Austrian energy deal sparks fresh EU row

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The dispute over economic nationalism in Europe's energy market took a new twist yesterday when the Austrian oil refiner OMV agreed to buy the power generator Verbund, prompting claims the government was seeking to forge a national energy champion.

The merger of the two state-controlled Austrian utilities follows the bitter dispute over the behaviour of governments in Spain and France, where domestic firms are thought to have been protected from foreign takeover threats.

Across the Continent, the opening of European electricity and gas markets has led to moves to consolidate nationally and across borders.

Austria's economy minister, Martin Bartenstein, welcomed the OMV-Verbund merger, worth about €11.5bn (£7.5bn), arguing it would allow for the creation of a "European champion".

But analysts questioned why OMV, which also produces oil and gas, was buying Verbund, which is primarily a hydropower generator. UBS said in a research note: "We believe that the Austrian government views the merger as a means of ensuring security of supply in the energy sector by creating a 'national champion'."

Austrian concerns about energy supply were heightened in January when it was affected by a dispute between Russia and Ukraine. Austria's supplies from Russia were cut by a third when Moscow reduced gas exports to Ukraine during a price dispute.

OMV's chief executive, Wolfgang Ruttenstorfer, said the new company would build gas-fuelled power plants in the region between Turkey and Austria through which OMV plans to build a gas pipeline by 2011.