Identifier
Created
Classification
Origin
05VIENNA7
2005-01-04 08:39:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Vienna
Cable title:  

LACK OF COMPETITION IN AUSTRIA'S ELECTRICITY MARKET

Tags:  ENRG ECON EINV AU EUN 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS VIENNA 000007 

SIPDIS

SENSITIVE

DEPT FOR EB/ESC/IEB/ENR, EUR/ERA AND EUR/AGS
USDOC FOR 4232/ITA/MAC/EUR/OWE/PDACHER
USDOC ALSO PASS OITA

E.O. 12958: N/A
TAGS: ENRG ECON EINV AU EUN
SUBJECT: LACK OF COMPETITION IN AUSTRIA'S ELECTRICITY MARKET

REF: 04 VIENNA 2972

Summary
-------
UNCLAS VIENNA 000007

SIPDIS

SENSITIVE

DEPT FOR EB/ESC/IEB/ENR, EUR/ERA AND EUR/AGS
USDOC FOR 4232/ITA/MAC/EUR/OWE/PDACHER
USDOC ALSO PASS OITA

E.O. 12958: N/A
TAGS: ENRG ECON EINV AU EUN
SUBJECT: LACK OF COMPETITION IN AUSTRIA'S ELECTRICITY MARKET

REF: 04 VIENNA 2972

Summary
--------------

1. (U) According to a recent report from Austria's Federal
Competition Authority, the anticipated benefits from the
liberalization of the electricity market in 2001 have not
materialized because incumbent providers have successfully
cooperated to maintain a de-facto oligopoly. The incumbents
have therefore managed to block foreign competitors from
entering the market and prices have remained high. The
Austrian Chamber of Commerce has called on the GoA to
liberalize the market fully by eliminating the requirement
that federal, state, or local governments maintain a 51%
share in existing regional energy suppliers. End Summary.


"Liberalization"-Fending Off Foreign Competition
-------------- ---

2. (U) A year-end report from the Federal Competition
Authority (FCA) has reinforced previous assessments (ref A)
that there is a lack of competition in Austria's electricity
market. The report also highlighted the difficulties
potential foreign competitors face in entering the Austrian
market, in which incumbent providers have created a de-facto
oligopoly. The FCA report concluded that electricity prices
remain high, because incumbents prefer the status quo to
price competition. The report opined that the first steps
towards market liberalization in Europe have not led to
trans border competition, and especially not in Austria.
The report criticized the numerous mergers and cross-
holdings that followed liberalization of the electricity
market in 2001, arguing that companies' primary focus has
been to fend off competition from foreign suppliers and
start-ups.


3. (U) The report asserted that incumbents maintained high
prices by demanding "all-inclusive," non-flexible contracts
for bulk electricity users, forcing them to pay a fixed
price. This mitigated any benefits that might accrue from
subsequent reduced network tariffs, which represent 30% of
the overall price. Regarding the household sector,
competition for household accounts remains virtually non-
existent. In some states, local suppliers have raised
household prices by as much as 23% this year.


Business Calls for Full Privatization
--------------

4. (U) Christoph Leitl, President of the Austrian Chamber
of Commerce, publicly called for the full privatization of
regional energy suppliers. (Note: A constitutional law
requires that federal, state, or local governments own 51
percent of shares in existing energy suppliers End Note).
In press interviews, Leitl said public ownership had failed
because state governments had used energy suppliers to
"fatten their budgets." He argued that only complete
privatization would lead to real competition and lower
energy prices.


Comment
--------------

5. (SBU) The initial "liberalization" of the electricity
market has not created the anticipated effects -- more
(foreign) competition and lower prices. A contact in the
energy regulator, E-Control, told us that experiences with
electricity markets in other EU countries are very similar.
Unstable energy markets worldwide account for a part of the
steep price increases in the sector. However, successful
efforts by incumbent suppliers to fend off competition have
also contributed to an oligopolistic situation and higher
prices.

BROWN#