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EU calls on Poland to end “unlawful” energy rules

The European Union called on Poland on Thursday to end a key regulation in its energy market in a move which could further strain the already tense relationship between Warsaw and the EU.

The European Commission - the EU’s executive - asked Poland “to end long-term power purchase agreements for electricity because they constitute unlawful and incompatible state aid,” the EC said in a statement. The termination of such agreements would be a “crucial step in the liberalization of the energy market in Poland,” EU Competition Commissioner Neelie Kroes commented.

Under rules set up in the 1990s - well before Poland joined the EU in 2004 - the operator of Poland’s energy network, PSE, has the right to conclude long-term deals with energy suppliers, guaranteeing that it will buy a fixed amount of electricity at a fixed price. Such deals were signed between 1994 and 1998, with the last contract set to expire in 2027. They cover approximately half of all the electricity generated in Poland, the EC said. But an EC investigation concluded that the system effectively closes a “significant part” of Poland’s electricity market to new companies, and is therefore illegal.

Poland now has until January 1, 2008 to inform the EC of how it intends to end the system. The deadline for closing the system is April 1, 2008, EC officials said. Rulings on the legality of state aid are a regular part of EC business, and have pitted the Commission against practically all EU member states at some point in its 50-year history. But this case, which comes less than a month before a bitterly- fought snap election in Poland, could well increase tensions between the beleaguered right-wing government in Warsaw and the EU. In recent months, Poland’s ruling coalition of nationalist and religious-conservative forces has twice threatened to veto proposals supported by most or all other EU members - once over the issue of EU reform, and once over an EU-wide day against the death penalty. The coalition’s stance is seen as playing well among its core domestic voters, but has drawn criticism in other EU member states. (m&