IEA Commends Portugal Energy Market Reforms Recommends Moving on Market Liberalisation in Gas, Increasing Competition in Electricity

The International Energy Agency released today a report on the energy policies of Portugal. Robert Priddle, Executive Director of the IEA, launched the book – entitled “Energy Policies of IEA Countries: Portugal, 2000 Review” – at a press conference in Lisbon.

Introduction of Natural Gas
The IEA commends the government for the successful and rapid introduction of natural gas in Portugal. Natural gas has started to reduce Portugal’s high dependence on imported oil and will continue to diversify energy supply. Increased natural gas consumption will also help to alleviate increases in CO2 emissions.

In spite of possible diversification of suppliers, Portugal is expected to remain very dependent on a single gas supply source, Algeria. Portugal is also the last country in the supply chain which passes through three other countries before arriving at the Portuguese border. The government needs to continue to monitor the gas market to ensure security of supply and to adapt the regulations on gas storage to the future liberalisation of the gas market.

The EU directive on natural gas permits Portugal to delay the introduction of competition for ten years after natural gas supplies start. Therefore, the government obtained a derogation until 2008. The report recommends setting a clear schedule for the implementation of the EU directive and making an early decision on its modalities, so that suppliers and large consumers may better prepare for it.

Restructuring of Energy Enterprises
The government has started to privatise Electrocidade de Portugal (EDP) and Petrogal, which hold dominant positions in the electricity and oil sectors. In April 1999, the government set up a holding company called Petróleos e Gás de Portugal, SGPS, S.A. (GALP), including the national gas monopoly Gás de Portugal (GDP) and Petrogal. GALP is responsible for the operation and management of the country’s oil and gas industries. The aim is to create an enterprise large enough to compete in the Iberian market and gradually to privatise that company. The IEA report stresses that there is a need to ensure that these mergers do not undermine competition in energy markets.

Reforms in the Electricity Sector
The electricity law of 1995 divided the electricity market into a competitive segment and centralised (non-competitive) segment. In 1995, an independent electricity regulator, the Entidade Reguladora do Sector Eléctrico (ERSE), was established with extensive powers. In 1999, the electricity law was adapted to the EU directive on electricity. However, in 1999, the competitive segment of the electricity market was not yet functioning adequately according to the report released today. The IEA report recommends measures to implement effective competition.

Reforms in the Oil Sector
For a number of years, Portugal has not maintained the full level of emergency oil stocks to which it is committed by Treaty. Several new oil storage facilities are currently under construction. Moreover a new law that is expected to be adopted before this summer would allow utilisation of agency stockholding and storage of emergency stocks abroad consistent with the recent EU stock directive.

The government rightly abolished price ceilings on oil products as competition developed but maintained them on gasoline and automotive diesel. As competition is now unrestricted, there is no economic rationale for maintaining price ceilings on theses two products.

In recent years, the government has used excise taxes to offset pre-tax price variations of gasoline and automotive diesel. Therefore, final prices do not reflect the supply and demand balance and do not give the right price signal consumers.

Energy Intensity and CO2 Emissions
Energy intensity in Portugal is low compared to the other IEA countries, mostly because of the modest use of energy in the residential sector. The IEA commends the government for seriously addressing the need to increase energy efficiency, in particular through the 1994 Energy Programme funding and several other measures for industries, buildings and appliances. The report recommends the government to ensure that enough funding is available for the new programme.

Portugal’s CO2 emissions are increasing quickly, making the Kyoto target – to limit the increase in greenhouse gas emissions by 27% between 1990 and 2010 – difficult to reach. Therefore, the IEA study argues, more stringent measures are needed. The report supports the government decision to undertake a study to improve the estimates of GHG emissions since 1990 and to prepare a plan including measures to reach the Kyoto target.

The IEA report was prepared by an international team of energy experts, which visited Portugal in September 1999 for discussions with government officials and representatives of energy suppliers and users.