COMMISSION OF THE EUROPEAN COMMUNITIES 
C0M(93) 261 final 
Brussels. 2 July 1993 
SECOND PROGRESS REPORT 
ON THE 
INTERNAL ENERGY MARKET 
(presented by the Commission) 
- A-
CONTENTS 
page 
Summary 3 
Introduction 3-4 
Chapter I ; The achievement so far 4 
1) Energy and the implementation of the White Paper 4-8 
2) New legislation specifically related to the energy 
sector 8 
2.1 Transit of electricity and gas 8-10 
2.2 Price transparency 10 
3. Application of existing law 11 
3.1 State aids 11 
3.2 Infringement proceedings 12 
Chapter 11 ; The next steps 12 
4. Proposed stage 2 legislation for electricity and gas 12 
4.1 Preparation by the Consultative Committees 13 
4.2 Proposals for electricity and gas 13-15 
4.3 Progress so far in the Council, the European 
Parliament and the Economic and Social Committee 15-16 
5. Exploration and production of gas and oil 16 
5.1 Preparation 16 
5.2 The proposals 16-17 
5.3 Progress so far 17 
6. Standards - further action 17-18 
7. Continued application of Community law 18 
8. Public procurement 18 
- 2 -
Chapter Ml: Accompanying measures within and outside the 
Community 18 
9. Internal dimension 18 
9.1. Energy and Cohesion 18-20 
9.2 European networks 20-21 
10 The external dimension 21 
10.1 Common commercial policy 21 
10.2 European Economic Area 22 
- 3 -
SECOND PROGRESS REPORT ON THE INTERNAL ENERGY MARKET 
Summary 
The Commission has now presented its major legislative proposals for 
completion of the internal energy market. These proposals provide for 
increased competition in several sectors. Its concern to see a more 
competitive environment in the granting of hydrocarbon and extraction 
licences has taken the form of the draft Directive now before the other 
institutions. It has also presented its proposals for a second stage of 
liberalisation in the areas of gas and electricity. These, too, are on 
the table and should be adopted given the need to complete the 
internal market, including the energy sector, with its vital importance 
as an input to other parts of the economy. A third stage of gas and 
electricity liberalisation is yet to come, conditional as it is on the 
experience of operating measures of the second stage. This approach has 
the merits of gradualness and pragmatism and gives all concerned the 
time to adapt to changes in the market. 
But this does not exhaust the action being taken to liberalise the 
internal energy market, much of which, like the control of aid to the 
coal industry, or the taking of action against abuses of dominant 
positions, is based upon Treaty powers or legislation of long standing. 
In other fields, such as standards, there is already the experience of 
achievements so far, which points to where future efforts can best be 
directed. 
Together with the measures of IiberalIsation,there is continued 
progress on the flanking policies which accompany them and provide the 
framework of social economic cohesion which enables the gains from 
liberalisation to be spread across the Community. In all these areas, 
the Commission will continue to ensure that other Community interests 
- and in particular those of the environment - are served as the 
internal energy market is progressively liberalised. 
Introduction 
1. A first progress report (COM(90)124 final) on the internal energy 
market was made by the Commission to the Council on 18 May 1990 in 
accordance with paragraph 36 of the Commission's Working Document 
("White Paper") on the internal energy market of 2 May 1986 
(C0M(88)238 final). The Commission is now making a second report in 
order to record progress made since the first report. 
- 4 -
Work has continued In the implementation of the White Paper on such 
subjects as standardisation on the supply and demand sides, public 
procurement and fiscality, and the existing Community iaw continues 
to be applied in order to remove obstacles to energy market 
integration. The proposals for new legislation which in the first 
progress report were reported as having been put forward have, with 
the exception of the investment information proposal, which Council 
requested the Commission to reconsider, become Community 
Directives. There has also been progress in acccompanying measures 
and the external aspects of the Community's energy market. But more 
remains to be done. 
Since the first report, the Community has adopted a strategy for 
the limitation of C02 emissions and improvement of energy 
efficiency, in response to the problem of global climate change. It 
has signed the Framework Convention on Climate Change and agreed to 
ratify the Convention before the end of 1993. It has also adopted 
an environmental action programme "Towards Sustainable 
Development". 
In this programme special emphasis is given to the integration of 
environmental considerations into the development of policy in the 
energy sector. A key element of the programme is to move towards 
the internalisat ion of external environmental costs. The 
Commission's proposal for a carbon/energy tax in its package of 
measures under the C02 strategy comes under this heading. Actions 
for the completion of the internal energy market will be of 
critical importance in the attainment of the goals of the above 
programme. 
In compiling this second progress report, the Commission is 
conscious of the necessity of completing the internal energy market 
and takes the view that what has been achieved so far represents 
only part of that process. 
Chapter I - The achievement so far 
1) Energy and the implementation of the WhI te. Paper 
The main items of progress achieved since the date of the first 
report are as follows: 
(a) Public procurement in the energy sector: a significant step 
forward was made with the adoption in September 1990 of 
Directive 90/531/EEC of 17.9.90<1> on the procurement 
procedures of entities operating in the hitherto excluded 
sectors, namely water, energy, transport and 
telecommunications. This Directive, which came into effect on 
1 January 1993 for all Member States except Spain (1 January 
1996) and Greece and Portugal (1 January 1998) applies the 
Community rules for public procurement to entitles which 
benefit from special or exclusive rights in the areas 
concerned. Supplies and works requirements of a value of 
(1) 0J N" L 297 of 29.10.1990 
- 5 -
400,000 ECU (supplies) and 5,000,000 ECU (works) are required 
to be put out to tender according to procedures, including 
publication in the Official Journal, which ensure that bids 
can be made by undertakings in other Community countries. The 
specification of requirements must make reference to European 
Standards where these exist. The Directive does not apply to 
supplies of energy itself, which will be considered in the 
light of the development of the internal energy market. 
Article 3 of the Directive provides for Member States to make 
requests to benefit from an alternative regime, and several 
such requests have been made; the Commission has already 
adopted a decision allowing France to apply such a lighter 
system in public procurement from 1 January 1993. As 
conditions for such an authorisation to be given, Article 3 
provides that there shall be transparency and non­
discrimination by the Member State not only in procurement 
matters, but also in the granting of oil, gas and coal 
concessions. A Directive on remedies against infringements of 
the Directive on the "excluded sectors", 92/13/EEC, was 
adopted in February 1992; 
(b) As regards fiscality. the Council reached agreement on 24 June 
1992 on rates and modalities for VAT and excise duties 
affecting energy products, among others. This provided for a 
regime for mineral oils from 1 January 1993 under which excise 
duties would be paid in the country of destination. Target 
rates for excise duties are no longer proposed. Minimum rates 
for excise duties on oil have been agreed, ranging from 337 
ECU per 1000 litres for super leaded petrol to 13 ECU per 
tonne for heavy fuel oil. For gas and electricity, VAT is 
charged as from 1 January 1993 at a standard rate of 15% 
except where the Commission agrees that no distortion of 
competition would arise from charging at a reduced rate of not 
less than 5%. VAT is charged in the country of destination as 
from 1 January 1993 and in the country of origin from 1 
January 1997 and thereafter; an agreement of 11 November 1991 
lays down that during the transitional period the tax point 
for both VAT and excise duty shall be on delivery from bonded 
warehouse in the country of destination instead of on crossing 
a frontier; this will remain the case for excise duties once 
the transitional period is over; 
(c) Progress in the realm of energy standardisation is being made 
at a steady rate. 
In June 1992, the Commission adopted a Communication 
(SEC(92)724 final) which reports progress on energy 
standardisation to the Council and suggests further action. 
Its purpose was to : 
- explain the Commission's approach to standardisation In the 
energy sector to the Council; 
- inform the Council of progress on the standardisation of 
energy products and equipment for the production, transport 
and distribution of energy products; 
- 6 -
- present to the Council the Commission's strategy for future 
work with a view to completing the internal market. 
The Communication reported progress in the various 
fields as fol lows : 
- as regards oi I. the quality of petroleum products was made 
the subject of a remit from the Commission to CEN in 1984 
which resulted in the adoption in 1987 of European Standard 
EN 228 for unleaded petrol. In 1988 the Commission gave CEN 
a further remit for the preparation of 5 new European 
standards (EN's) concerning unleaded petrol (Euro-super 
85/95) supplementing EN 228, substitute fuels (two 
standards), liquefied petroleum gas for motor vehicles and 
diesel. These standards will be ready in the course of 1993. 
Problems remain in this area, because the lack of 
specifications for a number of products at Community level 
has prompted certain Member States to introduce autonomous 
national legislation, and also because the new environmental 
directives require changes involving both engines and fuels. 
The Commission therefore proposes to adopt a comprehensive 
approach which takes account of the links between fuel 
quality, engine technology and exhaust emissions in order to 
meet the new requirements at minimum cost, by means of 
either Community rules or voluntary standards. 
In the area of other petroleum products such as heating 
oils, the Commission has commissioned a study the results of 
which indicate that additional standardisation is not 
required at present. 
The field of oil and gas exploration and product ion 
equipment is covered by various Community directives 
including the Directive on public procurement, which makes 
it compulsory for tender specifications for procurement 
contracts to refer to existing European standards or other 
standards in established use in the Community. The report 
drawn up by CEN in 1989 noted the use of specifications 
laid down by the American Petroleum Institute (API) and 
recommended their transposition into European standards. The 
Commission is discussing with CEN the best way of carrying 
out such a transposition where possible, bearing in mind 
that in this sector excessive European standardisation would 
be art ificial. 
- In electr icity a new EN is being prepared by CENELEC at the 
request of the Commission to harmonise the physical 
characteristics of low- and medium-voltage electricity; this 
is expected to be ready in 1993 having been delayed for 
technical and legal reasons. Electricity generating 
equipment is the subject of action by a CEN/CENELEC Joint 
Task Force which has as its objective the drawing-up of 
- 7 -
procurement guides in the form of European standards, the 
identification of additional standardisation requirements 
and the proposal of a list of priorities. The Commission Is 
to provide financial support for the implementation of the 
programme and its subsequent application. 
Electricity transport and distribution equiprnjanl is the 
subject of a special CENELEC Committee - the Public 
Procurement Coordination Committee - which manages a work 
programme on the hundred or so items for which standards 
need to be supplemented or drawn up. Although budgetary 
resources are limited, the Commission intends to encourage 
and accelerate implementation of this programme, which is 
aimed at helping to complete the internal market in this 
sector. 
- Gas: gas qua I ity is the subject of a remit given to CEN by 
the Commission for the standardisation of appliances burning 
gaseous fuels. This remit covered the preparation of 54 ENs, 
one of which was to define the characteristics and quality 
of test gases. CEN is expected to adopt the new EN 437 
during the course of 1993. 
As regards gas transport and distribution equipment. CEN has 
set up four specialised committees enabling work to start in 
the field and nine draft standards are currently under 
preparation for gas supply equipment. 
- sol id fuel : solid fuel quality is being standardised by the 
International Organisation for Standardisation (ISO) ; 
specific action at Community level is not necessary in the 
short term. Solid fuel production equipment is the subject 
of safety standards which are being prepared by CEN: the 
Commission does not consider further action necessary in 
this sector. 
- energy efficiency : under the SAVE programme (1991-1995), 
where there has already been standardisation activity on the 
demand side (hot water boilers, efficiency labelling) future 
efforts will be concentrated on the domestic appliance 
sector. At present energy efficiency standards are being 
developed for refrigerators and freezers, for which European 
measurement standards already exist. As CEN/CENELEC 
completes its work on other appliances, the Commission will 
develop appropriate efficiency standards. 
- the European standards institutes have drawn up virtually no 
European standards relating to renewable forms of energy. 
The Commission is currently investigating whether It is 
necessary to harmonise the essential requirements of wind 
generators as regards performance, the environment and 
safety and to introduce a certification system. It is also 
considering standards in the area of thermal solar energy. 
The ALTENER programme will give an appropriate framework for 
standardisation work in this area. 
- 8 -
nuclear power is covered by the Illustrative Nuclear 
Programme for the Community (PiNC) which includes aspects 
dealing with the standardisation of nuclear power generation 
and nuclear safety. The Commission is working on the safety 
aspects of nuclear power generation. The CEN/CENELEC Joint 
Task Force set up to draw up standardisation requirements in 
electricity generation (see above) considers 
standardisation work for the nuclear isle in power 
generation stations to have lower priority than others. 
Nevertheless, the Commission intends to continue with its 
examination of the sector. 
With regard to the protection of the environment, the 
Commission stresses the need for technical specifications 
and standards to take account of environmental 
considerations, so that the Single Act objective of a high 
level of environmental protection can be achieved. Should it 
be necessary, the Commission will submit proposals for an 
appropriate level of environmental protection in accordance 
with that objective. 
2) New I eg 1 s I at 1on spec if i caIIy reILated to t he energy secton 
The proposals referred to In the first report for price 
transparency and the transit of gas and electricity passed 
successfully into Community law. They represent a first stage in 
the liberalisation of the gas and electricity markets, to be 
followed by a second stage, proposals for which are summarised in 
this report, and in due course by a third stage based upon 
experience of the second. The implementation of the first-stage 
legislation has proceeded as described below. 
2.1 Transit of electricity and gas 
(a) Electricity 
Directive 90/547/EEC on transit of electricity through 
transmission grids was adopted on 29 October 1990 and entered 
into force on 1 July 1991. Under the directive, electricity 
transmission utilities are required to act without delay to 
- notify the Commission and the national authorities concerned 
of any request for transit in connection with contracts for 
the sale of electricity of a minimum of one year's duration, 
- open negotiations on the conditions of electricity transit 
requested; 
- inform the Commission and the national authorities concerned 
the conclusion of a transit contract; 
- 9 -
- inform the Commission and the national authorities concerned 
of the reasons for the failure of the negotiations to result 
in the conclusion of a contract in the 12 months following 
communication of the request. 
The Directive has so far been transposed into national law by 
10 Member States, whereas the remaining 2 have proposed 
adequate implementation measures, which, however, have not yet 
been adopted by their governments. Germany will have to 
propose entities to be included in a new (revised) annex to 
the directive relating to the new Lander. 
To date, one contract concluded between two Community and one 
non-Community country, concerning the transit of electricity 
up to 300 MW for a period of two years, has been notified to 
the Commission. 
A committee of experts on the transit of electricity between 
grids has been recently set up by Commission decision 
92/167/EEC of 4 March 1992. This committee (named OSTE -
Organisme de Suivi pour le Transit d'Electricité), the 
creation of which Is provided for at point 4 of Article 3 of 
the transit directive, will advise the Commission on 
determining the rules for operation of transit and will where 
necesary conciliate the entities negotiating transit. The 17 
members of OSTE have been nominated by the Commission and held 
a first meeting on 26 October 1992. 
(b) 
Directive 91/296/EEC on the transit of natural gas through 
grids was adopted on 31 May 1991. Under the Directive, Member 
States are required to take the measures necessary to ensure 
that gas transmission entities act without delay to : 
- notify the Commission and the national authorities concerned 
of any request for transit; 
-open negotiations on the conditions of the natural gas 
transit requested; 
- inform the Commission and the national authorities concerned 
of the conclusions of the transit contract; 
- inform the Commission and the national authorities concerned 
of the reasons for the failure of the negotiation t > result 
in the conclusion of a contract within twelve months 
following communication of the request. 
The Directive has so far been transposed into national law by 
four Member States. The Governments of five other Member 
States have informed the Commission about the start of 
implementing procedures shortly to be given effect. 
- 10 -
There has been no request for transit nor has the conclusion 
of a transit contract been notified as yet. 
The Commission has started the administrative procedure to set 
up a Committee of Experts for the Transit of Natural Gas 
(CETG), as provided for in article 3.4 of the Directive to 
conciliate the conditions of transit if requested by entities 
concerned. 
The Commission has received requests to update the list of 
eligible entities annexed to the Directive and qualifying for 
transit. The Commission is preparing a relevant decision. 
2.2 Price transparency 
Council Directive 90/377/EEC of 29 June 1990 set up a Community 
procedure ensuring price transparency to the final industrial 
consumer of gas and electricity. 
As regards the implementation of the Directive, ten Member States 
have incorporated it into their national legislations, whereas the 
remaining two have initiated the appropriate national procedures; 
the measures proposed have not yet been adopted. Germany has 
already indicated the reference points in the new Lander for which 
electricity prices will have to be communicated to Eurostat. 
The deadlines for the communication of price data to the 
Statistical Office of the European Community and for the latter's 
publication of them have been adhered to and four publications 
under the Directive are already available, one relating to data 
provided as at 1 July 1991 and the others as at 1 January 1992, 1 
July 1992 and 1 January 1993. It is worth emphasising that these 
communications were made even before the transposition into 
national law had taken place. 
Difficulties remain with regard to the communication to the 
Statistical Office of the breakdown of consumers and corresponding 
volumes by consumption category, which should enable these 
categories to be accepted as representative at national level. 
The objective of the Directive - to ensure price transparency to 
the industrial final consumer - representing the first step in the 
creation of an internal energy market has thus been achieved, while 
safeguarding the confidentiality of contracts. 
The data provided underline the need for Increased competition in 
order to achieve an efficient internal market In which prices 
accurately reflect costs so as to allow more efficiency to be 
introduced into the system and the necessary price adjustments to 
be made. 
The price transparency directive, together with those on transit, 
is intended to be extended to the EFTA countries after ratification 
of the EEA agreement. EFTA countries have made provision for 
similar mechanisms and procedures for the follow-up of the transit 
directive in their territories. 
- 11 -
3. Application of existing law 
3.1 State Aids 
The Commission has striven to ensure that the provisions of 
Decision 2064/86/ECSC^1^ on State aid to the coal industry are 
strictly followed. Financial measures planned by Member States 
have been authorised only when in line with the objectives of the 
Decision and complying with the criteria on the granting of aid 
laid down in it. Since the Decision is applicable for a limited 
period, the Commission has made its authorisation subject to the 
requirement that Community aid to the coal industry should be 
sufficiently degressive and accompanied by restructuring, 
rationalisation and modernisation plans. The German authorities and 
coal producers have contested the Commission's approach and a case 
is pending before the Court of Justice. 
As provided in Article 16 of Decision 2064/86/ECSC, the Commission 
submitted a report to the Council on the experiences and problems 
encountered in applying the Decision in the period 1986 to 1990. 
The Commission subsequently proposed to the Council a new state aid 
framework to replace Decision 2064 upon its expiry at the end of 
1993. The proposed new regime features a Community guide cost 
based on the weighted average costs of Community production for the 
year 1992. It is proposed that this guide cost should be fixed for 
a four year period and that Commission authorisations of financial 
aid by Member States should be dependent on a planned convergence 
of the high cost capacities towards this target. This proposal was 
discussed by the Energy Council of 30 November, which by a large 
majority asked the Committee of Permanent Representatives to 
examine the question with a view to the preparation of discussions 
at ministerial level in the following year. 
Elsewhere in the energy sector, the Commission considers that aid 
promoting Community objectives such as environmental protection. 
employment and energy saving may be compatible with the common 
market if their benefits outweigh their distorting effects on 
trade. 
In controlling protection measures in the field of electricity 
generation, the Commission sought to limit such protection in 
order to restrict its impact on trade in elctricity Th, approach 
allows adequate provision for security of supply; it •«.? prominent 
in the Commission's Security of Supply paper hi «?• and is 
parallelled in Article 13(5) of the draft electr; > market 
liberalisation directive, which provides for a certain Meging 
of power generated from indigenous fuels. The princ jle of 
limiting the protection of indigenous fuels has been applied with 
the appropriate flexibility in the framework of the EEC Treaty to a 
series of individual cases involving aid to indigenous fuels and 
the approval of exclusive supply contracts under Article 85. 
(1) O.J. n* L177 of 1.7.1986. 
- 12 -
3.2 infringement proceedings 
in the gas and electricity sectors, the Commission noted at the 
outset that in several Member States legislation provided for 
exclusive rights to import or export gas and electricity, which 
are clearly contrary to Articles 30, 34 and 37 of the EEC Treaty. 
In August 1991 the Commission initiated infringement proceedings 
under Article 169 of the EEC Treaty against those Member States 
having exclusive rights for the import and export of electricity 
and natural gas. France, Denmark, Spain, Italy, Ireland, The 
Netherlands, Belgium, Greece and the United Kingdom were given the 
opportunity to submit their observations. It resulted from the 
Member States' replies that there were no exclusive rights for the 
import and export of electricity and gas in the legislation of 
Belgium and Greece; the infringement proceedings against these two 
Member States were therefore dropped. The United Kingdom committed 
itself to eliminating the existing exclusive rights for imports 
and exports of electricity in Northern Ireland; the infringement 
proceedings against the United Kingdom have therefore been 
suspended. In November 1992, the Commission sent reasoned opinions 
to the remaining six Member States (France, Denmark, Spain, Italy, 
Ireland and The Netherlands) which have explicit exclusive rights 
for the importation and/or exportation of gas and/or electricity 
in their legislation, claiming that these exclusive rights were in 
violation of Treaty provisions, namely Articles 30, 34 and 37. The 
Commission has invited these Member States to comply with the 
reasoned opinion within two months. The next step will be for the 
Commission to decide on whether to bring the matter before the 
Court of Justice. 
Further examples of developments in this area include the case of 
Usselcentrale. where the Commission adopted a formal decision 
under Article 85 of the Treaty as it applies to competition in the 
electricity sector, and the case of GrangevieiI le. where the 
Commission opened proceedings based upon Article 85 of the Treaty 
against EDF and ENEL; in this case, the element of discrimination 
in pricing which was alleged was removed, and the Commission did 
not pursue the proceedings. 
Chapter 11 : The next steps 
4. Proposed Stage 2 legislation for electricity and gas 
The successful Introduction of the Stage 1 legislation on transit 
and price transparency was, as the first progress report noted, 
only a beginning. For the integration of the gas and electricity 
market to proceed further there must be proposals affecting the 
fundamental relationships between suppliers, transmitters, 
distributors and consumers of the grid-bound energies. 
- 13 -
4.1 Preparation by the Consultative Committees 
The Commission, in its Communication to the Council COM (89) 334 
final - SYN 206 dated September 6, 1989, indicated that It would 
consult all interested parties, in order to examine in depth 
whether third party access to the European electricity and natural 
gas systems should be introduced, and if so, how security of supply 
and quality of service to consumers should be maintained. For 
this purpose, the Commission set up two consultative committees for 
gas and two for electricity. The first two of these committees 
consisted of representatives of the gas and electricity industries, 
such as the integrated utilities, in the case of electricity the 
generators and in that of gas the producers, the distributors, 
transmission companies, large industrial users, domestic and other 
consumers; these were called the Professional Consultative 
Committee on Electricity (PCCE) and the Professional Consultative 
Committee on Gas (PCCG) repectively. The other two committees 
consisted of representatives of the Member States and their 
alternates and were called the Comité Consultatif Etats Membres 
Electricité (CCEME) and the Comité Consultatif Etats Membres Gaz 
(CCEMG). 
The four committees met monthly throughout 1990 and during the 
early part of 1991. The Commission chaired the proceedings and in 
May 1991 issued four reports; these proved an indispensable 
element in enabling the Commission to formulate its new proposals. 
4.2 Proposals for the second phase of completion of the internal market 
in electricity and gas 
The proposals put forward by the Commission provide for a 
responsible approach based on four general principles. The first is 
the need for the approach to be gradual, enabling the integration 
of the gas and electricity markets to take place over a period of 
time sufficiently long to enable the industry to adapt in a 
flexible and ordered manner to Its new environment. The second 
principle is that of subsidiarity, with Member States being able 
to opt for the system best suited to their natural resources, the 
state of their industry and their energy policies, within a 
framework defined by the Commission. The third principle is the 
avoidance of excessive regulation, with the Commission restricting 
itself to what is necessary in order to achieve the aims of 
liberalisation. Fourthly - the institutional framework - the 
Commission's proposals, which as document C0M(91) 548 were adopted 
by the Commission on 22 January 1992, take the form of draft 
directives under Articles 57(2), 66 and 100a of the Treaty, since 
this provides for a dialogue with the Council and the European 
Parliament under the cooperation procedure, while enabling the 
consultations with other interested parties to be pursued. 
The Commission's proposals are characterised by three main 
features: 
- 14 -
Firstly, the créât-on of a transparent and non-discriminatory 
system for granting licences for the production of electricity and 
the building of electricity lines and gas pipelines. The aim here 
is to open up investment in production and transport to Independent 
operators; 
Secondly, the concept of unbundling, i.e. separation of the 
management and accounting of production, transmission and 
distribution operations, to be put into practice in vertically-
integrated undertakings, so as to ensure transparency of 
operations; it does not affect ownership structures. 
Thirdly, the introduction on a limited basis of third party access 
whereby the transmission and distribution companies are obliged to 
offer access to their network to eligible entities at reasonable 
rates, within the limits of available transmission and distribution 
capacities. 
It is proposed that the eligibility criteria for this second stage 
shall be such as to include: 
- large industrial users whose consumption exceeds 100 GWh of 
electricity or 25 million cubic metres of gas on a site; in 
total, about 500 electricity consuming undertakings in the 
Community will be covered, mainly in the aluminium, 
metallurgical, chemical, building materials and glass industries; 
as regards gas consumers, whose number is likely to be similar, 
fertilizer and electricity producers are chiefly concerned; 
- distributors of a certain size in each of the Member States, 
being those who supply respectively at least 3% of the 
electricity, or at least 1% of the gas, consumed in their Member 
State; distributors who do not reach the threshold can join 
together in order to qualify; in all, about a hundred 
electricity distributors, either individually or associated, 
will be eligible in the Community for electricity TPA and a 
similar number for gas; this will allow consumers, especially the 
smallest, to profit indirectly from the gains resulting from 
enhanced competition. 
In the course of this second stage, the Commission will, in 
keeping with its principles, avoid excessive regulation and will 
leave room for subsidiarity. The Member States will continue to 
be able to regulate gas and electricity tariffs for all those 
final consumers not parties to competitive purchasing. They will 
remain free to decide the extent and the nature of the rights of 
distribution companies and their public service obligations, in 
particular the obligation to supply. They can also lay down 
detailed criteria for the granting of licences for the production 
of electricity and the transport of electricity and gas, 
particularly with regard to the requirements of energy, 
env i ronmenta i and pIann i ng po M cy. 
- 15 -
The Commission, in putting forward its proposals, was fully aware 
of the need to add to the opening-up of the markets the further 
objectives of safeguarding security of supply, the protection of 
the environment, and the protection of the small consumer. Its 
proposals allow, within the principle of subsidiarity, 
sufficient freedom for national energy and environmental 
policies to attain these objectives. 
When presenting the proposals, the Commission made clear in the 
explanatory memorandum that security of supply is a paramount 
objective of energy policy, and that the progressive openlng-up 
of gas and electricity markets is likely to make for a more 
flexible and broadly-based supply that in turn will lead to a 
higher level of security of supply. 
As regards the improvement of competitiveness, the objective is 
that resources will be used in the most efficient manner and all 
consumers, large and small, will be able to reap the benefits of 
higher efficiency, which is particularly important for energy 
intensive industries competing in world markets. 
The completion of the internal energy market may also yield 
benefits in other policy areas such as environmental protection, 
for instance by encouraging greater efficiency and a more rapid 
adoption of "cleaner" technologies. 
4.3 Progress so far in the Council. t he European Parliament __and jhe 
Economic and Social Committee 
The Directives are in the process of being discussed in the Council 
and the European Parliament. 
A Working Party of the Economic and Social Committee held a public 
hearing on 20 May 1992. The Committee gave its opinion on 27 
January 1993 (doc.ENE/202), approving the principle of 
liberalisation of the gas and electricity industries, the opening-
up of power station and line construction, unbundling, and the 
independence of electricity and gas networks, while expressing 
doubts about Third Party Access, which should be considered at a 
later stage in the light of experience in the Member States and 
inthird countr ies. 
On the 1-2 October, the European Parliament organised a hearing at 
the end of which the rapporteur, who is also the Chairman of the 
Committee for Energy, Research and Technology, concluded that the 
Commission's proposals could not be accepted as such, nor rejected, 
but that it was necessary to propose amendments, involving possibly 
a transitional period. 
At the Energy Council of 30 November 1992 there was recognition 
that the progress made in the first place was insufficient and 
that new measures were needed to overcome the remaining obstacles, 
together with a request to the Commission to consider modifications 
- 16 -
of its proposals in the light of the Council discussions and the 
opinion of Parliament, with the aim of introducing more competition 
into the hitherto more or less closed energy supply systems. 
5- Exploration and production of gas and oil 
5.1 Preparation 
As mentioned in the Commission Working Document on the integration 
of the internal energy market, the sector of exploration and 
production of hydrocarbons (oil and natural gas) still suffers from 
a number of restrictions on equal access of undertakings to those 
activities and on the freedom to exchange those products. 
With a view to completing the internal energy market in this 
sector, the Commission included in its work programme the 
preparation and adoption of a proposal for a Directive establishing 
common licensing rules. Informal consultations with the Industry 
and experts from the governments of the Member States took place 
during 1991 and 1992 with this end in view. 
The proposal which as document COM(92)110 was approved by the 
Commission on 25 March 1992 takes the form of a draft directive 
based on Articles 57 (2), 66, 100a and 113. 
5.2 The proposals 
The proposals would require Member States to grant authorisations 
for prospecting, exploring for and extracting hydrocarbons 
according to non-discriminatory and transparent procedures. These 
procedures should allow all interested companies to apply for an 
authorisation. Criteria for a decision by competent authority would 
have to be defined in advance on an objective basis and be 
pub Iished,and all conditions and requirements related to the 
authorisations made available in advance to possible applicants. 
Furthermore, these conditions and requirements should be Justified 
exclusively by general interest reasons (national security, 
environment, safety, etc), by the payment of a financial 
contribution or a contribution in hydrocarbons or by the need to 
ensure the proper performance of the activities in the area 
concerned. 
The proposal in no way prejudices the sovereignty of Member States 
over their oil and gas resources. Member States will retain their 
rights and responsibilities concerning management of these 
resources, including revenues accruing from the activities but are 
required to exercise them in a manner compatible with the 
achievement of the single market. In line with the principle of 
subsidiarity, Member States will remain free to maintain or choose 
the rules most appropriate to natural operating conditions and to 
their long-term policy for resource management. Consequently, the 
aim of the proposal is not to establish detailed regulations but 
to lay down a framework of general principles to which those rules 
must conform. 
- 17 -
The proposals provide for a clear link and interface with Directive 
90/531/EEC on public procurement (see point 1(1)(a) above). 
5.3 Progress so far 
The proposal has been discussed in the Council, the European 
Parliament and the Economic and Social Committee. The European 
Parliament and the Economic and Social Committee both expressed 
favourable opinions at their sessions of November 1992. 
At the Energy Council of 30 November, after a debate in which some 
convergence of Member States' views occurred, the Committee of 
Permanent Representatives was asked to continue with the 
examination of the proposal, in particular its application to 
existing authorisations. 
6. Standards - further action 
The Commission's cone i us ions as set out in its Communication of 9 
June 1990 (see 1(1)(c) above) are : 
- standardisation in the energy sector is of prime importance for 
the completion of the internal market, the reduction of 
environmental impact, energy safety and efficiency, and for the 
development and spread of advanced energy technologies. Requests 
for the preparation of European standards must come in the first 
instance from the parties directly concerned. 
- completion of the internal energy market calls for 
standardisation work to be stepped up, particularly in the 
sectors of oil (environmental aspects); oil refining and 
distribution equipment; electricity generation, transport and 
distribution equipment; gas transport and distribution equipment; 
renewable energies-, and environmental protection. 
- the preparation of new European standards not explicitly required 
by Community legislation may need to be combined with Community 
legislation making reference to standards compulsory, in cases 
where standards fail to result in the abolition or adaptation by 
the Member States of conflicting national rules. 
- where necessary, the Commission may proposa Community 
harmonisation legislation based upon the new approach essential 
requirements); 
- energy programmes aimed at specific objectives such ;•,, energy 
efficiency or the development of renewable energies should 
include a standardisation aspect. 
The Energy Council of 30 November adopted conclusions endorsing the 
continuation of work along the lines proposed by the Commission. 
The Commission proposes to achieve Its aims by stepping up 
consultations with interested parties at all levels of production, 
- 18 -
transport, distribution and consumption of energy products, in 
order to encourage more active participation; and to organise with 
CEN and CENELEC conferences bringing together those responsible for 
different energy sectors, so as to exploit their many common 
features for standardisation purposes. 
7. Continued application of Community law 
The Commission will continue to make use of all powers conferred 
on it by the Treaty. This could involve specific instruments like 
Decision 2064/86/ECSC on the granting of state aids to the coal 
industry, or infringement proceedings under particular Treaty 
articles. The Commission intends to continue the application of 
Community law as and when appropriate. 
8. Pub 11c procurement 
In the general public procurement context, but including energy, it 
is proposed to modify Directive 90/531/EEC to extend the public 
procurement rules to services contracts. A common position was 
reached on 21 December 1992 and it is hoped that Council will be 
able to adopt the Commission's proposals in the course of the 
current Presidency. 
Chapter 111 - accompanying measures within and outside the Community,. 
Work has continued on policies designed to accompany the effects of the 
liberalisation of the internal energy market within the Community, on 
the one hand; and on the other to strengthen it by means of increased 
security of energy supply from outside the Community. 
9. Internal dimension 
9.1 Energy and Cohesion 
There are sizeable disparities within the Community as regards 
access to energy, energy dependence, structure and security of 
supply. These disparities may represent a serious handicap for the 
development of the less favoured regions and the integration of the 
internal energy market. 
Regional and urban energy planning: the Commission has analysed 
activities in energy planning at the regional and urban levels and 
has set priorities for the period 1991-93. A Communication has 
been submitted to Council (C0M(91)53 final). 
Within the framework of this energy planning action, the Commission 
regards the following as having priority: 
- regions which are on frontiers, are isolated or ultraperipheral, 
together with rural regions or regions in industrial decline; 
-A% _ 
- urban regions having serious environmental problems connected 
with energy. 
As regards the type of action, the Commission will favour : 
- feasibility studies for investment projects; 
- actions strengthening the rôle of local authorities; 
- cross-frontier cooperation. 
At its meeting on 22.5.1991 the Council endorsed the orientations 
and priorities indicated by the Commission and took note of its 
intention of assessing this action and of informing it of the 
outcome thereof by the end of 1993 at the latest. 
Specific actions for certain islands: the Commission approved in 
July 1992 the granting of a first contribution in favour of the 
Azores and Madeira regions, thus giving effect to the energy 
measure provided in the Council POSEIMA decision (91/315 EEC). The 
purpose of this measure is to compensate for the extra cost of 
energy supply during the period 1991-1993. At the end of this 
period of time the Commission will proceed to evaluate the measures 
taken and re-examine the situation. 
The Commission might consider giving increased aid for certain 
energy investment projects in the Greek islands of the Aegean Sea, 
in line with the conclusions of its final report on the specific 
situation of those islands of 20 December 1992 (C0M(92)569final). 
Structural funds: the Community has already made an initial 
response to the development and strengthening of the networks in 
the areas which are eligible for support under the Structural 
Funds. Between 1989 and 1993 some 1700 mi I I ion ECU of the European 
Regional Development Fund is to be committed to energy 
infrastructure projects in Objective 1 regions under their 
Community Support Frameworks. A further 300 million ECU has been 
allocated to the Community initiative REGEN for basic projects 
relating to the diversification of energy sources and the 
strengthening of the security of energy supplies. 
The Commission has begun study of the elements of an "Energy and 
Cohesion" policy, undertaken with a view to a greater contribution 
by energy to the process of integration and the strengthening of 
economic and social cohesion in the Community. At a conference on 
this subject, held in Lisbon on 4-5 June 1992, a degree of 
consensus was reached on the following elements: 
- the objective to be pursued, that is access for the less-
developed regions to energy which is diversified, of high quality 
and at reasonable prices-, 
- the strategy to be developed, which ought to be based mainly on 
the improvement of access to the large energy networks, the 
promotion of energy efficiency and the exploitation of indigenous 
energy sources; 
- 20 -
- implementing action involving a coordinated approach at the 
"energy - regional development" interface at all levels 
(Community, Member States and regions). 
A Communication developing these themes is in preparation. 
9.2 European networks 
On 27 March 1992 the Commission presented a communication to the 
Council concerning "Electricity and natural gas transmission 
infrastructures in the Community" (SEC(92)553 final). 
This document explains the current situation with regard to 
networks for the transmission of electricity and natural gas, 
indicates the courses to be followed to take account effectively of 
the Community and, in some cases, the Continental dimension of 
those networks, and draws up a list of projects, either in 
progress, planned or which might be envisaged in order to complete 
and reinforce networks. 
In general, the Council, in its conclusions of 31 March 1992, 
invited the Commission to "submit to it guidelines concerning 
trans-European networks which can serve as a reference point for 
preparing, as soon as possible, the implementation of Title XII 
of the Treaty establishing the European Union"; more 
particularly, in the field of energy, the Energy Council of 21 
May 1992 reaffirmed that the development of trans-European energy 
networks is aimed at increasing security of supply in the 
Community, permitting balanced operation of the internal market, 
and strengthening economic and social cohesion. It called upon 
the Commission to continue its work in close conjunction with the 
Member States. Subsequently, recognising the key rôle which 
trans-European energy networks can play in contributing to a 
number of core Community policy objectives, the European Council 
of December concluded in favour of inviting the European 
Investment Bank to establish a new temporary lending facility of 
5 billion Ecus for the purpose of promoting trans-European 
networks including those in the energy sector. In addition, 
trans-European energy network projects will be eligible for 
funding under the new European Investment Fund, to be set up with 
a start-up capital of 2 billion Ecus. 
The Commission is now engaged in the preparation of Community 
"guidelines" for transeuropean energy networks; in keeping with the 
provisions of Title XII of the Treaty on European Union, these 
gu i de Ii nos will: 
- define objectives and priorities for Community action on energy 
networks; 
- identify projects of common interest responding to those 
objectives and priorities and 
- 21 -
- indicate the measures which may be of use in promoting the 
realisation of those projects. 
The preparation of these guidelines is based on wide consultation 
of experts from the Member States and of bodies representing the 
professional and consumer groupings concerned, a process which 
began in June 1992 and is now finished. 
10.The external dimension 
10.1 Common commerc i a I po11cy 
The completion of the common commercial policy is an important 
part of the internal energy market. As far as the energy sector 
is concerned, negotiations with Eastern and Central European 
countries have led to the elimination or suspension of all 
remaining national restrictions. However, the non-specific 
national restrictions for the Republics of the former USSR have 
still to be addressed. The Commission is considering possible 
ways of removing these quantitative restrictions. The remaining 
restrictions concerning oil, natural gas and electricity will be 
removed under a harmonisation measure, namely before the end of 
1992. Preferential rules for oil products still remain to be 
harmonised. 
Where coal is concerned, there are now no measures under Article 
71(3) and 74 of the ECSC Treaty restricting free circulation of 
coal originating in third countries. Commission policy is not to 
authorise any such measures under these articles. 
As regards export restrictions, progress has been made to adapt 
these, whether Community or national, to the internal market. The 
remaining national export restrictions for oil/gas products have 
been eliminated in the context of the new Regulation 3918/91. 
Article 29 of Directive 90/531/EEC on public procurement gives 
the possiblity to contracting entities of excluding from supplies 
contracts tenders which rely on more than 50% of third countries' 
products and of giving a price preference of 3% to Community 
tenders. 
This provision is aimed at all third countries with which no 
agreement has been concluded with the Community on <* Ulateral 
or bilateral basis. The Council has asked for a spersf;-? mandate 
to negotiate agreements with different thi J ntries 
independently of the negotiations on public procuremerr being 
currently conducted in parallel with the Uruguay Round 
discussions. 
The Commission's proposal for a directive on public procurement 
of services contains a third country clause which allows the 
Commission to propose to the Council to take safeguard measures 
if its attempts to resolve any difficulties of access with the 
third countries concerned are unsuccessful. 
- 22 -
10.2 European Economic Area 
In June 1990 the Community, the Member States and the EFTA 
countries started negotiations on establishing a European 
Economic Area (EEA): the Agreement was to cover, inter alia, the 
free movement of goods, services, capital and persons throughout 
the EEA on the basis of the relevant EC acquis. 
The Agreement, which was to have entered into force on 1 January 
1993, has been set back as a result of the negative vote in the 
Swiss referendum. The contracting parties agreed during a 
diplomatic conference on 17 February 1993 on a Protocol adjusting 
the Agreement in the light of Switzerland's non-
part ici pat ion.This Protocol and the EEA Agreement itself are 
currently in the process of being ratified by the signatories. 
The Agreement contains provisions similar to those of the EEC 
Treaty. Among the sectors for which most of the Community acquis 
is adopted is the energy sector. Thus the EFTA countries will 
observe the requirements to notify, inform and consult as regards 
energy use - in particular the use of oil - so as to achieve 
rationalisation and efficiency in energy consumption. They will 
also observe the provisions on gas and electricity transit and 
price transparency. Furthermore, the acquis on public procurement 
in the excluded sectors, including energy, will apply throughout 
the EEA, albeit with possible transitional periods of 2 years for 
two EFTA countries (Liechtenstein and Norway). 
For coal, the Agreement on the EEA lays down that the individual 
Free Trade Agreements shall be unaffected and that all customs 
duties and quantitative restrictions on coal trade (which in 
practice is small) shall be abolished and that EFTA undertakings 
shall observe Community rules regarding restrictions on state 
aids and the exchange of information on the state of the market 
and of investment. In the field of state aid, EFTA States will 
be subject to control by the EFTA Surveillance Authority in their 
granting of state aid on the basis of the same substantive rules 
and pursuant to the same procedures as the EC Member States in 
the Community. 
Should problems not be solved by a commonly agreed solution, the 
affected Contracting Party (e.g. the EC) will be entitled to take 
measures to remedy the situation. 
•2i-
iii-^N v':o<-;X75 
COM(93) 261 final 
DOCUMENTS 
EN X210 
Catalogue number : CB-CO-93-293-EN-C 
ISBN 92-77-56531-4 
Office for Official Publications of the European Communities 
L-2985 Luxembourg