VZCZCXRO3693
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHTC #0246/01 0731024
ZNR UUUUU ZZH
P 131024Z MAR 08
FM AMEMBASSY THE HAGUE
TO RUEHC/SECSTATE WASHDC PRIORITY 1213
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEHAT/AMCONSUL AMSTERDAM PRIORITY 3921
RUEHBS/USEU BRUSSELS PRIORITY 0633
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 THE HAGUE 000246 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/WE, EUR/ERA, EEB/ESC/IEC 
USDOC FOR 4212/USFS/MAC/EURA/OWE/DCALVERT 
USEU FOR TSMITHAM 
 
E.O. 12958: N/A 
TAGS: ENRG EINV PGOV EU NL
SUBJECT: NETHERLANDS/ENERGY: DUTCH MOVE FORWARD WITH 
OWNERSHIP UNBUNDLING 
 
THE HAGUE 00000246  001.2 OF 002 
 
 
THIS MESSAGE IS SENSITIVE BUT UNCLASSIFIED.  PLEASE HANDLE 
ACCORDINGLY. 
 
¶1.  (SBU)  SUMMARY.  The Netherlands is moving forward with 
plans to unbundle its public energy (gas and electricity) 
sector by 2011.  Unbundling is expected to increase network 
efficiency and reliability and cut costs, primarily to 
industrial and business customers.  However, the plans are 
facing growing opposition from major Dutch energy companies, 
which are concerned about unbundling-related costs and 
becoming acquisition targets.  Meanwhile, the Dutch say their 
efforts are in line with EU Commission plans and argue that 
Franco-German proposals for a "third way," allowing large 
energy companies to maintain ownership and limited control 
over transmission and storage assets, would put Dutch energy 
companies at a competitive disadvantage.  END SUMMARY. 
 
2011 -- TARGET DATE FOR UNBUNDLING 
---------------------------------- 
 
¶2.  (SBU)  Emboffs met recently with Bert Roukens, a Senior 
Advisor responsible for energy security and energy market 
liberalization at the Ministry of Economic Affairs (MEA). 
Roukens said the Dutch will proceed with Economic Minister 
Maria van der Hoeven's plans to split the country's public 
gas and power companies through an unbundling law that will 
become effective July 1, 2008.  Currently, these energy 
companies -- which generally sell both electricity and gas 
and are owned by provinces or municipalities -- are permitted 
to own both network and distribution (retail and wholesale) 
holdings.  Under the new law, energy companies must divest 
their network holdings by January 1, 2011.  This will create 
two types of energy companies: regulated network companies 
applying users' fees set by the central government (the DTe, 
or Office of Energy Regulation) and distribution companies 
dealing with trade, supply, and production. 
 
DISTRIBUTION OPEN TO PRIVATIZATION / NETWORKS TO REMAIN PUBLIC 
--------------------------------------------- ----------------- 
 
¶3.  (SBU)  Municipalities will be allowed to privatize their 
distribution companies, if they wish, with "no restrictions 
on foreign ownership," Roukens added, but network companies 
will remain in public hands.  Retaining public ownership of 
network companies addresses GONL concerns about possible 
risks associated with an acquisition by a foreign company 
"such as Gazprom," Roukens said.  Until 2011, and as long as 
network components remain an element of an energy company's 
holdings, at least 51 percent of the parent company will need 
to remain in public hands.  (NOTE.  TenneT is the legally 
unbundled owner and operator of the Dutch national 
electricity transmission network.  The unbundling law will 
also require energy companies to cede management of their 
high voltage networks (over 110KV) to TenneT.  In the gas 
market, Gasunie Gas Transport Services is the national 
transmission system operator.  TenneT and Gasunie are 100 
percent owned by the Ministry of Finance, with the MEA 
responsible for setting policy.  Energy companies currently 
operate in a competitive downstream market that was fully 
liberalized in July 2004.  END NOTE.) 
 
GOVERNMENT SEES BENEFITS OF UNBUNDLING 
-------------------------------------- 
 
¶4.  (SBU)  Roukens said the unbundling plan would increase 
transparency and remove barriers to competition by allowing 
suppliers equal access to the Netherlands' energy network, 
which was also expected to become more reliable through 
independent, simpler, and stronger supervision.  The ultimate 
goal, Roukens said, was to increase energy market efficiency 
and supply reliability and reduce costs.  According to 
Roukens, initial studies suggested that business and 
industrial customer costs could fall by 20 percent under the 
plan due to greater competition within the market.  These 
customers would also benefit from volume discounts, 
derivatives, and hedging.  Residential users were expected to 
benefit through some cost reductions and greater choices. 
Because of a different tax and transport charge structure 
that accounts for up to five-sixths of residential users' 
bills, however, Roukens said increased competition would only 
reduce costs on one-sixth of residential energy bills. 
Roukens predicted that unbundling would lead to greater 
interdependence among the network companies and their 
 
THE HAGUE 00000246  002.2 OF 002 
 
 
distributors. 
 
INITIAL INDUSTRY REACTIONS HOSTILE 
---------------------------------- 
 
¶5.  (U)  Meanwhile, large Dutch energy distributors have 
grown increasingly hostile toward the unbundling plan.  The 
Netherlands' largest utility Nuon -- with 2.5 million 
customers in the provinces of Gelderland (44 percent), 
Friesland (13 percent) and Noord-Holland (10 percent) -- has 
expressed fears that its small size would prevent it from 
buying other firms while possibly becoming an acquisition 
target itself.  The company announced on February 18 that 
unbundling would result in "considerable costs" and that it 
was considering legal action against the GONL to recover 
unbundling-related expenses.  Essent, whose 2.4 million 
customers in the provinces of Noord-Brabant (31 percent), 
Overijssel (18 percent), and Limburg (16 percent) make it the 
second largest Dutch utility, announced its own lawsuit 
against the MEA in December 2007.  Eneco -- whose 2 million 
customers largely reside in the country's largest cities of 
Rotterdam (31 percent), The Hague (17 percent), and Dordrecht 
(9 percent) -- claimed that existing laws sufficiently 
safeguard the Dutch energy supply.  In September 2007, Eneco 
started legal proceedings against what it views as the GONL's 
forced unbundling. 
 
IN STEP WITH THE COMMISSION 
--------------------------- 
 
¶6.  (SBU)  Roukens said Dutch efforts were consistent with 
the EU Commission's energy unbundling plans.  However, he 
predicted that the Commission would move toward greater 
support for independent system operators as a compromise to 
countries that oppose the splitting of integrated energy 
companies.  He noted Economic Minister van der Hoeven has 
publicly supported the EU Commission's plans, urging 
Commissioners Adris Pielbags (Energy) and Neelie Kroes 
(Competition) to proceed with their unbundling efforts and 
criticizing Franco-German proposals for a third way as "only 
a slight adjustment" to the current EU directive.  He 
indicated that this "third way" would allow 
vertically-integrated companies such as France's EDF to 
maintain ownership and limited control over transmission and 
storage assets.  Roukens worried that the Franco-German 
proposals would also place unbundled Dutch energy companies 
at a competitive disadvantage versus larger national champion 
energy companies. 
Gallagher