'Closing credits' to a seven-year-long Gazprom - EU litigation

'Closing credits' to a seven-year-long Gazprom - EU litigation

The seven-year dispute between the Russian company and the EU has ended without fines, with a series of binding measures taken by Gazprom in order to lift the concerns of the European Commission.

The aim of the European Commission is to ensure the smooth functioning of competition, which has been the cause of the appeal from the outset, anyway, that will enable the free flow of natural gas at competitive prices in the markets of Central and Eastern Europe for the benefit of European consumers and European companies.

After the announcement of the relevant decision, the Commissioner in charge of competition policy, Margrethe Vestager, said: "All companies doing business in Europe have to respect European rules on competition, no matter where they are from. Today's decision removes obstacles created by Gazprom, which stand in the way of the free flow of gas in Central and Eastern Europe. But more than that – our decision provides a tailor-made rulebook for Gazprom's future conduct. It obliges Gazprom to take positive steps to further integrate gas markets in the region and to help realise a true internal market for energy in Europe.And it gives Gazprom customers in Central and Eastern Europe an effective tool to make sure the price they pay is competitive.

As always, this case is not about the flag of the company – it is about achieving the outcome that best serves European consumers and businesses. And the case doesn't stop with today's decision – rather it is the enforcement of the Gazprom obligations that starts today."

Gazprom was accused of abuse of its dominant position as the main supplier of natural gas to the countries of Central and Eastern Europe.

In April 2015, the Commission sent a Statement of Objections to Gazprom. It set out the Commission's preliminary view that the company breached EU antitrust rules by pursuing an overall strategy to partition gas markets along national borders in eight Member States (Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia). This strategy may have enabled Gazprom to charge higher gas prices in five of these Member States (Bulgaria, Estonia, Latvia, Lithuania andPoland).

Today's Commission decision puts an end to this behaviour by Gazprom. Furthermore, it imposes on Gazprom a detailed set of rules that will significantly change the way Gazprom operates in Central and Eastern European gas markets:

  • No more contractual barriers to the free flow of gas: Gazprom has to remove any restrictions placed on customers to re-sell gas cross-border.
  • Obligation to facilitate gas flows to and from isolated markets: Gazprom will enable gas flows to and from parts of Central and Eastern Europe that are still isolated from other Member States due to the lack of interconnectors, namely the Baltic States and Bulgaria.
  • Structured process to ensure competitive gas prices: Relevant Gazprom customers are given an effective tool to make sure their gas price reflects the price level in competitive Western European gas markets, especially at liquid gas hubs.
  • No leveraging of dominance in gas supply: Gazprom cannot act on any advantages concerning gas infrastructure, which it may have obtained from customers by having leveraged its market position in gas supply.
  • Combined, these obligations address the Commission's competition concerns and achieve its objectives of enabling the free flow of gas in Central and Eastern Europe at competitive prices.

     

     

    Therefore, the Commission has decided to make these obligations (so-called "commitments") legally binding on Gazprom (under Article 9 of the EU's antitrust Regulation 1/2003).

     

    If a company breaks any of these obligations, the Commission can impose a fine of up to 10% of the company's worldwide turnover, without having to prove an infringement of EU antitrust rules.

     

    Some of the basic binding rules

a. Gazprom has to remove barriers to the free flow of gas in Central and Eastern Europe

Furthermore, Gazprom has to adapt provisions in its contracts regarding the monitoring and metering of gas in Bulgaria, which have isolated the Bulgarian gas market from neighbouring EU gas markets. Obligations such as this one will remove contractual obstacles created by Gazprom, which stand in the way of the free flow of gas in Central and Eastern Europe.

b. Gazprom has to take active steps to integrate gas markets in Central and Eastern Europe

For gas to actually flow freely across Central and Eastern Europe, it is also necessary to have infrastructure in place for its transport, namely interconnectors that link national gas markets with each other. Such infrastructure already exists in the Czech Republic, Hungary, Poland and Slovakia. However, infrastructure connecting Bulgaria, Estonia, Latvia and Lithuania with neighbouring EU gas markets is not yet sufficiently available. This limits the ability of Gazprom's customers to re-sell their gas to and from these countries, even if they have spare volumes.

From here on, Fixed and transparent service fees for the delivery are an obligation for the Russian company: The fees that Gazprom can charge for this service are fixed and transparent. Following the market test, they were significantly reduced to make the mechanism financially attractive.

c. Gazprom is committed to a structured process to ensure competitive gas prices in Central and Eastern Europe in the future

The Commission was concerned that Gazprom may have been able to charge higher prices in five Member States (Bulgaria, Estonia, Latvia, Lithuania and Poland).

Thus, Gazprom's customers will have a contractual right to ask for a lower gas price, if the price they pay diverges from competitive Western benchmarks, including prices at liquid hubs. Moreover, new gas price must be set in line with price level in competitive Continental Western European gas markets.

d. Removing demands obtained by leveraging of market position

Last but not least, the European Commission was concerned that Gazprom was using its dominant position in the gas supply market as a lever in order to gain advantages over or access to gas infrastructure.

In the Statement of Objections the Commission raised concerns regarding the South Stream project in Bulgaria and the Yamal pipeline in Poland.... / IBNA

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