France battling to keep monopolies for energy supply

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With presidential elections due next month, France will fight a rearguard action tomorrow to dilute European Union plans that would force it to open its electricity and gas markets to foreign competition.

Efforts to reform Europe's economy will be at the heart of a meeting of EU leaders, and battle lines have been drawn with France over energy liberalisation. At previous summits Tony Blair has complained that the electricity in Downing Street is provided by a French firm, while British companies cannot operate in France.

With some backing from Germany, which also has elections this year, France is reluctant to dismantle its state energy monopolies. Its unions are opposed and its public is suspicious.

Yesterday, the European Commission president, Romano Prodi, lowered expectations of a comprehensive liberalisation deal but said EU leaders should agree on a timetable for opening up the energy market for commercial users. No dates would be fixed for domestic consumers but there should be a deal in principle to liberalise them, he said.

Sensing that the French have limited room for manoeuvre, Downing Street lowered its rhetoric and described the Barcelona meeting as a "staging post" on the road to economic reform. Last year Mr Blair said it would be a "make-or-break" moment.

At the heart of the problem lies the dominance of the state-owned French giant Electricité de France, which has a domestic monopoly. Other nations, including Spain, which holds the EU presidency, point out that EdF uses its unrivalled position at home to help fund acquisitions throughout the EU.

France has a relatively weak hand. The European Commission has already proposed legislation to open non-domestic supplies by 2003 in electricity and 2004 in gas, with both markets being opened completely by 2005. This proposed directive, which won the backing of MEPs yesterday, could be pushed through under majority voting rules. The European Commission can also force France to open its energy markets by invoking the EU's founding treaty.

The Barcelona meeting follows a process begun in Lisbon in 2000 when the EU agreed to an ambitious scheme to make Europe the world's most competitive economy by 2010, creating 20 million jobs. But the credibility of the programme is now on the line.

Jack Straw, the Foreign Secretary, said: "There will be progress. It is important to understand that we are only at the beginning of the third year of a 10-year programme." He said the Government had six aims for the summit: reducing unemployment; creating a single EU financial market; boosting research; increasing internet access; reducing bureaucracy; and energy liberalisation.