortheCommunity 'sbudget .[Itisinthis spirit–that –
theCommission formulated ,inJanuary 1976 .itsproposals -forthefixing of-a
minimum safeguard price foroïl .
21.Long-term contracts canalso ,inappropriate cases,reduce risks ,particularly
where itispossible toagree that ,over aperiod ofyears ,aspecified minimum
quantity ofthefuel will bemade available ,andwill bebought at,aminimum
purchase price .
This gives thebuyer theadvantage of .security ofsupply atpredictable cost ,
and itgives theproducer asecure outlet onwhich tobase his investment
decisions .
22.TheCommunity hasaninterest increating amore attractive environment forsuch
long-term contracts ,soastoencourage thedevelopment oftheCommunity 'senergy
resources inthe framework ofCommunity requirements .
Tothat end itisproposed that theCouncil adopts anumber ofprinciples of
policy which are setoutinparagraph 24below ,within which enterprises will
freely decide whether ornot toengage inlong-term contracts onthebasis of
their own commercial criteria .
23.Themain practical difficulty will bethequestion ofprice .Itisnot
suggested that inpresent market conditions it .will bepossible toquote afixed
price forsupply foranumber ofyears ,under along-term contract .However it
should often bepossible tofixaguaranteed minimum purchase price ,which would
bebelow expected world market prices butsufficiently high togive security to
theinvestor ,together with aformula forcalculating thenormal trading price .
Where contracts reflect areal element ofrisk sharing
between producer anduser ,extending perhaps tojoint participation inthe
financing andthemanagement oftheproject ,theprice formula forcalculating
thenormal trading price could offer preferential terms bycomparison with
expected movements inworld market prices .Examples ofcontracts with an
T*;COi.i (7o)20final

-6-
elementofburdensharingalreadyexistinsomeareasofhightechnology
suchastheprovisionofuraniumenrichmentservices,andtheycould "be
usefullyextendedtootherareaswherethetechnicalrisksareperhaps
lessbutwhorethecommercialrisksremainlargo.Theopeningupofnev;
coalfieldsorrelativelyhighcostoilandgasfieldscould"becasesin
point.
24.TheCommissionwouldliketheCouncil ,toexaminethefollowingprinciples
ofpolicy:
(a)TheCouncilshouldrecognizethattheadoptionofaminimumsafeguard
priceforoilwill,byprovidinga"safetynet",limitpossiblelossesfor
Communityenergysuppliesandfacilitatethenegotiationoflongterm
contracts.
(b)MemberStatesabletoexportenergyshouldgiveaclearideaofthe
volumesaridtypesofenergytheycouldenvisageprovidingonalong-
termbasis;
(c)theexportingMemberStatesshouldgiveanundertakingthat,whatever
theconservation policiespursued,atleastthecontracted minimum
volumetobepurchasedcouldbeproducedfordeliveryduringthe
contractperiod,inconformitywiththecontractconditions ;
(d)theCommunity "couldsupportsuchlong-termcontractsbyasystemofloans
andloanguaranteeswithanelementofrisksharing,orbymakingloan
financeavailableonpreferential terms;
(e)termsofcontractsshouldbeinaccordancewiththeTreaties.
25-Examplesofpossiblelong-termcontractsineachofthemainsectorsof-
energyproductionaregiveninAnnexII.
Conclusions andproposals
26.Itisclearthattherewillbeamassivecontinuingneedforenergyloan
finance.TheCommissionbelievesthatthereisaddedneedandpotential
forCommunitylending,andforofferingloanguarantees fevenwherethereis
ariskofloss,providedthatriskisdefinedandlimited,andfully
justifiedonacase-by-casebasis.
27.Complementary progresstowardsaCommunityenergypricingpolicyis
suggestedintwodirections:theadoptionofaminimumsafeguardpricefor
oilandofaseriesofprinciplesofpolicydesignedtocreateamore
attractiveenvironmentforlong-termcontracts.
ThisapproachisinaccordancewiththeguidelinesdrawnupbytheEuropean
Councilatitsmeeting <onthe1stand2ndDecember1975»"theproposals

-7-
submitted bytheCommission ontheimplementation ofthose guidelines in
January 1976 (*)» an<^- subsequent discussions inCouncil .
28.TheCommission will shortly bemaking ^proposals foraprogramme ofloans and
loan guarantees secured ontheCommunity 'sbudget ,forallpurposes .The
proposals will examine indetail theworking ofsuch ascheme ,themanner of
itsintroduction andtheeventual scale onwhich itcould beenvisaged forall
purposes .
29.TheCouncil isinvited to:
(a)agree that ,subject togeneral agreement toanextension ofCommunity loans
andloan guarantees ,and tothedrawing upofadetailed scheme ,total
Community support forenergy projects should beincreased inanorderly and
progressive fashion .
(b)agree that ,intheenergy sector ,such loans orguarantees could be
extended onacase-by-case basis toprojects where there isarisk ofloss
tothe EECbudget provided that theliabilities soincurred besuitably
defined and limited ;
(c)agree that theCommission should beinvited toidentify eligible projects ,
with theassistance oftheEnergy Committee J
(d)endorse theproposed principles forlong-term energy contracts in
paragraph 24ofthis paper ,andtoinvite Governments tofacilitate such
contracts both bypublic andprivate enterprise .
*Doc »COM (76)20 final .

CURRF.NT ANDPOSSIBLE FUTUREUSESFORLOANFINANCE FRCM
COMMUNITY SOURCESINTHEENERGYSECTOR
I.CurrentusesofloanfinancefromCommunity sourcesintheenergyfield
1.ThecurrentlevelofactivitybyCommunityinstitutions intheenergy
fieldcanbesummarized asfollows:
Inthecoalsector,E.C.S.C.loanshaveamountedtosome490meuabetween
1974and1976andE.I.B.loansto30meuamakingagrandtotalofsome
520meuabetween1974and1976.Intheoilandgassector,theE.I.B.
haslentsome640meuabetween1972and1976atanaccelerating annual
rate.
Intheelectricity sector,E^C.S.C.loansforcoal-fired powerstations
havebeenbarelysignificant thoughtheycouldincreaseinfuture.The
E.I.B.haslentsome710meuafornuclearpowerstationsbetween1972
and1976,andafurther410meuafornon-nuclear powerstations,making
atotalofsome1120meuabetween1972and1976.
2.Thesignificance ofthesefigurescanbeillustrated asfollows:
Table1:Comparison ofCommunityfinancewithtotalfinancingrequirements
Sector Recentaverage 10yeartotalat10yearinvestment
annualrateofcurrentrateforrequirement inthe
Communityfinan-Communityfinancing Community
cingmeua(1)meua 1976-85 meua
Coalproduction
Oilandgas
Electricity
Energysaving210(2)
210(2)
220'2,100
2,100
2,200
η7,800(3)
70,000
131,000
•>
(1)Thistableisonlyillustrative ofbroadordersofmagnitude
andthereforethefiguresquotedhavebeenroundedtothe
nearesttomeua.
(2)Anaverageofthe1975and1976figurehasbeentakenasbeing
morerepresentative ofthefuture.
(3)Ligniteexcluded.
SOURCES:C0M/ENER15/76C0M/ENER7/77SEC(77)1060/2

-2-
II.Possiblefutureusesforadditional loanfinancefromCommunitysources.
3.TableIshowsatotal,fortheperiod1976–19"5>fortheprovisionof
loanfinance "byallCommunityinstitutions oftheorderof6.000K.iiXJA,
'assumingthatcurrentlevelsofactivityaremaintained.
4.InadditiontotheEuratomloansscheme,theremay"beaneedtomake
loanfinanceavailableonpreferential termstothenuclearfuelcycle.
Loan,guaranteeswithariskoflosstotheCommunity'sbudgetmaybean
appropriate instrumenthere.Suchguaranteescouldalsobeextended,at
alaterdate,tocompaniesdevelopingnaturaluraniumresourcesfor
Communityusers.
5.Inadditiontoloansforoilandgaspipelines,loans.withpreferential
conditions mayberequired,tosupportthedevelopmentoftransnational
electricityinterconnections wherenewtechnologies areenvisaged.
6.Loanfinanceonpreferential termsmayalsobenecessarytopromotenew
marketoutletsforcoal,andaboveallcoal-firedpowerstationsforwhich
aninitialproposalhasalreadybeenmade.Further,relativelysmall
amountsmaybedirectedtowardsdevelopinggeothermalpowerstations.
7.Morespeculatively ,loanfinancewithpreferential conditions maybe
requiredtopromotethedevelopmentofexternalcoalresourcesfor
Communityuse.Thescopeforsuchactivitywilldependonfuture
decisionsabouttheroleforcoalintheCommunity'senergystrategy.
8.Intheoilandgassector,financingproblemscouldariseiftheEuropean
Communitydeliberately setouttoincreasetheroleofsmallandmedium
sizedEuropeancompaniesin_exploration andproduction.Howeveratpresent
levelsofactivityandwiththepresentmixofcompanies,noparticular
needforsuchfinanceexists.

Armer il
Somesector samples oflon /?-tcrrn contracts
I'Tucloa?fuel supply ,
1. Long-term contracts arealready standard practice foralarge part ofthe
nuclear fuel supply cycle and theCommission possesses agreat deal ofinformation
about market conditions "byvirtue oftheEuratom Supply Agency .However the
Community could play amore active role inencouraging Member States andthe
associated enterprises tocollaborate inmaking such long-term contracts possible ,
especially those which reflect anelement ofburden sharing andmutual solidarity .
Thescale oftransactions between Member States relating touranium enrichment and
reprocessing could become -very important bythe1930s .
Coal
2. Recent discoveries ,above allinoneMember State ,suggest that there isalso
apotential forrelatively large levels oftrade incoal between Member States by
thelate 1980s ,totheextent that exporting Member States arewell supplied from
other indigenous sources andnuclear 'energy .
3. Given theperspective ofrising real prices forenergy andpossibly shortages
ofoilintheworld market ,countries which donothave domestic resources ofcoal
maybointerested inencouraging long-term contracts forthesupply ofcoal from
relatively well-endowed Member States .
Oil and ras
4. There isalready considerable trade between Member States ingasbut the
farther development ofthat trade depends upon decisions relating togaspipelines .
Theeconomics ofthese very costly projects arecritically dependent upon asassured
market forthegassotransported ,andthere istherefore aclear interest in
promoting long-term contracts inthis field .
5. Intheoilsector ,aconsiderable increase intrade inrefined oilproducts
istobeexpected intheearly 1980s ,andthere maybeinterest inputting a
proportion ofthis onastable long-term basis .This would certainly facilitate
thefinancing ofthehigh cost fields andmake asignificant contribution to
promoting further exploration anddevelopment .
6. Asystem oflong-term contracts backed upbyaguideline setofprinciples
ofthekind described inthis paper might beusefully extended toselected Third
countries inclose geographical proximity .