German Energy Giant Vows to Unbundle Gas Network

In a statement released on Saturday, May 31, RWE said it still rejected allegations made by the European Union's executive branch that it was seeking to block potential competitors from its gas network in North Rhine-Westphalia state.

"RWE is still convinced that it has complied with the legal requirements in the gas business (but) in order to avoid protracted litigation, the group has now decided in favor of a consensual settlement," it said.

"RWE will now commit to selling off its gas transportation network in Germany to an independent third party within the next two years," it added.

The news is likely to come as a blow to firms such as Gaz de France and Russia's Gazprom, who are currently fighting European Union plans to break up the continent's energy giants in order to boost competition.

"This decision was not an easy one for RWE to take," the company said, adding that it was not linked to ongoing talks about separating its electricity and gas transmission networks.

Abuse of power

The EU investigation, launched on May 11, 2007, was based on the suspicion that RWE "may have abused" its control of gas transmission systems in North Rhine-Westphalia "by raising rivals' costs and preventing (new) entrants from getting access to capacity on gas transport infrastructure in Germany," a statement said at the time.

The case, which is still ongoing, was one of a number which the commission opened to challenge major energy firms such as Germany's EON and France's GDF, suspecting that they could be using their status as the owners of gas and electricity transmission systems to keep potential competitors out of the market.

In September the commission went further, proposing that power companies in Europe which both sell gas or electricity and control the transmission networks be obliged to sell off their networks - a process known as "unbundling."

The proposal provoked fierce opposition in several European countries, including Russia, with eight EU states -- Austria, Bulgaria, France, Germany, Greece, Luxembourg, Latvia and Slovakia -- penning a joint letter lambasting the idea.

But on Feb. 28, E.ON sent shockwaves through Europe by saying that it was ready to "unbundle" itself by selling off its electricity transmission network - thereby greatly boosting its chance of avoiding a massive anti-trust fine from the commission.

EU member states are expected to make a final decision on the unbundling proposal by the end of the year.