Europe's dominant energy groups face new legislation to break them up and enable smaller competitors to enter the market, Jose Manuel Barroso, the president of the European Commission, warned on Tuesday.
In a move that will provoke uproar in some countries, Barroso threatened to force big "vertically integrated" groups to hand over their power transmission networks and gas pipelines to new owners to try to spur competition.
However, he accepts that a handful of pan-European groups, such as E.ON and RWE of Germany, EDF and Suez-GDF of France and Enel of Italy, will emerge from the current round of consolidation and must be allowed to compete across borders.
His announcement came as the Spanish prime minister, Jose Luis Rodriguez Zapatero, confirmed his government was likely to clear the way for E.ON to take over Spain's largest energy group, Endesa, within the next few days by loosening regulations.
"The Spanish government wants and hopes that the solution will be satisfactory to German interests, for E.ON's interests and, above all, for Spanish consumers," he said after talks with the German chancellor, Angela Merkel.
The German group, which owns extensive assets across the EU, including Powergen in Britain, is expected to raise its 27 billion euros (US$34.4 billion) all-cash bid to more than 30 billion euros as part of the deal to secure Endesa. Spain's industry minister is due to rule on its appeal against the 19 conditions imposed by national regulator CNE.
The commission is working on a grand strategy to create a single European energy market which is due to be announced next year. This will address the issue of whether current laws to enforce the legal separation, or "unbundling," of transmission from distribution and supply have worked.
Barroso indicated they had failed to create competition, convincing him of the need for new laws to enforce separate owners. But aides to Andris Piebalgs, the energy commissioner, said Luxembourg and Spain had not made directives into law so it was impossible to tell if they were working.
The Belgian government, meanwhile, warned the planned 70 billion euro merger between Suez and GDF would wipe out competition in the country, demanding the break-up of Fluxys, the gas pipeline operator owned by Suez.
Jean-Francois Cirelli, chief executive, defended the merger as workers went on strike to protest against government proposals to cut the state's stake from 70 percent to 34 percent.
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