Luxembourg - European Union government ministers were Friday engaged in tough talks aimed at reaching a make-or-break compromise on efforts to increase competition in their energy markets.

The talks among ministers in Luxembourg showed that member states remained strongly divided over the issue, prompting EU officials to warn that if a solution was not found, the plans would have to be shelved.

"A failure today to reach a compromise will be a failure for everyone," warned EU Energy Commissioner Andris Piebalgs.

In September, the European Commission proposed forcing companies which sell gas and electricity to relinquish control of the grids which distribute the energy, a process known as "unbundling".

The proposal aroused heated opposition in France and Germany, who argue that any move to break up their own national energy giants - France's EDF and Germany's E. ON - would be illegal.

The two, backed by six more member states, have since proposed an alternative solution which would involve leaving the ownership of the grid in the hands of the parent company, but setting up a separate subsidiary to manage the network.

In Luxembourg, ministers were busy discussing a compromise package put forward by the Slovenian presidency of the EU. This would allow for the creation of an "Independent Transmission Operator" (ITO) and strict rules limiting the parent company's influence over the ITO.

Discussions in Luxembourg showed that ministers were still divided over key issues, such as whether Germany and France's "third way" was acceptable and how to ensure that the parent company does not influence the transmission one.

Other contentious issue include the proposed creation of an EU watchdog and whether the same rules should apply to both electricity and gas. (dpa)