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EON sells network to avoid EU wrath

AFP · 28 Feb 2008, 15:49

Published: 28 Feb 2008 15:49 GMT+01:00

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EON said Thursday it is ready to sell its transmission network, bowing to pressure from Brussels and putting it at odds with Berlin on how to liberalise Europe's energy sector.

The company has fallen foul of European regulators over its market dominance, said it was now ready to sell its transmission network -- but only to a non-competitor -- along with 4,800 Megawatts of generation capacity to rivals.

The European Commission, which confirmed receiving EON's plans, intends to market test the proposals and if they are successful, it "would not pursue the current anti-trust cases," a statement from the company said.

"The European Commission welcomes these proposed commitments in so far as they could remedy the concerns that it has regards EON," EON said. "These proposals, if adopted, would structurally change the electricity sector in Germany and could spur competition in the sector to the benefit of domestic and industrial customers."

Earlier, a German government spokesman told AFP that EON head Wulf Bernotat had informed Chancellor Angela Merkel of the company's intentions.

The move, however, puts EON at odds with the government which along with France and six other EU members had been pressing for Brussels to explore other ways to liberalise the continent's electricity and gas sectors. They support a less drastic proposal whereby companies could be split up into affiliates with separate managements but remain within the parent group, in marked contrast to the EU's preference for the simple sell-off that EON has now agreed to.

According to business daily Handelsblatt, three other major German power companies -- RWE, EnBW and Vattenfall -- were also in intensive talks on the sale of their distribution networks.

Recent years have seen a flurry of mega-mergers and acquisitions in the European energy industry but Brussels is worried that the resulting small number of very large firms such as EON stifles competition. For Brussels, big integrated energy companies that control the distribution networks inevitably means less competition in the market, a point consumer groups have made increasingly as power costs have risen sharply.

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Brussels hopes that by separating power generation from power transmission it will free up the market and stimulate Europe's economy by making electricity and gas cheaper for consumers and businesses. It also wants governments to become more willing to invest in new power stations and infrastructure to ensure supply keeps up with demand.

Earlier this week the head of RWE, another German power giant, said Europe faced blackouts lasting days at a time later this year because of a lack of power stations.

For its part, France has warned that the shake-up could in practice reduce competition and French European Affairs Minister Jean-Pierre Jouyet has attacked the Commission's proposals as being driven by the "ideological position" of certain officials such as Competition Commissioner Neelie Kroes. There are also concerns that non-EU firms such as Russia's Gazprom could snap up European assets as a result while EU firms would not be able to make acquisitions in Russia. German power company EON will sell one of its networks to appease an EU request that aims to stimulate European energy competition.

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