156 Chtiphi Spanish government, immediate legislation, followed by a Royal DcctM published in September 1996, established access to pipelines and I,NO facilities for users of 1.2 million cubic metres per day.61 However, not only was this a very high threshold, but the legislation was also hedged about with qualifications which would allow Gas Natural/Enagas to rcl'iiftf access. This was followed in December 1997 by the Electricity Act, whn h provided for a significantly faster liberalization in that sector. The clou tricity industry is significantly more diversified than gas, with mora players in generation and distribution as well as a greater mixture of public and private ownership. First shots in the liberalization war were fired as a result of develop ments in the power sector. In early 1997 Repsol and Gas Natural signed it cooperation agreement with the generating company Iberdrola covering power generation, cogeneration and foreign projects (specifically in Lai in America).62 This was a clear challenge to the state-owned generalot Endesa which, with its allies (oil company) Cepsa and Banco Cenluil Hispano (BCH), had been attempting to form a rival consortium which could build gas-fired power plants in Spain.63 The situation is furllici complicated by the 41.2% shareholding of the French company Ell In Cepsa, which could have given the French company a very strong position to seek access to the Spanish grid. This aspiring consortium approached Gas Natural for access and was apparently rebuffed. At that point, Endestt appears to have made efforts to join the Repsol/Iberdrola/Gas Natm.d consortium - a proposal which also did not appear to be well received.''1 By the end of 1997 Gas Natural appeared to have broken with Repsol/ Iberdrola in announcing a construction programme of 10 gas-fired powei stations by 2007, the first two of which will be built by 2000 at Algeciia 61 The July 1996 legislation allowed much greater scope for access than the subsequent September measures. Royal Decree 2033/96, 6 September 1996. EU Gas Directive, Houtt of Lords Select Committee on the European Communities, HL Paper 35 (London: Thi Stationery Office, 1997), pp. 72-4. 62 'Major Spanish gas/power accord sealed', International Gas Report, 7 February 1997, pp. 1-2. 63 'Spanish battles escalate to gas warfare', ibid., 7 March 1997, pp. 1-2. 64 'Focus on Spain', European Gas Markets, 23 May 1997, p. 3. National institutional developments 157 iikI Malaga.65 This programme would make Gas Natural the fifth largest generator in Spain. Gas Natural's actions may have been triggered by the December 1997 |nil)lication of the Hydrocarbons Bill which presages a faster opening up nl ihe market than foreseen by the EU Directive because of the structure nl Spanish industrial gas consumption (see Table 4.1). The government US forecast that the customers eligibility thresholds of 25, 15 and 5 million cubic metres will, in the case of Spain, give rise to market openings of 40%, 50% and 65%, and the government will not modify iluse openings (as it is entitled to do under Article 18(5) (see Appendix II). The Bill, which is expected to become law during 1998, may also piopose a market opening in advance of the likely EU date (mid-2000).66 What is still uncertain is whether the government will move to create a separate gas regulatory authority to oversee liberalization, or whether this will be added to the duties of the existing Spanish Electricity Regulatory Commission (CSEN).67 What is clear is that the government's main liberalization objective is to reduce the prices of both electricity and gas to industry, and some have speculated that in pursuit of that aim, the government may opt for regulated, rather than negotiated access.68 The partial privatization of Endesa and liberalization of electricity is seen as having an important role in reducing electricity prices, which in turn is important for maintaining the competitiveness of Spanish industry. This rather brief account of the Spanish experience highlights a contradiction between a consolidation of the structure of the gas industry (a directly anti-competitive and protectionist act) followed by the relatively tapid, but admittedly relatively restrictive, introduction of liberalization legislation. Following a failed attempt by a powerful rival energy M 'Spain's Gas Natural steps up power drive', International Gas Report, 9 January 1998, P 7. "" 'Spain plans to outstrip EU', ibid., p. 19. "'Sebastia Ruscalleda i Gallart, 'Regulating Gas and Electricity in a Changing linvironment', a paper to the 12th Annual European Autumn Gas Conference, Barcelona, 5 November 1997. 'EU Gas Directive' op. cit., para. 222, p. 80; Tom Bums, 'Spain's sell-off policy pays dividends', Financial Times, 1 August 1997; 'Spain leads the way with liberalization decree', European Gas Markets, 16 January 1998, p. 7. Cluipi, I5H (electricity and oil) conglomerate to gain access to pipelines, I'm 11• legislation is to be introduced to open the market still further. Whethei I hi eventual outcome of this process will be faster and more success!ill progress towards liberalization has yet to be seen. But the determination 11| the present government to drive down gas and electricity prices to indusliiiil customers by a combination of privatization and liberalization may hi decisive in determining future developments in the Spanish gas industry. \ Russia: institutional change and uncertainty As was noted in Chapter 3, the Russian gas production and transmission company, RAO Gazprom, produces 95% of the country's gas. From Siberia westwards, Gazprom has a transmission and wholesale monopoly of all large customers, including distribution companies.69 The Russian gal export company, VEP Gazexport, is a wholly owned subsidiary of Gazprom Gazexport is the sole exporter of Russian gas outside the former Sovicl Union. (Exports to former Soviet republics are handled by a differcul division of Gazprom.) Gazprom is owned 40% by the Russian government, 50% by employees and Russian citizens (through a voucher privatization), 10% by the company itself (9% of which has been allocated for offer to foreign investors)."1 Gazprom in the person of Chairman Rem Vyakhirev votes 35% of the government's 40% share in the company and this arrangement will continue, but according to an agreement reached in April 1997 the Chairman is required to make a quarterly report to a 10-person committee headed by the Energy Minister.71 Gazprom's relationship with successive Russian governments have been periodically difficult, despite the fact that the company's former chairman, Victor Chernomyrdin, has been Russian Prime Minister since 1992. Perennial disagreements have centred on: 69 Gazprom's institutional evolution from Ministry of the Soviet Gas Industry to 1996 is covered in Valery Kryukov and Arild Moe, Gazprom: Internal Structure, Management Principles and Financial Flows (London: RHA, 1996). 70 The 50% held by Russian citizens is divided into several groups, see ibid., Chapter 7 for details. 71 'Russia's reformers put squeeze on Gazprom', Gas Matters, May 1997, pp. 5-7. Notional institutional developments 159 t liom the government side, constant arguments about the amount of tax which Gazprom should pay; • horn Gazprom's side, arguments about how payment arrears (often by covernment departments and companies) should be set against taxation. I Ik- company's principal short-term problem is non-payment, and the vnlume of barter trade which has to be accepted as payment by domestic i ustomers. Large-scale non-payment began in 1992 and steadily increased ,w prices were raised massively towards 'market levels'. During 1994-95, p.ivment arrears by Russian customers were around 50% of receivables. Since 1996 this picture has been complicated by the widespread appearance lor to be strictly accurate, reappearance) of barter trade. Despite the fact Dial in 1996 Gazprom's accounts were for the first time published hi cording to international accounting standards, it is extremely difficult to disentangle accurate statistics regarding receivables.72 In the first quarter ill' 1997 Gazprom reported that it received payment for only 45% of gas delivered and only 6% of those payments were in cash. Non-payment is a highly political issue, given the unemployment and social unrest which could result from payment enforcement and a crucial financial issue, given I he sums of money involved. The trade-off between how much tax (iazprom should pay, and the extent to which it should be allowed to enforce payment, has been and continues to be, a running battle between the company and the government. In June 1997 a Presidential Decree lowering industrial gas prices by 40% was published, but this price cut will only apply to those companies which have paid all of their federal and local taxes and which are up to date in their payments to Gazprom.73 For our purposes, resolution of the non-payment issue will have, as we shall see, an extremely important bearing on future restructuring and liberalization of the gas industry. 11 Gazprom's 1996 IAS accounts state that 57% of accounts receivable settled during calendar year 1996 were in the form of barter trade or inter-enterprise transfer. " Eastern Bloc Energy, July 1997, p. 4. IN) Chapi.-i National institutional developments I (>l Restructuring, liberalization and regulation Gazprom has eight major production subsidiaries, three of which, located in Siberia, account for around 80% of production, each centred on a single major field: Nadymgazprom (Medvezhe), Urengoygazprom (Urengo) i and Yamburggazodobycha (Yamburg). Until 1997 the company's 14 tran mission subsidiaries were responsible for transportation and sales of gnii throughout Russia. In the early part of 1997 a restructuring of thi company was announced whereby all gas sales would be handled by | newly created marketing subsidiary, Mezhregiongaz. This, and oth« reform measures (see later), mean that the transmission subsidiaries have become transportation-only companies with no merchant function.74 At the beginning of 1997 it was announced that a newly created Federal Energy Commission would set regionally differentiated gal prices for industrial and residential customers. The idea was that the Commission would eventually be responsible for regulating transmission tariffs. Gazprom then announced an internal restructuring, akin to h corporatization of the company. This was accelerated by the April 1997 changes in the Russian government which once again brought to the fore younger economic reformers intent on reining in the power of the Russian monopoly utilities and increasing tax receipts from these companies. The clearest report on the reforms envisaged by governmenl suggested a three stage process: (1) reforms to be completed during 1997 include regionally differentiated gas prices; a unified system of transmission pricing for independent producers and Gazprom subsidiaries; encouraging new investors (domestic and foreign) to develop new fields and pipelines; transparency of production and transportation costs; accounting and reporting procedures for Gazprom subsidiaries; establishing tariffs and conditions for access to pipelines (including a Commission to look at 74 For more details on the Gazprom reorganization, see Arild Moe, 'The Reorganization of Gazprom: Scope and Impact' and Valery Kryukov, 'Gazprom - Financial Flows and Management: the Need for Internal Transparency', proceedings of the conference, Reform in the Russian Gas Industry: Regulation, Taxation, Foreign Investment and New Export Prospects, Royal Institute of International Affairs, London, 20-21 November 1997. access for independent producers); tendering for rightl to CliVI lap gas fields favourably located with respect to existing pipelines; I) reforms to be completed during 1998 include bringing residential prices up to those paid by industrial customers; transferring authority for local transmission tariffs to regional energy commissions; H) reforms to be completed during 1999-2000 include separation of production from transmission with contracts between different subsidiaries; regulation of transmission tariffs.73 Assuming these reforms are implemented, they would amount to Gazprom being transformed into a full open-access transportation company before (he end of the century. But it would be unwise to make this assumption too Kadily. Both the scope and timetable of the reforms appear extremely ambitious, and are unlikely to be met. The institutions and personalities responsible for implementing the reforms are subject to frequent change. The roles of the Federal Energy Commission, Anti-Monopoly Committee, Ministry of Fuel and Energy, and the offices of the Prime Minister and Deputy Prime Minister seem to become more and less influential on a monthly basis. By early 1998 conventional wisdom seemed to suggest that (iazprom's leadership had 'seen off the latest group of economic reformers who were the authors of the utility reforms and whose political longevity seemed to be in doubt. It would, however, be wrong to be cynical about the future reform of Gazprom. Not only has a degree of liberalization already taken place in Russia, but the way in which this develops will have an extremely important impact on European gas markets. Likely restructuring and liberalization reforms: the relevance for European gas markets Although the reform programme is likely to prove overly ambitious, some progress has been made towards the creation of corporatized production and transmission units trading by means of transfer prices. The key question in the first stage will be the extent to which the transmission " 'Russia sets monopoly restructuring programme to year 2000', Interfax Petroleum Report, 2-9 May 1997. 762 Chapter' National institutional developments 163 companies will turn over all of their sales functions to the newly created marketing division (Mezhregiongaz) thereby becoming transmission-only companies. To the extent this does happen, transmission tariffs will need to be devised and implemented which will be a major step toward* restructuring and liberalization. Almost irrespective of the progress of internal restructuring, govern* ment pressure for Gazprom to be demerged (rather than 'broken up') inlo smaller entities is likely to continue and intensify in the coming yearn. This will be due less to any likely government conversion to the tenets of competition and liberalization, and more to the increasing threat which successive Russian politicians will perceive arising from the financial and political power of Gazprom. The current liberalization and restructuring programme will assist any eventual demerger into separate production and transmission companies.76 Yet the political, financial and institutional complexities of such 11 restructuring should not be minimized. Production is highly concentrated, both geographically and corporately (in the hands of three production associations) in Siberia. A structure of demerged production companion selling their gas through an open access transmission system (controlled by either a single company or multiple companies) would place significant power and wealth in the hands of three new companies in the Yamal Nenets region of Siberia. This may not be attractive to Moscow politician*! who, despite their problems with Gazprom, at least live in the same city tin its senior management. Moreover, until the problem of non-payment and non-cash payment by Russian customers is resolved, or at least reduced In manageable proportions, the effect of demerger could be to plunge many of the newly independent production and/or transmission companies into immediate bankruptcy. The production companies would depend on u form of payment sufficiently liquid to allow them to cover their costs, phi1, payment of tariffs to the transmission company (or companies) anil emerge with a tangible profit. A production-only company (or companies) would be much less well equipped than Gazprom to deal with large-scale 76 There are, of course, a number of different options depending on how many production and transmission companies eventually demerge from the current structure. non-payment, late payment, and/or a large proportion of barter goods exchanged for gas. These difficulties would almost certainly lead either to their inability to pay their transmission tariffs (with dire consequences for the transmission companies), and/or to serious financial problems within their own organizations. However, when non-payment and barter problems have been resolved, m reduced, demerger will become a viable option. Competition and liheralization will be accelerated due to the reduction in gas demand within Russia, arising from bankruptcy and the start of conservation and efficiency measures which will greatly inflate the existing 'bubble' of excess supply.77 Competition between producers for a shrinking market -mid potentially between transmission companies competing to utilize nvailable pipeline capacity - would provide ideal conditions for a strongly • innpetitive market. Given the geographical concentration just noted, however, the potential for collusion between existing producers may be equal to, or greater than, the potential for competition. But if Russian and foreign companies are given opportunities and Incentives to open up smaller gas fields, and perhaps revisit older fields (where recovery could be increased with more advanced technology), with the prospect of delivering their production direct to consumers in Russia mid beyond, competition between suppliers could rapidly become fierce. I his would also be a major opportunity for Central Asian gas producers -heed from the embrace of a vertically integrated Gazprom - to negotiate directly with a range of customers, Russian and non-Russian, with their y,»s being delivered by transmission-only successor companies. But if the demerger of Gazprom's production and transmission units i mild be considered positive for the Russian domestic gas market, it would hugely complicate existing exports to Europe.78 All of the current long-term contracts are held by Gazprom (with Gazexport being the negotiating partner), and stretch into the next decade and beyond. In terms " limathan P. Stern, The Russian Gas 'Bubble': Consequences for European Gas Markets I London: EEP/RIIA, 1995). "exports to former republics are not as complicated since they are negotiated on an nnniial basis. 164 Chapi. * National institutional developments 165 of revenue earnings, these are the crown jewels of Gazprom's current assets valued at $185bn by the company.79 The demerger of Gazprom would cause immense difficulties in terms of which entity would continue to hold the contracts. If a residual Gazprom company still existed after lliP production and transmission assets had been demerged into different companies, there would be no guarantee that the entity will have sufficient financial means to purchase sufficient gas from production companies lor the management of 150-200 BCM/year of long-term contract gas. If then were no residual Gazprom company, the existing long-term contn i< I would presumably be allocated between the successor production companies. Such an allocation might amount to a complete renegotiui..... of contracts for around one-third of European gas demand - a highl) destabilizing prospect for European markets. It is this prospect, probaMy more than concerns about a supply disruption for political or technio reasons, which would give rise to major security of supply fears in Europe in respect of Russian gas. While this is not an argument for indefimn retention of Gazprom's current vertically integrated structure and de facto export monopoly, structural change within the company raises problem, which require careful consideration. Protagonists of restructuring Russia'* gas industry will need to ensure that the proposals which they ar advancing take these considerations into account and provide convincing solutions to potential contractual problems with European gas companies, This will not be an easy task. Norway: institutional challenges One of the curiosities of the Norwegian gas industry is that this major European supplier has not used any gas in its domestic energy balance for 25 years. While this situation will change in the future, the institutiona structure of Norwegian gas export sales is coming under strain competitive pressures mount. 79 Presumably this figure is a valuation of the revenues which will be received from current long-term contracts over their remaining contractual life. 'Gazprom to use 2-3% of investment shares as convertibles', Interfax Petroleum Report, 28 November - 4 December 1997, p. 11. Aside from major international companies operating in the Norwegian m! I shore sector, the Norwegian participants are Statoil - the state oil and (ins company; Norsk Hydro - a company with private investors but with 11 % state ownership; Saga Petroleum - a private company owned mainly liy Norwegian interests (in which the Norwegian state owns a 'golden xliiire', in order to prevent unwelcome takeovers). A further important itspcct is an accounting distinction between resources held by state-owned i ompanies and the 'State's Direct Financial Interest' (SDFI), established iii the beginning of 1985. The SDFI in all fields and pipelines is operated by Statoil, but gives the Norwegian state an immediate and important Interest in decision-making.80 SDFI interests are considerable: The SDFI alone has 4700 million barrels of proven oil reserves and 1200 IJCM of proven gas reserves spread in 21 fields. It also has interests in 7 oil iind gas pipelines (50% of the total). In 1992 the SDFI alone accounted for 45% of all offshore investments. If the SDFI and Statoil's interests are Combined, the state's share is 50.3% in fields already earmarked for development and 51.8% for all fields that are at the planning stage. Their Combined control of commercial reserves is 68% and their share of total petroleum production between 1994-97 is 63%.81 This state dominance of gas resource ownership has been reinforced by Us (export) sales arrangements which, since 1986, have been dominated hy the Gas Negotiating Committee or GFU - a tripartite body under the leadership of Statoil consisting of that company, Norsk Hydro and Saga IVtroleum.82 The guidelines for the GFU were set out as follows: "" 'The essence of the arrangement is that a part of Statoil's gross income from each Individual project is transferred directly to the State, while a corresponding part of Statoil's i'xpenses on each individual project is covered by the State through SDFI', Ministry of IVlroleum and Energy, Norwegian Petroleum Activity, Fact Sheet 97, p. 10. "' Javier Estrada et al., The Development of European Gas Markets: Environmental, economic and Political Perspectives (Chichester: John Wiley, 1995), p. 228; see Table 2.1 Idi SDFI gas production. "' I'or pre-1986 arrangements, see Javier Estrada et al, Natural Gas in Europe: Markets, Organization and Politics (London: Pinter, 1988), pp. 223-29. 166 Chaptci I National institutional developments 167 The Committee is to act as a permanent advisory body for the Ministry ol Petroleum and Energy in questions associated with the disposal of natural gnu reserves and evaluations of which fields can most expediently be developed oi exploited to deliver natural gas under new contracts ... Preparation and implementation of gas sales negotiations are to take place under the direction of the committee under Statoil's supervision ... It is the authorities' task In decide which fields are to be developed. Clarification with potential buyeis concerning which fields are to be included in a gas sales agreement ran therefore take place only after the authorities have decided on this.83 This centralization of decision-making in Norwegian state hands, witli no serious opportunity for any outside input, caused widespread resentment among foreign companies operating in Norway. In 1993 decision making was widened with the creation of the Gas Supply Committee or FU whose role would be to 'function as an advisory body to the government wilh regard to the development and exploitation of gas fields and pipelines.'11' The Norwegian government regards the GFU/FU system as the chosen agent of the nation's sovereign control over its resources, and essential foi optimising the management of those resources. The GFU negotiates sali contracts, the FU then recommends which fields should be developed tO fulfil these contracts, and these recommendations are then passed to thl Ministry. The Norwegian Parliament is asked to endorse the final decision, The issue of whether this system can survive in a competitive European gas markets and will eventually be replaced by a more liberal system, will be significant for the development of competition in European gal markets. There are three specific issues: (1) whether the GFU/FU system man be considered anti-competitm within the framework of the European Economic Area Treaty;85 81 Petroleum Activity in the Medium Term, Report to the Storting No. 46 (1986-87), Chapter 11. 84 The FU consisted of the ten largest gas resource holders in the Norwegian sector - thl three GFU members and seven foreign companies. This was subsequently expanded to 12 companies. Report to the Storting No. 2 (1992-93), Chapter 2. 85 With the Norwegian people's (second) rejection of EU membership in the 1991 Referendum, it is Norway's membership of the European Economic Area, which has n Treaty of Association with the EU, that is relevant here. (2) whether a bureaucratic and slow-moving decision-making process whose stated purpose is to contribute to the management of resources, defined as optimization of the totality of the Norwegian oil and gas resource base from a variety of fields, can cope with a market in which decisions are increasingly likely to be needed within days (and possibly within hours) if existing market share is to be defended and new customers to be won i \) whether the role of Statoil as representative of the state's direct economic share (SDFI) in the fields is still appropriate and tenable, given the size of the state as a potentially independent player in Norwegian gas sales. IIic first of these issues was raised in June 1996, following a complaint I mm the German company Wintershall arising from its inability to purchase I'is from the Norwegian company (and GFU member) Saga Petroleum, because ol GFU objections. The complaint alleged a price-fixing cartel which led (o a joint investigation by DG IV (the EU Competition Directorate) and the I'.ITA Surveillance Authority (ESA) into the activities of the three members ol the GFU: Statoil, Norsk Hydro and Saga.86 Since all of the gas is sold to I nmpanies in EU member states, the matter lies within the Competition Directorate DG IV's powers, but it was required to request the ESA to investigate Norwegian companies. The European Economic Area (EEA) Agreement, to which Norway is a party, incorporates EU competition rules. The Norwegian government does not consider that the EEA Agreement || applicable to the GFU as a resource management institution. However, the ESA may disagree and may find the GFU/FU arrangements to be lundamentally anti-competitive and indeed consider the prevention of gas-it > gas competition as one of their main aims. In the event of such an outcome, the Norwegian government would come under severe pressure in abandon GFU/FU system.87 It may, in any case, find that the commercial "lor background see 'Gas joint selling deals: DGIV, Britannia and the GFU', FT, EC I nergy Monthly, 15 November 1996, pp. 7-8; 'Did the Norwegian dawn raids presage a new dawn?', European Gas Markets, February 1997, p. 6. " Presumably Norway could withdraw from the EEA if the decision were to go against it, I'm 1 his would be a very major step to protect a system which may in any case prove untenable in the future. IM Chápte requirements of a competitive market make the present system untenable. Given their resistance to changing institutional arrangements for gas sales, it is not surprising that successive Norwegian governments have been among the most implacable opponents of EU gas liberalization initiatives. This is curious from a policy perspective, given that Norwegian liberalization initiatives in the electricity sector are the most advanced in Europe.88 While it may be relatively easy from an internal Norwegian perspective to separate the gas and electricity industries - because of the lack of a domestic gas market - from an international perspective, its policies appear completely contradictory. This may be yet another factor which weakens the Norwegian government's case for retaining the GFU. Concern about European liberalization initiatives has prevented the unitization and liberalization of the Norwegian offshore pipeline network - an essential step towards optimising the throughput of an increasingly complex set of pipelines delivering gas from an increasing number of fields. The 'GasLed' concept was first advanced in late 1995 as a way of 'unitizing' the ownership of the offshore gas pipeline systems, and producing a single transmission tariff for gas delivered to Continental Europe.89 Different variants were discussed, with the idea that the some of the systems - Ekofisk, Statpipe, Norpipe, Zeepipe, Norfrapipe and Europipe - might not initially be included in the GasLed concept.90 A White Paper was expected on the concept in the Spring of 1996, but government apparently considered that GasLed would undermine the present GFU system and Norwegian arguments against liberalization, and refused to allow any further discussions. This must be seen as a lost opportunity to prepare for a more competitive market conditions which will require more transparent and straightforward calculations of capacity availability and charging in Norwegian transmission systems. It is difficult to understand how the Norwegian authorities can genuinely believe that the GFU/FU system has a long-term future. From the point of 88 Atle Midtun and Steve Thomas, Theoretical ambiguity and the weight of historical heritage: a comparative study of the British and Norwegian electricity liberalization, Centre for Electricity Studies, Norwegian School of Management, Report No. 1, 1997. 89 'Oslo mulls pipe system plans', Financial Times International Gas Report, 24 November 1995, p. 15. 90 'Focus on Norway', European Gas Markets, January 1996, p. 3. National institutional developments 169 view of Norwegian national interest, it would be better to replace this system with something which appears less all embracing, rather than be laced with an adverse judgment from European competition authorities. While the abandonment of the GFU/FU system would probably not Ihreaten ongoing contractual arrangements, it would increase the pressure from individual producers - both Norwegian and non-Norwegian - to market gas discoveries on an accelerated timetable.91 However, such pressure could be strongly resisted by the Norwegian Parliament whose approval of individual field and pipeline developments, hitherto regarded as a 'rubber-stamping' exercise, would immediately become a much more serious element of the process. In a small country where a majority of the population and the political classes regard environmental and sustain-ibility issues as matters of genuine priority, it is entirely possible that new development requests might be denied. The other consequence of abolishing the GFU might be further to si lengthen the pre-eminent position of Statoil, both in its own right and as operator of the SDFI. If the Norwegian government were to be deprived of ils chosen resource management vehicle, it might respond by reinforcing I he position of both Statoil and the SDFI in terms of licence awards and field development approvals, and carrying out its long-expressed 'threat' lo limit new gas development.92 Either of these responses would curtail expansion of Norwegian gas exports, beyond what has already been contracted. This would be good news for other suppliers to European gas markets, but not necessarily l>ood news for Norwegian Continental Shelf sellers. By contrast, dismantling of the GFU/FU system with no corresponding government restrictions would almost certainly lead to an increase in Norwegian gas exports by individual license holders, both Norwegian and non-Norwegian. In that scenario, the market power of Statoil, particularly if granted free rein to operate the SDFI, could be so overwhelmingly dominant that the '" There is no reason why the GFU should not be allowed to hold the existing contracts which have been signed. New contracts would simply be on a different basis. For an account of Norwegian gas export history in which these threats have surfaced periodically, see Jonathan P. Stern, 'Norwegian gas exports: past policy, current prospects and future options', Energy Policy, January/February 1990, pp. 55-60. 170 differences between the new and existing structures might not be so M ■ tu,mal institutional developments 171 Institutional developments in a wider European context The gas markets which have received a relatively lengthy treatmeni in chapter seem to the author to be those where significant chanp h occurred, and still is occurring which is both important in its own and may trigger significant developments elsewhere. This is not to mi that important changes are limited to these countries. Indeed an inipoii part of the argument advanced in this study is that change is oca...... everywhere in Europe. The following brief overview is an attempt I highlight significant developments elsewhere on the Continent. Italy: privatization with limited liberalization The privatization of ENI has been fundamentally anti-liberalization failure to demerge the main corporate components of the conglonici. AGIP and SNAM - into separate entities. However, significant changi are on the horizon in the Italian gas industry, although one of the principal drivers is similar privatization and liberalization in the electricity industry, As early as 1995 the gas transmission company SNAM was required In publish a transmission tariff, although the definition of those eligible ln| access to the system was limited to (electricity generator) ENEL ami independent power producers operating on its behalf.93 In November 1996 the Autorita per l'energia electrica e il gas wm established as an independent public body and started work in Apill 1997.94 The regulatory authority is responsible for ensuring access IQ networks, setting tariffs, service quality, all aspects of concessions and dispute resolution. At the same time, the long-standing exclusive right 11| ENI to conduct exploration, production and storage in the Po Valley (llip main producing area in the country) was abolished.95 93 'SNAM's transport tariff can be cheaper than Britain's', Gas Matters, March 1995, pp. 23-21 94 'Italy cleans up its gas laws: hello regulator, goodbye monopoly', ibid., January 1997, pp. 1-4, I 95 Oliveiro Bernadini, 'The Italian Authority for Electricity and Gas Regulation', a papci In the 12th European Autumn Gas Conference, Barcelona, 5 November 1997. During the debates on the EU Gas Directive, the Italian government li'iuled to be in the camp of the conservatives, but in the wake of agreement on the text, there seemed to be some new enthusiasm with indication lliul the government would allow smaller industrial users to combine the Volumes in order to become eligible for direct purchase. Whether this type o! activity will be linked to a finding by the national anti-trust authority Unit SNAM is in an unacceptably dominant position in the industry, remains to be seen.96 Illinium and Austria: privatization without liberalization and competition In both Belgium and Austria the sale of equity in transmission companies I Hstrigaz and OMV was carefully managed to exclude major European gas and energy companies. In Belgium an all-Belgian 'buy-out' was Implemented, while in Austria a Middle East investor was finally allowed in purchase equity in OMV. Neither government has shown anything other than opposition to liberalization, despite the fact that the geographical position of both countries (but especially Belgium) would leave their companies ideally placed to take advantage of gas-to-gas competition. / Isewhere in Europe In much of former communist Europe, restructuring and privatization of energy and gas industries has been widespread.97 In gas, the fastest change has been in Hungary where both MOL (production and transmission) and 11 ic gas distribution companies were privatized, the latter with substantial foreign shareholdings. These companies were regulated by the Hungarian Energy Office, the region's first specialized energy regulatory authority, established in 1994. A similar pattern of privatization has been seen in the iMonian and Latvian gas industries. Privatization has also taken place in the former Yugoslav republics of Croatia and Slovenia, but without substantial foreign ownership. * 'Rome urges small firm links', International Gas Report, 9 January 1997, p. 18. Pbr a general overview of change in these countries, see John Leslie, Central European Energy: Markets in Transition (London: Financial Times Energy Publishing, 1996). 172 Elsewhere, the pace of change has been slower. In the Czech Kcptil the privatization of gas distribution companies should be on ii. government's 1998 agenda, but plans to change the status <>l tip immensely profitable (transmission company) Transgas continue to in i i into the future. In Romania, the privatization of Romgaz is scheduled hit 1998 and restructuring of the industry seems likely as part of that pron Romania is the only country in the region where liberalized access lo pi networks is under way with Romgaz transporting gas for Wironi m< RomgazAVIEH joint venture) among others. In Poland, privatization mill restructuring of PGNiG has been on the agenda for some time, hill progress has been painfully slow. In Bulgaria, the restructuring of the pi* market has been immensely difficult and in early 1998 the outcome •