WINGAS Managing Director appeals in Aachen to public utilities:

"Use your freedom to choose gas supplier and secure your area?s long-term competitive edge!"

Kassel/Aachen. At ‘Multitalented Utilities’, the ICG public utilities conference in Aachen, Dr. Gerhard König, Managing Director and Head of Sales at WINGAS GmbH today appealed for a new view of competition in the German gas supply market. Instead of combining the development of competition in the market first and foremost with the design of network access, much greater emphasis should also be placed on other developments in Germany’s gas supply chain, maintained König. In no way is competition in the gas market defined only by bespoke and fine-tuned network access models, he said. The WINGAS chief challenged civic gas utility operators to safeguard their area’s local competitive edge by utilising their freedom to choose and diversifying their portfolio of suppliers.

“The EU Commission in Brussels maintains that the proportion of people changing gas supplier in Germany is too low. From this, they have drawn the conclusion that the German model of network access based on voluntary agreements doesn’t work and therefore requires new rules and regulations”, said König at the conference. However, in König’s estimation, even with regulated conditions of network access, the proportion of domestic and end-user customers changing supplier will not develop in the same way as in the British market, supposedly the example to follow. The excellent ‘all-round service’ provided by public services companies in the Federal Republic is appreciated and highly valued by consumers, and this translates into low numbers of people changing suppliers, said König. “It is therefore of even more central significance in Germany”, added König, convinced of the fact, “that at the public utilities level there is supplier competition, not least for the good of the consumers.”

“In a competitive market, the companies left standing as victors at the end of the day will be those who have fine-tuned their cost-base”, said König. “When it comes to procuring their most important product, nobody in industry relies blindly on just one supplier. That would mean losing an overview of the market, losing any position of strength in negotiations and ending up with sub-par future supply terms.”

Today, the prevailing legal situation gives every public utility in Germany the opportunity to build up a portfolio of at least two suppliers, said König. They can thus significantly improve their strategic position in future competitive negotiations. “This gives all public utilities that still have contracts from the days of the old monopolies their best chance to develop a portfolio of multiple suppliers and to get themselves fit for competition.”

Following the ministerial permission granted in the case of E.On’s merger with Ruhrgas, the way should open up for more opportunities to expand supplier portfolios, noted König. “Some 60 public utilities in Germany were affected by the 20 percent exemption rule. However, at no time were any of the gas supply quotas that this included open to competition.” König identified as the cause for this a pricing policy that was characterised by subsidies and problems in differentiating between supplied amounts and delivered amounts in defining the basis for the 20 percent exempted quotas. And, said König, everyone knows the result: “The 20 percent free quota provision certainly didn’t produce any more competition on the procurement side of things at the public utilities,” concluded König critically.

The WINGAS managing director also depicted the effects of the shareholding policies of suppliers in the German energy market as another development that inhibited competition in terms of public utility procurement. Quite rightly, said König, even investments under the relevant threshold of 25 percent were now critically looked at for potential competitive implications and any undue exertion of influence – unfortunately, however, this procedure did not affect investments that had already been made.

WINGAS’s managing director challenged gas utilities to use their freedom to choose supplier and to diversify their supplier portfolio. “This would significantly increase the strategic room for manoeuvre enjoyed by the public utilities and strengthen their negotiating position with suppliers. Having multiple suppliers creates levels of freedom that from a strategic point of view are of enormous value, not least in terms of competition for local competitive edge, which is going to become even fiercer in the future.”

Note to journalists:

WINGAS GmbH, based in Kassel, is a joint venture company between Wintershall (65%) and OAO Gazprom (35%), from Russia. The company has been involved in gas supply since 1990 and now has a pipeline network of more than 2,000 kilometres in length, over which it delivers natural gas to public utilities, larger industrial operations and regional gas supply companies.

P-10 - 11/25/03

Contact
Antje Schabacker
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