EU Launches Anti-Trust Investigation Against Gazprom and Its Affiliates

Publication: Eurasia Daily Monitor Volume: 8 Issue: 183

The European Commission (executive arm of the EU) has launched a systematic anti-trust investigation of Russian Gazprom’s operations in European Union countries. From September 27 onward, the Commission has conducted surprise inspections at many of Gazprom’s subsidiaries and its joint-venture partners. The firms in question are engaged in the sale, transportation and storage of Russian natural gas in EU territory. Commission representatives have been checking, copying, or seizing records of business activities that are suspected of breaching EU competition law in collusion with Gazprom.

According to the communiqué from Brussels, the Commission suspects Gazprom and the inspected firms of using “exclusionary” and “exploitative” monopoly practices, such as: preventing diversification of gas supplies to markets, blocking competitors’ access to gas transportation networks, partitioning of markets and abuse of market dominance through excessive pricing. Thus, “the companies in question may have engaged in anti-competitive practices in breach of the EU’s anti-trust rules, or [these companies] are in possession of information relating to such practices” (EU Commission press releases, September 28, 29, October 3).

Approximately 20 firms (including Gazprom’s own subsidiaries and its independent partners) in at least 10 EU countries have been searched thus far. Gazprom Germania in Berlin, E.On Ruhrgas in Essen, RWE in Essen and Prague, OMV as well as Econgas and Centrex in Vienna, Vemex in Prague, SPP in Bratislava, Lietuvos Dujos in Vilnius, Eesti Gaas in Tallinn, Overgas and Bulgargaz in Sofia, are among the known inspection targets. Almost all inspection targets have announced that they are cooperating with the investigations (Der Spiegel, October 3; Wirtschaftsblatt, BNS, Novinite, September 29-October 3; Kommersant, Vedomosti, September 29, 30, October 3, 4).

Additionally, the European Commission is checking the contracts of some German companies, Gaz de France and Italian ENI with Gazprom. Apparently, the Commission is interested in details of those long-term contracts, which remain secret. The crucial details include pricing formulas, modalities of gas-to-oil price indexation, take-or-pay obligations and denial of competitors’ access to pipelines and markets. Such secret contracts are widely seen as amounting to collusion between Gazprom (or its subsidiaries) and some of its European partners, at European consumers’ expense. These practices have enabled Gazprom to undermine the EU’s market economy, energy security and, in some cases, the integrity of political systems, operating from outside the European Union through partners within the EU.

In anti-trust cases, the Commission has the power to search offices, subpoena and seize documents on suspicion of violations, without a court warrant. EU competition rules that ban the abuse of dominant positions and restrictive agreements apply to companies, not to States or governments. For many years, the EU had not challenged Gazprom’s business in Europe from the perspective of anti-trust law. Gazprom’s business allies, their political lobbies in Europe, and governments responsive to them (with Germany and Italy in the lead) had long shielded Gazprom from anti-monopoly action in the EU. The Commission’s move in this respect marks a real start to the EU’s common energy policy and external energy relations, in this case at the level of anti-monopoly law enforcement.

This comes as an accompaniment to the EU’s Third Energy Package, which took legal effect in March, requiring inter alia the separation (“unbundling”) of gas production and sales from transportation and storage. This is designed to prevent monopolization of markets by vertically-integrated companies, such as Gazprom operating with European allies. In its practical application, unbundling would require Gazprom to divest itself of its ownership (or ownership stakes) of transmission pipelines, distribution networks, and storage sites in EU member countries.

Lithuania rides in the forefront of efforts to enforce unbundling at the national level. Other countries are following suit. Some EU countries, however, have not yet started enforcing the Third Energy Package on their territories, or have even failed to announce intentions to do so. Inertia in this regard seems proportionate to the influence of Gazprom and its allies on political authorities in those countries. The Commission’s inspections are partly linked to such foot-dragging.  The EU’s Energy Commissioner, Guenther Oettinger, has cautioned the foot-draggers that they face enforcement actions by the EU (Commission press release, September 29).

The response from Moscow has been relatively subdued thus far. Russia’s Foreign Affairs Ministry, Energy Ministry, and Gazprom itself have all issued parallel statements, calling on the EU to respect the “legitimate rights and interests of Russian companies” [Gazprom’s subsidiaries in EU territory]. In this view, apparently, Moscow’s “legitimate” interests need not conform to EU law (Interfax, September 29, 30).

On October 3, Prime Minister Vladimir Putin issued a cautious statement, hoping that no one would be arrested during the investigation of Gazprom’s subsidiaries in Europe. In a set-piece conversation, staged in front of television cameras, Putin and Gazprom CEO Aleksei Miller said that Gazprom ought to cooperate with the investigations in EU countries, add to pipeline capacities for gas deliveries to Europe, and at the same time consider opening new export directions to Asian markets (Russian TV Channel One, Interfax, October 3).

The first element in their response indicates real concern over the Commission’s actions; the second sounds adversarial, alluding as it does to persisting with the South Stream project; and the third element is an unconvincing attempt to warn that Russia might re-orient its gas exports eastward, although the necessary infrastructure is lacking, and the distance from western Siberia to the Far East would raise the sale price of gas to prohibitive levels.