Following a European Commission debate on energy liberalization on Wednesday, the clear message to have emerged is that EU countries cannot interfere with company sell-offs and that member states that do so, such as Spain and Italy, can expect a legal challenge.

The outcome of the lively debate was a re-affirmation of the Commission’s opposition to restrictions on cross-border investment other than in exceptional circumstances. The Commission spelled out that when an EU government is privatizing a company it could restrict the sale of shares to public sector operators. However, the government has to ensure the conditions are clearly defined and that the restriction is in force for only a limited period.

Frits Bolkestein, the EU’s single market commissioner, said Brussels would turn “fairly soon” to the Italian and Spanish laws and any other cases that may arise, now that it has decided its general opinion on the issue.

Mr Bolkestein said that there was no reason for retaliatory measures by EU governments against countries that did not open their energy markets. “Member states cannot take the law into their own hands,” he said. Once companies have been privatized, governments should not interfere, the Commission said.

Both the Spanish and Italian governments have put in place laws to restrict the voting rights of foreign companies who have acquired stakes in their domestic power companies and in both cases the target has been French state-owned utility EdF. The countries object to what they see as exploitation of the deregulation process in Europe by companies benefiting from state aid, and whose own domestic markets are not open to competition. The Commission’s view is differences in the degree of liberalization between EU countries are insufficient reason for member states to interrupt the free flow of capital.

The Commission aims to achieve a free energy market in Europe by 2005. Progress towards this was delayed in March this year by French and German refusals to agree definitive timetable. Mario Monti, the EU’s competition commissioner said yesterday that the Commission could take measures to prise open countries’ energy markets unless they agreed on proposals already under discussion that would create a free energy market by 2005. Brussels could employ the “Commission directives” that it used to force open the telecommunications markets in the late-1980s. These do not have to be agreed by EU governments where progress is being hampered by France’s reluctance to agree to a final date for full competition.

Meanwhile, EdF has been attempting to reassure its critics that it does not pose a threat to domestic energy businesses. Jacques Chauvin, EdF’s Chief Financial Officer, gave an interview to the Financial Times yesterday in which he said that there was no plan to break up the Italian conglomerate Montedison in order to exploit the valuable generating assets of subsidiary Edison. EdF has built up a 20 per cent stake in Montedison but Chauvin insisted that the intention was to develop the business along with other shareholders, most of who are financial institutions.

EdF believes it can help Edison develop its electricity business in the Italian market and around the Mediterranean. “Edison is a good company and EdF could bring synergies if there was an industrial agreement,” said Vincent de Rivez, EdF senior vice president.

EdF has defended the accusation that it benefits from state subsidy in operating its large nuclear generating capability – enabling EdF to sell cheap electricity. It said it was willing to undergo any EU investigation of its nuclear sector and that EdF pays the equivalent of dividends to the state rather than the other way round.

While admitting that the French electricity market is only open to the minimum 30 per cent level as required by the European Union, EdF argued that it is as advanced in opening up its market as several other EU states. In particular, it referred to Germany which, although technically 100 per cent open has yet to offer its citizens a non-German electricity supplier.