Both the Italian Industry and Foreign ministers have condemned French power group Electricite De France (EdF), following admission that it has built a 20 per cent stake in Italy’s Montedison group. The storm over EdF’s latest move has highlighted unrest within the EU over the progress of liberalisation within the energy industry.

In a press release on Wednesday, EdF confirmed that its shareholding in Montedison had grown to 20 per cent. It had been steadily increasing its shareholding over the last week. In anticipation of an adverse reaction, the statement set out the steps that the French government had taken to comply with European directives on market liberalisation.

EdF also confirmed that it is preparing to auction 6000 MW of installed capacity to its competitors in the European market – a commitment made to the Commission last February.

The Italian government fears that state-owned EdF plans to take control of Montedison and the valuable power generation assets owned by its subsidiaries, Edison and Sondel. Enrico Letta, Italy’s Minister for Industry, said the government would block any such attempt. He said, “It would be too much, just when we are successfully carrying out liberalisation to see a clear-cut return of state involvement on our soil from another country.”

The disparity in the pace of deregulation was highlighted by Italy’s foreign minister Lamberto Dini this week. He insisted that his government would act, stating, “It is rather worrying that a state-owned French company can take such a stake in a private Italian company. It is something over which governments cannot avoid being involved.”

In an attempt to diffuse the situation on Tuesday, EdF said of its investment in Montedison that it had “no control or shareholder agreement to gain control”. A spokesman said that the group had no plans to buy more Montedison shares in the coming days.

EdF has also been developing interests in Spain recently, having gained indirect control over Spain fourth-largest utility, Hidrocantabrico, to add to its investments across the continent. Spain has reacted by suspending voting rights under legislation referred to as “EdF law”, but this action is itself is now under investigation by the EU commission as a possible breach of its single market obligations.

The Montedison Group has interests in agribusiness, insurance, chemicals and pharmacy as well as its energy businesses. It owns 61 per cent of Edison, which has 6000 MW of generating capacity, and is the second largest producer after Enel, the recently privatized power group.

The increasing dominance of EdF within the European electricity industry raises concerns in Brussels. The Commission has said that it will investigate whether EdF’s 20 per cent stake in Montedison gives it control of the Italian group. It is also examining the Hidrocantabrico acquisition.

The European commission wants to push through full liberalisation in order to give consumers maximum choice over the supply of electricity. However, the privitization of state-controlled utilities permitted by the liberalisation has left them open to foreign control by dominant players such as EdF.