Outlook: Power struggle leaves a nasty smell

PERHAPS IT was too much to expect consecutive victories over the Germans and the French in the same week. On Tuesday Gerhard Schroder came to his senses and decided it would not be such a smart move after all for Germany to cancel its nuclear fuel reprocessing contracts with BNFL without compensation. First there would have been the court case with the British government. Then there would have been the trickier matter of what to do with 500 tonnes of radioactive waste arriving back on the German Chancellor's doorstep. As Mr Schroder's more militant Green supporters have ably demonstrated, trainloads of plutonium trundling across the German hinterland do not make for good public order.

The French, however, are made of more slippery stuff, and yesterday they won the tussle over where Electricite de France's pounds 1.9bn takeover of London Electricity should be vetted. Brussels decided to keep the merger for itself and promptly waved the deal through on the grounds that who keeps the lights burning for two million Londoners is neither here nor there in the great European scheme of things. So much for subsidiarity.

Having played the "national interest" card and been roundly ignored, the Department of Trade and Industry was left to sift the wreckage for scraps of consolation. The worst that regulators here will be able to do is tinker with EdF's licence.

But they will not now be able to stop the merger by referring it to the Monopolies and Mergers Commission. Nor will they be able to ask the French why it is possible for EdF to buy London but impossible for London, or anyone else on this side of the Channel for that matter, to buy EdF. Nor, finally, will they have the leverage to persuade EdF that the interconnector, through which it supplies 7 per cent of the UK electricity market, really ought to run in both directions.

It is easy to see why the French are so keen on the UK market. The new energy regulator, Callum McCarthy, let the cat out of the bag yesterday by conceding that the generators have been rigging the electricity pool for the past nine years. As it will take another few years before the pool is fully reformed and operating in a proper competitive fashion, there is still plenty of scope to make money at the consumer's expense. Backed by the bottomless pit otherwise known as the French taxpayer, EdF can hardly wait to get started.

But the real villain of the piece is the European Commission. From the moment the auction for London Electricity began, Brussels allowed EdF to drive a coach and horses through its own merger rules. The most important one is the rule that says companies cannot launch unconditional bids if the takeover qualifies for examination by the EC's mergers task force. The rule was waived in the case of EdF, giving it a crucial competitive advantage in the final stages of the auction.

There is the unmistakeable smell of stitch-up in the air and power politics that go far beyond parochial concerns about another vertically integrated player entering the UK electricity market. British Energy, the loser in the auction, could lodge a formal complaint, but it probably won't. At the least there should be an investigation into exactly how and why the Commission came to give the French such a free run.


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