What is the future of reserve funds?

3 August 2002

Germany German utilities are trying to prevent the European Commission and energy commissioner Loyola de Palacio from eliminating or substantially reducing the economic advantages which accrue to the tax-free reserves to cover the cost of decommissioning.

"The utilities are very nervous about this, because these reserves are a key reason why they have considered nuclear power to be an attractive investment in the first place," one German industry source said.

Over the last three decades, German utilities have built up tax-exempt reserves of $37 billion, required by German law to provide for spent fuel and waste management as well as facility decommissioning. In 1997, the German government challenged the utilities' claim that the funds were tax-sheltered, and from 1998, some of the funds were subject to German corporate tax.

The debate over these funds has now reached the EC, where de Palacio is expected soon to propose a directive governing the future disposition of nuclear decommissioning reserve funds. De Palacio's office denied reports in the German media that she intends to confiscate the funds or otherwise force utilities to put the funds to work to finance safety upgrades for nuclear installations in eastern Europe.

German industrial sources said that the Commission was in part concerned about the status of the reserve funds because, during the 1990s, some large German utilities had used the funds to finance diversification investments into telecommunications enterprises. That had also triggered objections by German politicians and state governments who argued in 1997 and 1998 that the reserves should not be tax exempt.

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