Proposed law splitting energy suppliers will make the Netherlands Europe's dupe

13 April 2006

Proposed law splitting energy suppliers will make the Netherlands Europe's dupe

The handling of the proposed law to split up energy supply firms has a long history. SP Member of Parliament Ewout Irrgang began his contribution to today's parliamentary debate over the issue by looking back.

Ewout IrrgangIts origin can be traced to the 1990s. This was the era in which the Wall came down, Francis Fukuyama declared the end of history, and an unbridled faith in the workings of the market was in birth. An oft-heard slogan during these times was that society could not be engineered. Looking back, however, we can conclude that the dominant political class of the day, in its blind faith that the introduction of market working in virtually all sectors of the economy would be the most certain way to paradise, believed absolutely that society could indeed be engineered. In 1996, during that epoch of blinding ideological dazzle, the European Directive for the liberalisation of the electricity market came to pass. As a consequence, our national parliament in 1999 adopted the electricity law. It would take too long here and now to rehearse in any detail every objection to such liberalisation, but the SP was amongst those who pointed out that electricity is no ordinary economic good. It is a base product, to which everyone in the Netherlands should have access at all times. You cannot lay it by for even a fraction of a second, a quality which places a strict limit on market working. Importing it from abroad is problematic and, moreover, inefficient, because much is lost in transport. Increasing productive capacity takes years, while the market contains an inbuilt impulse towards scarcity, with all the risks to certainty of supply which that carries. Clean energy is more expensive, which pushes up the importing of electricity from polluting sources. And last but not least, energy networks are natural monopolies. .

In this fact lies also the connection between the liberalisation of the market and the proposed splitting of energy firms, and the privatisation of these companies and of the energy networks which will be its consequence. If a functioning energy market is in any sense possible, it demands that competing firms have access to the energy networks. In a formal sense our country is in compliance with the European directive which stipulates that the network must be legally separated from supply. That this is not self-evident can be seen from certain other EU member states where the separation has still not been effected. In the final days of the “Purple” coalition (the government of Labour, right-wing liberals and centrist liberals which was in power until May, 2002 – translator's note) a weighty political discussion raged around the question of dividing legal ownership from economic ownership of the networks. Mr Crone of the PvdA (Labour) parliamentary group was then a strong supporter of this and he is as far as this goes being consistent today when he supports the splitting and privatisation of energy firms. The proposal before us represents the closing act of this history.

In the meantime, however, the world around us has changed once again. After the end of history came the beginning of the twenty-first century – on 11th September 2001. The world understood anew the immense geopolitical interest involved in energy supply and society's vulnerability when vital provisions fail. Enormous demand from the rising economic superpowers of China and India led to rising energy prices and a race between states to secure their own energy supplies. The United States invaded Iraq, China does business in Iran and our own minister Mr Brinkhorst in Libya. These are all illustrations of the repoliticisation of energy policy.

To such repoliticisation also belongs the once more growing influence of states on their own energy sectors. Russia uses Gazprom quite shamelessly as an extension of its foreign policy, while France and Spain take measures to prevent their energy giants from being taken over by foreign competitors.

In this context it is also meet to ask whether this law splitting up energy firms is really appropriate. Is it not sometimes better to hold your cards close to your chest? I know that my political group and the minister will perhaps never agree, but I want nevertheless to ask him in all seriousness to heed my call: wait, be patient, look before you leap. You believe in this western European energy market, but how real is it in fact? Perhaps eventually it will really come into being, and if that happens then you can always go further down this path.

Mr Zalm, the Finance Minister, said last week that he understood the wishes of a large majority in this House, a majority which includes the Labour Party, the (right wing liberal) VVD and the Green Left, that protective mechanisms applied to major Dutch undertakings should not be demolished while other countries are failing to demolish theirs. Must we nevertheless go through with the demolition of protective mechanisms for energy firms in order that we can see them taken over by foreign behemoths and Dutch consumers forced in the near future to pay the cost of these take-overs via their electricity bills?

The issue of the Cross Border Leases has taken up a great deal of our time during the legislative consultation. I must tell you that I find it an extraordinarily complex matter to be able to get a good overview of, especially in view of the obvious commercial interests on the one side, and the political interests on both. It is my impression that the risks involved in these scandalous constructions (which, despite warnings from a broad spectrum of opinion including the SP parliamentary group and a former VVD minister, Mr Jorritsma, are nevertheless going through), have been greatly limited by the amendments. The minister had already said a great deal on this but I would be grateful if during this debate we could hear his assurances that if this law is adopted it will lead at worst to limited claims. And by limited I mean no higher than a few million euros. Is he prepared to state this? If the minister is indeed prepared to make such a statement then in my opinion the political risk will fall entirely on his shoulders. And I would warn him that former finance minister Mr Ruding is at least in one respect correct and that is that we will also be able, after May 2007, to call the minister before a parliamentary enquiry into the splitting of the energy companies. .

The cost benefit analysis, if well done, is the essential part of the information memo that accompanies any legislative proposal. This legislative proposal has, on this point, a strange history. In the information memo costs of hundreds of millions of euros are spoken of, a sum which works out for the country as a whole at about €50 per household. In the legislative consultation the minister fiercely defended his own alternative information memo and denied that these figures were accurate. I further observe that the Central Planning Bureau (CPB), in its first note on this matter, stated that the projected benefits of the splitting were small and the risks large. Following the legislative consultation we received a fresh cost-benefit analysis from the Kist Committee (on Energy), based on a new note from the CPB.

In the SP parliamentary group's view this new cost-benefit analysis only raises new questions. The first of these, which I put for form's sake, is this: does the minister endorse this analysis?

I cannot shake off the impression that the Kist commission, and also to some extent the CPB, have with this new cost benefit analysis missed the point. In the first place it is stated that most of the costs that the minister listed in his original memorandum, as well as those stipulated by the consultants Deloitte and Ronald Berger, are consistent with the creation of a substantial network administrator. These costs must in any case be met, so the reasoning goes, so they should not be counted as costs of the splitting of the energy companies. I find that logical, and the SP also supports the creation of a substantial network administrator.

But I can nevertheless hope that these hundreds of millions that the creation of such a substantial administrator would cost would be offset by the major benefits which would accrue in the form of a better functioning energy market. I would like to ask the minister if that is so. And should these benefits not be deducted from the benefits of this proposed law if you are also not going to include the costs?

Secondly, in the CPB note which forms the basis of this analysis, the major part of the benefits takes the form of the transfer of the transport networks to the newly established holding company Tennet. The CPB concludes in relation to this that an increase in decentralised generation would bring enormous material benefits. I share this conclusion and in my opinion this means that the same thing goes here as in the case of the establishment of a substantial network administrator: transferring the administration of these networks is in any case something that we must do, nobody is opposed to this, and so we must count neither the costs nor the benefits as accruing to the splitting of the energy firms.

Finally the analysis considers only statistical advantages, while in the context of an unfair European energy market it is likely that major losses will be suffered, because major foreign energy corporations will take charge here, with higher prices as the consequence.

I will produce a definitive balance in the second round of the debate but the SP parliamentary group is for all of these reasons extremely sceptical in response to the legislative proposal before us. The minister must now above all on the point regarding the costs and benefits at long last offer some clarity so that we can bring the consideration of this legislative proposal to a close.

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