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2015-04-25 22:30:00

GAME AGAINST RUSSIA

GAME AGAINST RUSSIA

The European Commission gave Gazprom 12 weeks to answer its Statement of Objections (SO) for alleged abuse of dominant market position in Central and Eastern European gas markets. The widely-anticipated decision triggered the enthusiasm of Ukrainian officials, raised some doubts among Russian experts and encountered strong opposition from Gazprom.

According to the European Commission's preliminary conclusion, the Russian gas giant might be hindering cross-border gas sales in eight EU Member States, while imposing an unfair pricing policy in five countries and making gas supplies conditional in Poland and Bulgaria upon 'obtaining certain infrastructure-related commitments from wholesalers.'

"Keeping national gas markets separate ... allowed Gazprom to charge prices that we at this stage consider to be unfair. If our concerns were confirmed, Gazprom would have to face the legal consequences of its behaviour" European Commissioner for Competition Margrethe Vestager said in Brussels on Wednesday, adding that fines could be up to 10% of Gazprom's global turnover.

Against this backdrop, Vestager's press conference did not shed light on two grey areas - the timing and the political implications of the move.

TIMING: WHY NOW AND NOT ONE YEAR AGO?

"I don't know the reasoning behind the decisions of my predecessor [Joaquín Almunia], so I cannot answer" Vestager said in response to a question of a journalist, asking her why the Commission launched the SO only in April 2015, despite the settlement talks broke down last year.

Settlement talks between the European Union and Gazprom collapsed as a result of increasing tensions over divergences on Moscow's role in Ukraine.

In this context, Tatiana Romanova, Associate Professor at the School of International Relations, Saint-Petersburg State University, commented that the timing - and not the decision- shows a degree of politicisation on both fronts, but in a more veiled and less trivial way than several commentators claimed.

"There is a degree of politicisation in the gas industry. Despite the attempts to avoid politics, both Russia and the European Union used energy as a form of leverage" Romanova told Natural Gas Europe.

In a phone interview, she said that the decision itself has not been used as a political weapon - it was something that everybody had expected for months.

"We knew that it was imminent. I knew that it was just a matter of time... I don't know whether we have to simply politicise it. It is too simplistic as an argument" Romanova said, adding that the decision is generally understandable and made exception for the fact that the Commission mentioned the destination clauses, which are provisions that stipulate that customers must use gas domestically or sell it within their countries.

"Destination clauses have been gradually phased out anyway" she explained.

According to Romanova, the Statement of Objections announced on Wednesday will not be the cause of a change in the existing ties between Brussels and Moscow. It is rather the result of a more complex ongoing process.

"The decision of Gazprom to switch from the South Stream project to the Turkish project and the case against Gazprom launched today are related because they are two illustrations of the same phenomenon: they show a fundamental review of the way Russia and the European Union are building their relation. For ages, Russia and the EU tried to increase their interdependence. Now both Russia and the European Union are trying to diversify away from each other, to minimise mutual dependence. The relationship is changing" Romanova said.

According to her, the U-turn is also visible in the different approach of the European Commission.

The Professor of European Studies said that the European Union is refraining from having deeper discussions with Russia, arguing that European Commission Vice President Maroš Šefčovič did not attend a meeting in Berlin on April 13 that would have been focused on the relations between the EU and Russia.

"From the EU's perspective, it seems that it is just not the right time to construct long-term relations with Russia in the energy sector" Romanova added.

Speaking about the timing, she also noted that the decision has to do with internal EU affairs. According to Romanova, Vestager could be trying to show that the Commissioner for Competition cannot be anymore accused of lack of assertiveness.

POLITICAL IMPLICATIONS: NOT A GAME CHANGER

If according to Romanova the decision will not have any impact on the negotiations between Russia and Ukraine, it is sure that it changes the balance of power. It comes as no surprise that Ukrainian officials immediately raised their voice.

'The action announced today by the European Commission is an important step in safeguarding European energy security. Gazprom's actions on EU territory inflict serious damage to competition in the entire region' reads Naftogaz' comment, in which the Ukrainian company asked for shipping code pairs that would allow reverse flows from Slovakia.

Meanwhile, President Petro Poroshenko tried to ride the wave. Saying that the country will be able to apply for membership in the OECD after a period of reforms, he also urged to accelerate the ratification of the Association Agreement between Ukraine and the EU.

'President has urged the Parliament of France to accelerate the ratification of the Association Agreement between Ukraine and the EU' reads the title of another note released by Poroshenko's office.

In this sense, the decision would probably not change the cards on the table, but could create a different political environment, piling pressure on Gazprom and giving more confidence to Ukraine.

On the other side of the border, Gazprom rejected the accusations. Still, the company did not resort to inflamed or bully tones.

'We expect that within the framework of the investigation our rights and interests arising from both EU law and international law will be adequately observed, and special attention will be paid to the fact that OAO "Gazprom", being established outside of the jurisdiction of the EU, is a company which in accordance with the Russian legislation performs functions of public interest and has a status of strategic state-controlled entity' the company wrote on its website.

THE ACCUSATIONS: THE STATEMENT OF OBJECTIONS

The Commission's preliminary conclusion suggested that Gazprom is hindering competition in the gas supply markets in Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, and Slovakia. That would be related to territorial restrictions, including export bans, and destination clauses.

According to the Commission's investigation, the territorial restrictions could lead to higher gas prices in Bulgaria, Estonia, Latvia, Lithuania and Poland. This implicitly implies that in the Czech Republic, Hungary and Slovakia, territorial restrictions did not translate into higher prices.

"What we can see in the five countries in question, you have systematically higher gas prices - up to 40% higher. We do not say that oil indexation as such is illegal or is a problem, we say that the way you use oil indexation is a problem" Vestager said, explaining that the alleged unfair pricing was a combination of market partitioning, and specific provisions in the contracts.

Finally, the Commission also claimed that Gazprom leveraged its dominant position in Bulgaria by making wholesale gas supplies conditional upon the country's participation in the South Stream project, and in Poland by tying gas supplies to maintaining control over investment decisions concerning the Yamal pipeline.

WHAT'S NEXT?

According to the Professor at St. Petersburg State University, the decision would not have a significant impact on the negotiations between Ukraine and Russia brokered by the European Union either. The main difference would be in the business ties between the two countries.

"Whereas for years Gazprom and its European partners wanted Russia to deal with gas transit through Ukraine, now Gazprom would simply ship its gas to Germany (Nord Stream) and Turkey (Turkish Stream), giving them the responsibility to deal with further transit and distribution. This is yet another illustration of the decrease of mutual dependence, or at least a pause in it" Romanova commented.

At this point, despite the tensed relation, it seems clear that Moscow and Brussels will manage to cope with each other. It remains to be seen whether Ukraine will be able to overcome the financial implications of diverted gas supplies - the country would not benefit anymore of gas transit fees.

In case of a successful case against Gazprom, Kiev could import gas from the European Union. Still, Ukraine would have to bear the consequences, as it would not be anymore a strategic pillar of Moscow, but rather the simple neighbour of a hefty, heavily militarised Russia.

naturalgaseurope.com

Tags: RUSSIA, GAZPROM, GAS, EU

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