This is about getting a better deal for consumers and business and making sure that third country companies respect our rules," said European Commission president Jose Manuel Barroso, who presented the third package of its kind.

Despite progress made after the opening up of the European energy markets to competition, a process which started 10 years ago, the commission said there were still serious challenges regarding all aspects of energy provision and use.

One outstanding problem stood with big European energy companies such as RWE and EON in Germany and EDF and Suez in France, which now control both the generation and the transmission of their gas and electricity.

The European Union's executive arm has long sought separation of production and supply from transmission networks in the energy sector. In its controversial proposal, it listed two options, the so-called ownership unbundling and the approach of "independent system operator."

Under the ownership unbundling, an option preferred by the commission, EU energy giants will be forced to sell of their transmission networks. In other words, a single company can no longer own both transmission and be occupied in energy production or supply activities.

The commission said ownership unbundling solves the inherent conflict of interest, which leads to discriminatory behavior. Network operators will no longer have related supply or production companies which they could treat differently from competing companies.

It also guarantees non-discriminatory access to network information and provides unbiased incentives for investments, which will guarantee security of supply.

However, this extreme approach had already met strong opposition from several member states, notably Germany and France, which are home to some big names in the energy sector.

The independent system operator solution will ensure similar results, provided that it is applied in full and provided it is combined with strong regulatory oversight, the commission said.

The proposal was yet to win unanimous approval from divided member states. Currently, Britain, the Netherlands, Denmark, Belgium, Finland, Romania, Spain and Sweden support the unbundling of energy companies, while half a dozen others, led by France and Germany, reject it.

The European Commission also proposed certain restrictions on foreign takeover in the energy sector, making it difficult for non-EU companies to acquire European transmission networks.

Currently, Russian state-controlled energy giant Gazprom, one of the largest suppliers of gas to the EU, is meeting resistance for its plan to by pipelines and other infrastructure.

The Russian company said Tuesday it was a reliable gas supplier and a major investor in the infrastructure that brings gas to Europe.

"We share the EU's core goal of ensuring long-term security of energy supply to the EU," a spokesman said.

Among other measures, the commission's proposal also foresaw an EU agency for the cooperation of national energy regulators, with binding decision powers to facilitate cross-border energy trade. A new European Network for Transmission System Operators will be established to promote cross border collaboration and investment.

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