US embassy cable - 05VIENNA7

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#