GAZPROM - EU AGREEMENT
According to FT, Gazprom and the EU will try to settle their antitrust battle and end a five-year probe with legally binding pledges to change behaviour rather than a big fine or imposed terms.
The state-controlled Russian energy group will yield to EU demands on how it sells gas in Europe in order to escape a penalty for past anti-competitive behaviour. The bargain is likely to anger eastern and Baltic states that have campaigned for a tougher approach.
The deal potentially marks a turning point in one of the European Commission's most important antitrust battles. Former communist EU member states see it as a test of whether the bloc's powerful antitrust arm will protect their interests against a Russian monopoly with a stranglehold over their energy supplies. Poland and Lithuania in particular see Russia as using gas as a political tool and are critical of Brussels for not tackling unfair prices.
A final draft of the proposed settlement will be submitted by Gazprom to Brussels imminently, which will formalise gradual shifts in the energy company's pricing practices in recent years. It will pave the way for a second, contentious stage — the so-called "market test", where critics will have the opportunity to raise objections before the commission takes a final decision.
Poland's government-owned oil and gas company PGNiG reacted by saying it was ready to sue the European Commission for breaking EU rules by not imposing fines on Gazprom and by allowing the Russian company to have increased use of European pipelines.
"These decisions pose a real threat to the stability of gas supplies to central and eastern Europe," the company said in a statement.
A senior Polish diplomat said the announcement had "positive aspects" but lacked a solution to Gazprom's "take or pay" formula.
"Another missing point of these puzzles is the future of Nord Stream 2 [from Russia to Germany via the Baltic]. It is necessary for a real assessment of the deal [the commission] made with Russia," said the official, who declined to be named because the decision was not final. "Now, it looks like they give the Russians too much."
Both sides signalled that a settlement was their preferred outcome after a meeting between Margrethe Vestager, the EU's competition commissioner, and Alexander Medvedev, deputy chairman of Gazprom.
Mr Medvedev said Gazprom was putting "the final touch to our commitment proposal". "It will be sent to the European Commission shortly".
Ms Vestager stressed that the draft settlement may only be the beginning of the end of the process. "Of course, all options remain on the table at this stage," she said. "We have made progress but there is still quite some work ahead. Our goal is to achieve the best outcome for European households and businesses."
The draft truce is a rare example of the west and Russia mending economic ties, even as political relations, strained over Ukraine, sharply deteriorate over Syria.
Brussels is also poised to give long-awaited approval for Gazprom to pump more gas through the Opal pipeline in Germany, a move that would further reduce the Russian company's need to ship gas through Ukraine. Both are decisions from Brussels fraught with technical legality that also come heavy with politics.
The Gazprom investigation is one of the biggest launched by the commission, and the decision to pursue a settlement is an important strategic 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. To be effective, such measures would have to ensure the free flow of gas in central and eastern Europe at competitive prices," said Mrs Vestager.
While the deal offers three main remedies, according to people involved in the discussions, it includes only a relatively light intervention on Gazprom's alleged abuse of its dominant position through long-term contracts linking gas to oil price — the most sensitive issue.
Ms Vestager stressed prices must "reflect competitive benchmarks". But rather than mandate a framework for setting "fair" prices, the settlement is expected to involve an arbitration process for Gazprom customers to raise objections. Critics say this is little better than the existing situation.
The remedies largely formalise changes in behaviour that Gazprom has made in recent years under pressure from the commission as well as increased competition on the European gas market. The company has dropped contract terms preventing cross-border sales, and, following arbitration cases brought by its European customers, has revised most of its contracts to link prices more closely to so-called "hub prices".
First launched in 2011 with the commission's biggest round of surprise raids, the investigation eventually focused on three main issues: contract terms preventing cross-border gas sales; tying gas supply to pipeline investment; and unfair gas pricing to Bulgaria, Estonia, Latvia, Lithuania and Poland.
The first two issues are largely remedied with contractual changes that remove illegal restrictions on reselling gas, and require Gazprom to forgo any advantage gained from making gas supplies conditional on acceptance of gas pipelines.
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