Spain unveils new gas-sector rules

Feb 19, 2002 01:00 AM

The Spanish government ended months of uncertainty in the energy sector by unveiling a new regulatory and tariff regime for the natural-gas industry ahead of its full liberalisation in January 2003. The framework, which takes effect, aims to bring natural-gas prices closer to European levels and provide regulatory stability for the electricity companies developing combined-cycle electricity plants fuelled by natural gas. It also opens a market for companies to sell gas directly to large clients.

Natural-gas tariffs will fall by about 5 % for domestic use and 15 % for commercial use. Transport fees were reduced by 8 %. Under the new system, tariffs will include toll and storage components, in addition to rates based on consumption. The change will allow for the separation of Enagas, which operates the gas infrastructure, from Gas Natural, the de-facto gas monopoly owned by Repsol-YPF, which currently controls both transport and sales. The distinction allows Repsol-YPF to meet the government's requirement to sell a 65 % stake of Enagas.

The changes are part of the government's energy liberalisation plan to bring competition to the gas market. But potential new entrants have criticised the plan, as the operating margins will be too small to fund businesses that can steal market share from Gas Natural.
The new structure also limits the amount Repsol-YPF can earn on the sale of Enagas by setting a relatively low return on investment for its infrastructure. Jose Folgado, secretary of state for the economy, said Enagas' rate of return would be about 6.5 %, equivalent to the return on a 10-year government bond plus 1.5 percentage points.

Analysts said the low rate of return would discourage foreign gas-transport groups from investing in Enagas and make an initial public offer of the company difficult. The most likely buyers are the handful of independent gas companies present in Spain and the electricity companies, which are eager to ensure that their gas demand is met and are opening their owngas distribution businesses.

Source: The Financial Times
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