Opinion of the Economic and Social Committee on the 'Proposal for a Council Directive amending Directive 68/414/EEC imposing an obligation on Member States of the EEC to maintain minimum stocks of crude oil and/or petroleum products` () (98/C 407/26)

On 25 May 1998 the Council decided to consult the Economic and Social Committee, under Article 198 of the Treaty establishing the European Economic Community, on the above-mentioned proposal.

The Section for Energy, Nuclear Questions and Research, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 22 July 1998. The rapporteur was Mr Beale.

At its 357th plenary session held on 9 and 10 September 1998 (meeting of 9 September), the Economic and Social Committee adopted the following opinion with 108 votes to 2.

1. Introduction

1.1. The Committee is asked to prepare an opinion on the Commission's proposal for a Council Directive amending Directive 68/414/EEC and repealing Directive 72/425/EEC. Both these Directives require the Member States to maintain compulsory oil stocks, as a measure of security of supply. (The first Directive set 65 days' supply as the norm, which was increased to 90 days by the second.)

1.2. Security of supply is a matter which has concerned the Committee in its work on several opinions in recent years: e.g. the internal markets in gas and electricity (), the outlook for nuclear power (), rational use of energy, renewables (), energy policy in general (), etc. The most secure supply is, of course, that provided by energy sources present on the territory of EU Member States: e.g. oil and gas deposits in British and Danish waters, gas in the Netherlands, nuclear power stations in France, coal deposits in Germany, hydroelectric systems in Austria, etc.

1.3. Security can be further enhanced by diversification among the types of primary energy used and among the sources from which imports are received. However, it is assumed that most EU Member States will remain largely dependent for their oil and natural gas supplies upon imports from areas (such as Russia, the Middle East, North and West Africa and - in future - the Caucasus and Central Asia) which are considered to be areas of potential instability.

1.4. In 1991, the Committee was consulted by the Council regarding two draft Directives in this field. One proposed new arrangements for the holding of compulsory oil stocks in Member States, but was later withdrawn after discussion in the Council. The other, on which the Committee prepared its Opinion ENERG/195 of 22 October 1992 and which 'provided for appropriate measures to be taken in the event of difficulties in the supply of crude oil and petroleum products in the Community`, was also withdrawn.

1.5. Experience of what is usually called the 'oil shock` of 1973 led in 1974 to the establishment in Paris of the International Energy Agency (IEA), in order to prepare plans for confronting any future crisis in oil supply. The IEA's membership includes all fifteen EU Member States, plus Norway, Hungary, Switzerland, Turkey, Australia, New Zealand, Canada, the USA and Japan, while the Czech Republic, Slovakia and Poland have all applied to join.

1.6. The IEA's provisions therefore cover the oil needs of the bulk of the industrialized world, which would be vitally important in the event of a serious supply crisis. It is understood that the EU's measures to deal with such an event would be decided within the IEA framework, although the Commission would coordinate Member States' policies in accordance with the EU Treaty.

2. The Commission's proposals

The principal reasons for compulsory storage as outlined by the Commission, can be summarized as follows:

2.1. Oil-supply disruptions threaten economic activity. It is therefore desirable that Member States have stocks available in order to cope with potential supply disruptions and manage the crisis before it reaches a critical stage.

2.2. During a crisis, there is a risk of price speculation in the market. It therefore makes good economic sense for the authorities to be able to minimize or prevent the effects of a supply crisis by drawing on their security stocks.

2.3. The mere fact that Member States have security stocks at their disposal is a powerful deterrent which can itself discourage those who might be tempted to create a supply crisis or speculate from it.

2.4. The proposal to amend the existing Directive represents a much needed review of the framework. Much has happened since the early 1970s. Economies have been liberalized and trends in oil supply and demand, as well as industry structures, have changed. In addition, the Directive needs updating to take account of the introduction of the internal energy market and the expected enlargement of the European Union. Nevertheless, security of supply must remain a concern of the EU because it necessarily depends on oil imports.

3. Areas for improvement

The Commission suggests the need for improvements in six areas of the present Directive:

3.1. Derogation

The Commission proposes that the maximum derogation for indigenous oil producers should increase from 15 % to 25 %.

3.2. Bilateral agreements to hold stocks

A strengthening of support for bilateral agreements - whereby compulsory oil stocks can be held in another Member State - would provide a valuable means for oil refiners and importers to meet their stockholding obligations at the lowest economic cost. A clearer definition of the important elements of framework agreements should improve consistency across the Community, particularly the need to ensure that strategic stocks held in another country are clearly identified and would be released in the event of a crisis.

3.3. Definitions

Clearer definitions will ensure that Member States consistently record the consumption of all the petroleum products named in the Directive. At present, some Member States are failing to record kerosene-based jet fuel used for international flights, which under the present Directive should be included in inland consumption even though not reported as a separate item.

3.4. Conversion methods and reporting times

To simplify the method used to convert crude oil into product equivalent, it is proposed to abandon one of the three present conversion methods. Additionally, the change to monthly arrangements will mean that the EU is now aligned with the procedures of the IEA. Member States will have to send their statistical summary reports - showing stocks existing at the end of each month - to the Commission by the 25th day of the second month after the month to be reported.

3.5. Quality of stockholding mechanisms

The new Directive emphasizes the need for greater cost transparency in stockholding mechanisms in order to avoid discrimination and establish fair conditions in the market.

3.6. Sanctions

Implementation is left to Member State Governments, on the principle of subsidiarity. Sanctions must be effective, proportional and dissuasive.

4. Content of the directive

- Article 1 contains the proposed amendments to Directive 68/414/EEC and is discussed in detail below;

- Article 2 repeals Directive 72/425/EEC as from 31 December 1999;

- Article 3 requires the Member States to adopt, publish and apply the new provisions from the same date, duly informing the Commission that they have done so;

- Article 4 states that the Commission will report regularly to the Council on the situation concerning stocks in the Community;

- Article 5 states that the Directive is addressed to the Member States.

5. Article 1

This article of the new Directive contains the essential amendments to articles 1, 2, 3, 4, 5 and 6 of Directive 68/414/EEC.

5.1. Article 1 reimposes the 90 days stockholding obligation and increases the derogation available to Member States with indigenous oil production up to 25 % of internal consumption.

5.2. New Article 2 provides that bunker fuel for sea-going vessels is to be excluded from the calculation of internal consumption, but jet fuel for international aviation is to be still included.

5.3. New Article 3 requires Member States to ensure that they have the legal powers to control the use of stocks in a crisis. At all other times, such stocks must be clearly identified. under non-discriminatory conditions, while the costs involved should be made transparent in the final product price. Member States may also decide, singly or jointly, to establish stockholding bodies.

5.4. New Article 4 lays down the procedures by which Member States shall report the stocks held to the Commission. The actual stockholding requirement is to be based on inland consumption of the previous year.

5.5. New Article 5 provides that finished (i.e. refined) products shall be reported by their actual tonnages while formulae are provided for the notional conversion of crude oil and intermediate products (i.e. feedstocks) into finished product tonnages.

5.6. New Article 6 is primarily concerned with defining the conditions under which Member States may hold their strategic stocks in the territory of another Member State by agreement between them. It is also provided that such stocks held by one State on behalf of another may be reported to the Commission by both of them. The agreements under which such stocks are held must conform to the general provisions of the Directive and be reported to the Commission. A third paragraph in this article then defines the categories of oil which should not be included in the statistical report by each Member State.

5.7. New Article 6a requires Member States to adopt 'all necessary provisions and take all necessary measures` to give effect to the Directive.

5.8. New Article 6b requires Member States to determine the sanctions to be imposed in case of violation of the national provisions made pursuant to the Directive.

6. General comments

6.1. The Committee notes that there is general agreement on the need for a new stockholding Directive, given that in essence the present arrangements date back more than a quarter of a century. The two main requirements - the obligation to hold stocks representing 90 days' supply and the derogation of 15 % permitted to oil producing states - were established in the very different circumstances of the 1960s and 1970s.

6.2. No detailed technical analysis is thought to have lain behind those criteria. The oil industry is known to believe that these particular requirements could be somewhat relaxed, along with the further obligation to hold stocks in specific categories and quantities of refined products. The ability to hold stocks in the form of crude oil, which is justified by the flexibility of modern refinery operations, is an advantage enjoyed by those IEA Member States which are not members of the EU.

6.3. The greater the volumes of oil stocks held, the greater the risk of environmental damage from accidental spillages and vapour release. Moreover, the employment implications are known to be small, since storage installations are by their nature capital intensive. The Committee also notes that the need to hold stocks in excess of normal operating practice does represent an additional financial burden upon the economy of Member States.

6.4. Nevertheless, the Committee fully supports the Commission's judgement in these matters which is intended to ensure that all Member States enjoy adequate supply security in the event of another oil crisis and under comparable conditions. However, the Commission is urged to keep the provisions of the new Directive under review, given the EU's need to remain industrially competitive in the global market place.

7. Specific comments

7.1. The Directive takes the form of a series of amendments to Directive 68/414/EEC, which suggests that any provision of the earlier Directive not specifically amended or withdrawn is still in force. There is also one article repealing Directive 72/425/EEC, whose requirement that 90 days' supply be stocked is reimposed by the new Directive.

7.2. The Committee approves the provisions of Article 1, particularly the increase from 15 % to 25 % in the derogation open to oil producing Member States. However, it believes that the 90 days stockholding obligation (increased from 65 days in 1972) should be kept under review.

7.3. Concerning the provisions of new Article 2, the Commission should explain the logic of counting fuel for international aviation as inland consumption while excluding bunkers for seagoing vessels.

7.4. The provisions of new Article 3 & 4 are supported.

7.5. Article 5 seems to impose unnecessarily complex reporting requirements where different categories of products are concerned.

7.6. Article 6 goes into some detail about the conditions under which a Member State may, by agreement, hold stocks on the territory of another. Such agreements offer flexibility and potential cost savings which must be welcomed. However, the Committee fails to understand why a Member State which does not wish to avail itself of such a facility should be under an obligation to explain the fact to the Commission.

7.7. The remaining Articles of the new Directive make clear that it is the responsibility of Member States to ensure compliance with its provisions, although they must report regularly to the Commission which will, in turn, keep the Council informed.

7.8. The Committee fully approves of these procedures and congratulates the Commission on the useful explanatory information included with the Draft Directive in COM(98) 221 final. It does wish to reiterate, however, its support for the view that the provisions of the Directive should be subject to more frequent review than seems to have been the case with its predecessor. For the sake of transparency, it would also be desirable for the Articles of the new Directive to be consolidated instead of these being essentially amendments to Articles in the existing Directive.

Brussels, 9 September 1998.

The President of the Economic and Social Committee

Tom JENKINS

() OJ C 160, 27.5.1998, p. 18.

() OJ C 195, 18.7.1994.

() OJ C 206, 7.7.1997.

() OJ C 214, 10.7.1998.

() OJ C 393, 31.12.1994.