UPDATE 1-EU budget draft cuts energy share to 7 bln euros

Tue Oct 30, 2012 12:26pm EDT

* Commission had proposed 9.1 billion euros for energy

* Energy cuts part of package of cross-border spending

* Commission stands by original proposal (Adds detail on related spending figures)

By Barbara Lewis

BRUSSELS, Oct 30 (Reuters) - The EU's first energy budget has been cut to a maximum of 7 billion euros ($9 billion) as part of a compromise proposal on the bloc's long-term financing, which governments will haggle over in the coming weeks.

Under its original budget proposal, the European Commission set aside 9.1 billion euros for strategic cross-border energy infrastructure. It was the first time the Commission had ring-fenced money for the sector.

The compromise shows the details of at least 50 billion euros in cuts to the proposed 1 trillion euro overall budget for 2014-2020 as Cyprus, holder of the rotating EU presidency, seeks to mollify objections from the biggest national contributors.

The energy spending is part of a package of cross-border funding, named "Connecting Europe", which also includes transport and telecommunications infrastructure.

The Commission had proposed 40 billion euros in funding for that cross-border infrastructure, plus an additional 10 billion euros under EU regional development funds.

The Connecting Europe package has now been slashed to some 36 billion euros.

Details of the compromise, which have only just emerged, immediately drew criticism from governments on both sides of the spending debate as well as from non-governmental organisations.

The European Commission, meanwhile, defended its initial plan.

"The Commission remains committed to its proposal, which strikes the right, responsible balance in times of crisis, both in the overall amount and in the balance between policies," it said in a statement.

Under the proposal, energy was already a tiny fraction of the overall budget and also much less than the amount needed to upgrade Europe's energy infrastructure.

The Commission has estimated 100 billion euros is needed just to improve energy transmission lines in order to achieve efficiencies through a single, connected European energy market, making use of an increasing share of renewable power.

The idea of providing some EU cash for "projects of common interest", such as a southern gas corridor to diversify supplies, is that it would trigger much greater private investment. EU member states would have to agree on which projects are of strategic importance.

"The European budget was always intended to ensure that the public interest would be represented, in the context of a much larger amount of money needed from the private sector," said Jason Anderson, head of climate and energy policy at the WWF European Policy Office.

"Cutting the EU budget could put important goals of security, market integration and environment at risk." ($1 = 0.7749 euros) (Additional reporting by Charlie Dunmore; editing by Rex Merrifield and Jane Baird)