Portugal: Reorganisation Of The Portuguese Energy Sector

On April 3rd, 2003 the Portuguese Government announced several recommendations on the reorganisation of the Portuguese energy sector, following a report of Mr. João Talone, hired as a special advisor to the Portuguese Government.

The recommendations aim at developing the Government’s decision dated March 19th, 2003, which set out the following goals for the energy sector: (a) to ensure the appropriate energy supply and security; (b) to develop the energy market sustainable growth; and (c) to increase the competitiveness of Portuguese energy companies.

The distribution of electricity and gas shall be concentrated in the same company, as gas plays a strategic role on the generation of power. This will also contribute to the liberalisation of the Portuguese market, the integration of the Portuguese and Spanish power markets and will reduce the costs of power generation.

The Government expects that by 2005 the power generated from gas will reach 30% of the total Iberian power output, against the current 10%, putting Portugal in the forefront of gas generated electricity industry in Europe.

This measure will strengthen the Portuguese utility, Electricidade de Portugal (EDP), which now holds a dominant position in the electricity generation market and controls the Spanish electricity generator and distributor, Hidrocantabrico.

The Government also proposes to merge the national power grid operator, Rede Eléctrica Nacional (REN), and the gas supply network operator, Transgás. To that end, the Government will sell its 18,3% shareholding in the Portuguese oil utility, Galp, to REN. It is expected that REN’s expertise as the operator of the power grid will contribute to improve the management of the Trangás’ gas infrastructure.

Galp, the State-owned oil company, will focus on the oil business, where it is a recognised market player, with investments in Portugal, Spain and Angola. This may entail the sale of its gas local distribution subsidiary, Gás de Portugal (GDP), to EDP, although no decision has been taken to that effect.

The Portuguese Government will review the regulatory framework of the energy sector aiming at developing the Portuguese market, increasing competition as well as Portuguese investments locally and abroad.

Access to the natural gas market shall be opened to electricity generators no later than July 2004.

The restructuring of the Portuguese energy sector will reinforce the flexibility and the strategic position of EDP within the Iberian power market, Mercado Ibérico de Electricidade (Mibel). The Government estimates that the reorganisation of the electricity and gas operators may give Portuguese companies a 19% stake in the Iberian gas and electricity markets.