The Trouble With Change

Junior Isles

Managing Editor

This talk of genetically modified food troubles me. A colleague suggested that perhaps I am just one of those people who has a problem with change. But with BSE still fresh in the mind, I beg to differ. Admittedly change can be a problem for some; as the recent official introduction of the EU directive demonstrates.

The directive which came into force on February 19 says that the majority of EU member states must put in place arrangements to open up at least 26.5 per cent of the EU market to competition and inform the Commission of the steps taken to achieve this goal. This first phase is designed to allow commercial and industrial customers using more than 40 GWh a year to choose a supplier other than their current regional or national supplier.

The extent to which countries have implemented the directive highlights the fact that in business, change is only really a problem when the benefits do not clearly outweigh the drawbacks. Members of the EU that have not whole-heartedly embraced competition are generally those which have the most to lose.

Consider France. Its embrace of competition has been more like a neck-lock. State-owned Electricité de France (EdF) has enjoyed a 50-year monopoly and is not keen to see a healthy, captive customer base eroded away.

The government has only just begun debating the bill which will transpose the directive into reality and its whole approach to liberalization has been cautious to say the least. Firstly, the government bill proposes to open the market only to the mininum required by the directive. It also proposes that EdF maintains management of the national transmission grid.

Historical and political reasons have been cited for France dragging its feet but the reasons could be a lot simpler. France currently has some of the lowest prices in the EU for industrial customers and EdF is not in a position where it feels that competition is needed to drive prices down even more. Further, if it can capture customers outside of its borders while protecting its customer base, as much as possible for as long as possible; then why not? There may be cries of foul and that it goes against the spirit of competition and customer choice, but it makes perfect sense. After all, although competition is designed to bring prices down, electricity companies still have a natural instinct to survive.

Although not to the same extent as France, Italy is also taking a slow approach. Enel saw the end of its 37-year monopoly but will still retain 90 per cent of its overall network. This plan has been criticized by independent power producers because it will still leave Enel in a dominant position.

Meanwhile the other big player, Germany, has at least on paper embraced competition. It implemented the EU directive last year and utilities opened their grids to Third Party Access last year. Although this was a major step, for reasons better known to themselves the government did not force utilities to sell their assets. Since then, there have also been attempts at protectionism. There was the widely reported case of Enron being told by a utility that because of technical reasons it could not use its networks to fulfil contracts.

But not all countries have taken a protective or even semi-protective stance. Denmark, Luxembourg, Spain and the Netherlands are all on a fairly fast track. Even Belgium, one country which started on a slow track, has now gone further than the directive. Along with Ireland and Greece, it had longer than the February deadline to implement the directive. It was now expecting to open 35 per cent of its power market to competition less than two weeks after the other European Union states. Electrabel – Belgium`s main generator and distributor – said that it had pressurized the government into completing the process now (instead of within its extended 12 month period) so that it could compete in the wider European market.

The general pattern seems to be that the smaller markets are keen to open up their domestic markets while looking for pickings abroad; the larger markets want to protect their domestic positions while still taking advantage of liberalisation: a kind of `eat your cake and still have it` scenario.

Now there is an interesting thought for the creators of genetically modified food – a cake that you could eat and still have. Change may have certain benefits after all.