EU accused of being too nice with Gazprom in the infamous antitrust case

Participation of Margrethe Vestager, Member of the EC in charge of Competition, in the debates of the ‘Journées de Bruxelles’. Date: 19/10/2016 Reference: P-032676/00-17 Location: Brussels – Bozar. © European Union , 2016 / Source: EC – Audiovisual Service / Photo: François Walschaerts

Last week came to be a crucial one for the long-standing dispute between the Russian energy giant Gazprom and the European Union. Gazprom will work on a compromise with EU regulators and will finalise a deal to end a five-year antitrust case avoiding fines and any other imposed term, according to official declaration. The news represent a turning point in the business relations between the state-controlled Russian energy group and Brussels, although the bargain leaves some open points untouched and a few member states furious.

The background

In September 2012 the European Commission opened a formal procedure to investigate “whether Gazprom was hindering competition in Central and Eastern European gas markets, in breach of EU competition law”, as explained back then in an official EU statement. In particular, the Commission had then concerns that Gazprom was abusing its dominant market position and so decided to look into the company’s moves. The alleged prevention of diversification of gas supplies and the application of unfair pricing by linking oil and gas prices in long-term contacts by Gazprom fell under the strict lens of European Regulators.

The Russian Federation responded by issuing a blocking legislation, which introduced a default rule prohibiting Russian strategic firms, including Gazprom, to comply with any foreign measures or requests. A sort of “energy war” began, with also the Ukrainian crisis and the dramatic situation in Syria in the background playing a substantial role in this thorny matter.

Ice thawing?

Last week Gazprom’s Vice President Alexander Medvedev and Russia’s Vice Minister of Energy Anatoly Yanovsky, after having met on Wednesday with European Commissioner for Competition Margrethe Vestager announced a thaw in relations with the EU. “We are now putting the final touch to our commitment proposal. It will be sent to the European Commission shortly”, said Medvedev in a statement after the meeting. Mr. Medvedev also affirmed talks have been “constructive” and that “the sides expressed desire to work out a mutually acceptable decision”.

The European side of the table sounded a bit less optimistic though. “We have made progress but there is still quite some work ahead,” underscored Commissioner Vestager in a statement, adding that “all options remain on the table at this stage”. “Our goal is to achieve the best outcome for European households and businesses”, she was quoted. The meeting represented a milestone in this crucial antitrust case.

Delicate choice

The Gazprom case represents one of the biggest antitrust investigations launched by the European Commission and an unprecedented test bed for the EU’s executive arm to draw the line of competition in the delicate energy sector within the European continent. The decision to pursue a settlement with Gazprom, which could have risked fines of up to 10% of its annual revenue, is a very delicate choice made by Ms. Vestager. “We have discussed the possibility of Gazprom making commitments to address, in a forward-looking manner, the Commission’s competition concerns”, Vestager stressed, as reported. “To be effective, such measures would have to ensure the free flow of gas in central and Eastern Europe at competitive prices”, she also said.

Eastern European concerns

Former-communist EU member states like Poland and Lithuania, which have allegedly been damaged by unfair gas pricing imposed by Gazprom along with Bulgaria, Estonia and Latvia, have been long-waiting for the EU to rule on the case, and apparently not everyone liked the EU Commissioner’s decision. Right after the news came out, Polish oil and gas company PGNiG said it could sue the European Commission if the deal with Gazprom will ever see the light and no fine will be imposed on the Russian giant. “These decisions pose a real threat to the stability of gas supplies to Central and Eastern Europe”, said PGNiG in an official statement.

Lifted cap for Gazprom

Poland’s PGNiG opposed also to another decision by the European Commission over its energy relations with Gazprom, and so with Russia. The EC and the German federal agency for gas, telecom and transport, the Bundesnetzagentur, decided on Friday to lift the existing cap on the Russian gas company’s access to the Opal pipeline in Germany. The pipeline takes gas from Russia’s Nord Stream Baltic Sea pipeline and so the agreement de-facto gives Moscow a chance to expand the pipeline and bypass Ukraine when supplying gas to Europe.

Enlarged capacity

Until now, Gazprom was allowed to use only 50% of the pipeline’s capacity. Under the new rules Russia’s state gas exporter, which supplies around a third of the EU’s gas, will keep the 50% it already had and it will need to give up from 10% to 20% capacity to competitors, but will also be granted the right to bid for the remaining 30%-40%, or 7.7 billion cubic metres of gas. The decision by the European Commission, which applies until 2033, was not only a way to mend its relations with Moscow, but also an attempt to trigger competition. “This is not just a decision we’ve taken for political reasons, that we want to be friends with Gazprom”, a Commission official reportedly said on Friday. Indeed Reuters reported the decision modifies a proposal made by Germany in May that would have given Gazprom almost full access to the pipeline.

Hard to digest

The Commission’s decision still though looks hard to digest for many. Vestager’s compromised approach towards Gazprom looks surprisingly mild compared to how the Commissioner has dealt with American giants like Apple and Google in other antitrust cases in the past. The strong statement by Poland’s government-owned oil and gas company PGNiG indeed already shows that the resolutions by the Commission won’t be welcomed by cheering shouts. “PGNiG SA is ready to sue both Decisions of the European Commission to the Court of Justice of the European Union, and the Bundesnetzagentur’s decision to the German courts immediately after their announcement”, said PGNiG in one of its its statements.

More guarantees

All in all, the EU tries to guarantee that Gazprom will enter the European market under strict rules and that this will facilitate the resolution of pending delicate questions. According to Reuters , as part of the deal, Gazprom will now have to show more flexibility regarding prices and will drop clauses in its supply contracts with wholesalers and some industrial customers, barring them from exporting its gas to other countries.

The general feeling is also that the EU will have something else in exchange. By lifting the cap on Opal pipeline Brussels hopes that Gazprom will also keep piping gas across Ukraine, even after its current contract expires in 2019.

The European Energy Chief Maros Sefcovic said last week he was “making a maximum effort” to facilitate a deal between Russia and Ukraine to ensure “uninterrupted gas” supplies for Ukraine this winter. “So far we haven’t been successful, but I plan to meet with the Russia partner soon”, Mr. Sefcovic told Reuters.

In short, many open points remain but it is almost certain that there will be more turning points after the EU-Gazprom compromise, and that last week’s news is potentially opening another, entirely new phase of the complex Brussels-Moscow question.

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