RE: Eu Liberalisation: Procedure and Substance of an Art 86(3) ,
 COMMENTS BELOW TO PAUL'S QUESTIONS.



From: Paul Hennemeyer/Enron@EUEnronXGate on 07/03/2001 09:51 AM GDT
To: Brendan Devlin/EU/Enron@Enron, Richard Shapiro/NA/Enron@Enron, Peter 
Styles/LON/ECT@ECT, Paul Dawson/Enron@EUEnronXGate, Doug 
Wood/Enron@EUEnronXGate
cc: Nailia Dindarova/LON/ECT@ECT 

Subject: RE: Eu Liberalisation: Procedure and Substance of an Art 86(3) 
Directive

Devlin

Thanks for the note. Very useful. A few questions for clarification:

1. Can the Directive do nothing about legal unbundling? As I understand it 
this involves no change in ownership but just a requirement
that the owners of Company X spin off their network operations into a 
different company - which they would still own.

NO; ANY CHANGE IN THE LEGAL STRUCTURE WOULD BE OUTSIDE THE SCOPE OF SUCH A 
DIRECTIVE.  EVEN IF ULTIMATE OWNERSHIP REMAINS UNCHANGED, FORCING A 
STRUCTURAL CHANGE WOULD NOT BE POSSIBLE.  MIND YOU, IT WAS UNTIL RECENTLY 
THOUGHT THAT THE COMMISSION COULD NOT REQUIRE DIVESTMENTS IN THE CONTEXT OF A 
MERGER REVIEW.

2. It seems that your statement that "only States can be addressed" opens up 
the possibility that States could, following an  86-based Directive, undertake
a range of actions - including forcing a more level playing field by 
requiring more unbundling and regulated TPA. Is this correct?

YES

3.What specific actions might be undertaken by the Commission as part of 
86-based
Directive?


Thanks, Paul 


 

 -----Original Message-----
From:  Devlin, Brendan  
Sent: 02 July 2001 17:55
To: Shapiro, Richard; Styles, Peter; Hennemeyer, Paul; Dawson, Paul; Wood, 
Doug
Cc: Dindarova, Nailia
Subject: Eu Liberalisation: Procedure and Substance of an Art 86(3) Directive

This e-mail is for background information so that we can have a clear view on 
the prospects and content of  an eventual Art 86(3) Directive.  

The current European Commission's Directive is based on Art. 95 of the 
Amsterdam Treaty; this is an harmonisation Directive, which means that it can 
address any issue likely to impede cross-border flows of goods and services, 
and can have positive effects (such as requirements to set up a regulator).  
An Art 86(3) Directive, on the other hand, can only address concerns within 
the context of Art 86: Art 86 stipulates that member States of the EU shall 
not favour government owned entities or other entities, to whom public 
service obligations (PSO) have been assigned, unless such favour is necesary 
for that entity to carry out it's P.S.O..  Art 86(3) Directives are 
prohibitive and preventative, rather than prescriptive.

In short, Art. 86 means that the competition rules apply to EdF, and if the 
member state won't enforce a level field, the Commission will.

In procedural terms, Art. 86(3) Directives do not have to be passed by the 
Council (member states) nor by the Parliament, though in practice the 
Commission does not act unilaterally and seeks tacit cover. Thus, in the 
Telecomms sector, when the member States found it too hard politically to 
liberalise, they engineered an impasse in Council and invited sotto voce the 
Commission to force them to do it. In effect, the Stockholm Council's 
Conclusions are a similar coded request (the reference to competition rules 
would include Art. 86). Once before the College of the Commission, an Art 
86(3) directive has to be agreed by simple a majority vote of all 
Commissioners (even if they are absent, so you need 11 positive votes). It 
cannot be blocked by a single Commissioner. Even if France/Germany combine, 
there would be 16 positive votes and four against.

What can an Art 86(3) Directive do?

-- Enforce accounts and management unbundling (not legal unbundling as that 
entails change of ownership).
-- Abolish any exclusive rights that have an anti-competitive effect (such as 
exclusive use of infrastructure, rights to import/export, interconnector 
rights?).
-- Broadly speaking, force liberalisation in a utilities sector.

What an Art 86(3) Directive cannot do?

-- Force any legal person to do anything (companies, individuals etc). Only 
States can be addressed.
-- Address positive regulatory issues (set tariffs, create regulators, 
capacity upgrades, etc).

In Summary: An Art 86(3) directive would be different from the directive 
already on the table; it would be more focussed and less general and would 
provide remedies for identified anti-competitive activities.  

Action:  We should be in a position to place before the Commission an array 
of anti-competitive actions that can be remedied by an Art. 86(3) Directive, 
especially with regard to exclusive rights..

Brendan Devlin
paul.hennemeyer@enron.com