EU ups pressure on oil firms as fuel prices surge

European governments urged oil companies yesterday to invest more of their profits in exploration and long-neglected refining capacity as soaring fuel prices hit households, business and economic growth.

"The oil sector players have a particular responsibility in this domain because they are making exceptionally big profits," Jean-Claude Juncker said after talks among European finance ministers that were dominated by record oil prices.

"We want them to invest more in exploration, production and refining, where they have been reticent in recent years," said MrJuncker, who is Luxembourg's prime minister and chaired talks among the eurozone's 12 Finance Ministers.

Total, one of the world's oil giants, made profits of about €1.5 million per hour in the first six months of this year while home-heating fuel and petrol is in many places 30 per cent dearer than a year ago.

Other giants like Exxon, BP and Shell are also making bumper profits on oil which is fetching close to $70 a barrel, not far from twice the price of a year ago.

French Finance Minister Thierry Breton called a meeting with oil companies for next week and saying he may be forced to slap a tax on them if no better response to the problem could be found.

EU Finance Ministers at the two-day gathering in the northern English city of Manchester will issue a statement summing up their position on oil, said British Finance Minister Gordon Brown, overall chairman of the meeting.

"Clearly the doubling of oil prices has an impact."

Ministers said they had agreed to try to coordinate their response to dearer oil by helping poor families while trying to avoid giving big tax breaks to specific sectors of industry, as pressure mounts from truckers and taxi drivers.

"European ministers again agree that it's not a question of lowering prices by adjusting excise duties but probably of helping poorer families with compensation measures," said Italian Economy Minister Domenico Siniscalco.

As the ministers met, Belgium announced plans to refund the 21 percent value-added tax normally paid on domestic heating oil. France too has said it will give many households a $75 cheque.

Soaring oil prices may hit growth in the overall economy but the potential damage had been mitigated by better control of inflation compared with at the time of the oil crises of the 1970s, Britain's Brown said.

Luxembourg's Mr Juncker said that economic growth in the 12-nation eurozone could slip closer to one percent this year if prices stayed near $70 a barrel.

Last week the European Central Bank cut in its growth forecast for the euro zone, to 1.3 per cent, about a third of predicted US growth rates and ECB chief Jean-Claude Trichet said he would remain vigilant for inflationary dangers. Truckers across Europe staged protests demanding subsidies and tax cuts in 2000 after France's left-wing government of the time infuriated Britain and other countries by caving in and offering big financial relief to truck drivers who blocked motorways.

Protest has been simmering since world oil prices topped $70 a barrel but the unrest has not yet reached the scale of 2000.

The ministers were also set to debate the need for economic reform to better equip Europe to compete in a world where the rise of China and other less developed nations is creating concern for jobs and living standards in wealthy countries.

Mr Brown also invited several economic experts and CEOs for a brainstorming session on the challenges of globalisation - among them the chief executives of Unilever, Vodafone and Reckitt Benckiser and economist Andre Sapir.

Sapir told the ministers bluntly that they had no choice but to make labour markets more dynamic by making it easier to hire and fire people. He said it was up to politicians to tell voters that this could be done in parallel with better welfare terms, but that good welfare meant higher taxes.