Geneva, 9 July 1999
"Converge,
Get Bigger or Die"
Does the US
and UK adage apply to the continental European
gas and
electricity utilities?
"Whereas the deregulation
of the gas and electricity markets in the United States and
the United Kingdom are having a strong impact on the convergence
of gas and electric utilities in these countries, it is unlikely
to have the same impact on continental European gas and electric
utilities", said Mr. George Kowalski, Director of the
UN/ECE Energy Division. "Although the trend towards the
liberalisation and opening up of markets in continental Europe is
well underway, convergence is likely to be much less, at least
for the time being".
While the experience of
deregulation in the UK and US suggests that there will be some
degree of convergence in Europe, it is, however, not likely to
lead to the formation of multi-energy companies, simultaneously
active in both the gas and electricity sectors. Gas companies
will remain largely gas oriented while electric companies will
remain mainly providers of electricity. The current trend in
Europe is towards partnerships between gas and electricity
companies, for example, in the construction and operation of
gas-fired power plants or in trading activities, such as the
joint marketing of gas and electricity.
"The current merger frenzy in the oil
sector may be a harbinger of what might be in store for the gas
and electricity industries", stated Mr. Kowalski. "Market opening and liberalization has often been
followed by the concentration of capital and labour in ever
bigger sized corporate units. The proverb that "small is beautiful" is being severely tested."
A large number of mergers,
acquisitions and strategic alliances are occurring. Many are
taking place in industries that traditionally have been closed
and heavily regulated but are now being opened up to competition.
This is the case for the telecommunications, airlines and banking
industries, just to mention a few. Frequently, deregulation and
liberalization means fewer rather than a larger number of
companies in the marketplace.
The European gas and electricity
industries have not escaped this trend. There have been
significant reductions in the number of gas and electricity
distribution companies in markets which have been opened up to
competition. The trend to market deregulation and liberalization
is closely intertwined with that of globalization. Governments
are liberalizing in order to ensure that their industries are
competitive in the global marketplace.
This development is somewhat
paradoxical or a contradiction. On the one hand, government
policy makers are deregulating and liberalizing with the view of
promoting more competition in the marketplace. On the other hand,
market dynamics, the strategic positioning of companies and the
trend to globalization, with the emergence of big global players,
is pushing in the opposite direction. Both electric and gas
companies are actively seeking partners to integrate along the
whole chain, from production, transport to distribution, as well
as getting bigger to better meet competition head on in a wider
marketplace.
These are the main conclusions
of a Conference on the opening up of the gas and electricity
markets in the region of the Economic Commission for Europe,
organised recently in Prague, jointly by the UN/ECE Energy
Division, the Czech Gas and Oil Association and Transgas, the
major Czech gas company.
The Conference, attended by more
than 100 key officials and experts from the gas and electricity
industries, addressed the issues of convergence of the gas and
electricity markets, the strategic impact of the opening up of
electricity and gas markets, the state of restructuring and
privatisation of the electricity and gas utilities in central and
eastern Europe and the implications of the EU Electricity and Gas
Directives.
The long term impact of
liberalisation was discussed in the context of sustainable energy
development and policies. The conference participants concluded
that liberalization would, in the short term, promote overall
economic efficiency but the impact on the sustainable development
and use of energy over the longer term was more difficult to
predict.
For further information, please
contact:
Ms. Sylvie Cornot-Gandolphe or
Ms. Sevinç Kiciman
Energy Division Energy Division
Economic Commission for Europe
Palais des Nations
CH-1211 Geneva 10, Switzerland
Tel: (4122) 917 24 43 or (4122)
917 24 46
Fax: (4122) 917 04 30 or (4122)
917 00 38
E-mail: [email protected] or [email protected]