The protectionist measures are to be part of the planned EU energy market reform, which the European Commission with its proposals wants to jump-start Sept. 19.

They are eyed because the looming unbundling of Europe's large energy majors poses an inherent problem, according to an internal EC strategy paper obtained by the Financial Times Germany newspaper.

Because of unbundling, the EU may be "vulnerable to a strategy of third states that aims to dominate the EU markets at the same time through energy supply and the acquisition of girds," the paper said.

Unbundling means that a company can either run the infrastructure (oil and gas pipelines and electricity grids), or sell oil, gas and electricity -- but not both. To ensure competition and guarantee fair prices for consumers, several energy giants, like France's Gaz de France or Germany's Eon, would then have to give up their grid ownership.

Brussels, however, wants to prevent Europe's energy grids from falling into unwanted hands, because it fears such investments may be "motivated by other motives than purely economic ones."

The underlying message is clear: Brussels fears that the unwanted third parties, namely oil states in the Middle East and state-controlled energy giants like Gazprom (who have more than enough the assets to buy into European grids) don't buy into Europe because of market share, but to increase their political and energy security clout. By controlling the grids, these players may be able to decide who they are supplying with energy, and at what price.

"China, for example, has assets of over $2,000 billion," Susanne Droege, energy expert at the German Institute for International and Security Affairs, told United Press International Friday in a telephone interview. "If they only invest a few percent here and there, they could have massive influence in Europe's energy sector -- and fears are justified that China's investments are led by a political interest."

Recent statements from its top officials prove that Brussels is taking these kinds of threats seriously:

"It is difficult to accept that a group from a third country could come to Europe and buy a company that possesses a distribution network while our companies can't do the same," EU Commission President Jose Manuel Barroso said in an interview with the Italian daily La Stampa. He said Brussels' plan foresees, "if necessary, the possibility of defense if we feel that the conduct of some foreign companies isn't in sync with the rules."

But not all experts agree with Brussels' plan.

"I see this new proposal as a bit ambivalent," Claudia Kemfert, an energy expert with the German Institute for Economic Research, told UPI Friday. "One the one hand, Europe wants liberalization in the form of ownership unbundling, and on the other hand, it protects itself from unwanted investors -- but who decides who is unwanted?"

For Brussels, Russia and its energy tool Gazprom likely carry the darkest shadow of untrustworthiness.

Moscow has led several oil and gas price rows with its neighbors (Ukraine, Belarus) and has repeatedly cut off supplies until the other party agreed to pay higher prices. Recently, Russian oil flow through the Druzhba pipeline to Germany also dropped -- behind closed doors, some observers say that this is a strategy by Moscow to force through higher prices to make up for transit fees it has to pay to Belarus.

But Droege, who also criticized the protection plan, said it was hard to believe that such large investments would not have economic interests behind them.

"Fear usually is a bad adviser," she said. "After all, if Gazprom invests in our grids, it also wants to sell us its energy."

Droege said the main problem of Europe's grid is its ailing condition, which is rooted in underinvestment by the domestic energy giants.

"And that's a problem that has to be solved by the European Commission, internally."

(e-mail: energy@upi.com)

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