Italian gas decontrol

The Italian government has proposed to end ENI SPA's near-monopoly on natural gas distribution but let it keep most of its assets and contracts.

The Italian government has proposed to end ENI SPA's near-monopoly on natural gas distribution but let it keep most of its assets and contracts.

Parliament must approve the decree, which would open the Italian gas market to competition ahead of an August deadline set by the European Union.

The decree would not allow any company to have more than 50% of the retail gas market or more than 70% of pipeline shipments. ENI has 88% of sales and 85% of shipments.

ENI must yield partial control of Snam SPA, its gas distribution subsidiary. Snam contributes about 60% of ENI's profits.

The decree does not require ENI to sell Snam or its supply contracts or alter take-or-pay contracts for pipeline space.

Moderation

Italian Industry Minister Enrico Letta insisted decontrol would not hurt ENI in the long term.

"This is because we believe the Italian energy market has growth potential. Our forecasts see national gas consumption jumping by a third in the next 8 years."

ENI said Italy used 65.3 billion cu m (bcm) of gas last year, and that will rise to 81 bcm by 2005 and 88 bcm by 2010. Most of the increase will come from conversion of power plants to combined-cycle gas turbine technology.

Letta's decontrol decree had to appease the EU, Italian antitrust regulators, the Treasury Ministry, and powerful ENI.

Decontrol could not be so radical that it would hurt ENI's stock price or profits, because the Treasury Ministry holds 35% of ENI's stock.

Government antitrust officials had urged a tougher approach. They wanted Letta to require ENI to sell Snam, divest some take-or-pay contracts, and drop its share of gas imports to 40% from 96% by 2005.

Letta argued decontrol was justified because Italian gas costs 12.5% more than the European average. ENI replied the difference was less than 4.5%, and that was because Italy's milder climate forced lower pipeline utilization.

Campaign

ENI waged a multifront campaign to blunt the reform effort.

It had begun separating ENI and Snam administrative functions and was "already offering competitors transparent and nondiscriminatory access" to its pipeline network.

ENI created a new division, "Rete Italia," to manage the gas distribution network separately and said it would unbundle transportation costs from import and marketing costs.

The company repeatedly declared that Italy needed a large, strong gas company to negotiate the best prices from foreign suppliers. Italy is more dependent on gas imports than any other European nation.

And ENI proposed to limit its growth in Italy, Europe's fastest-growing gas market, and instead expand outside the country.

ENI Chairman Gian Maria Gros-Pietro said, "We agree with the government's wish to open the market, and we don't consider with hostility new, big entrants. But deregulation is one thing, expropriation is another. To take away supply contracts is an expropriation of private property."

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