Inspections At Gazprom In the EU: Why Now?

Publication: Eurasia Daily Monitor Volume: 8 Issue: 186

(Source: RIA Novosti)

The European Commission has launched a round of inspections at Gazprom’s affiliate companies in EU member countries. This is the opening stage in an anti-trust investigation of the Russian monopoly’s activities in European Union territory (see EDM, October 3). It is an unprecedented move for the EU to undertake. Brussels had tolerated Gazprom’s monopolistic practices in the EU for many years, thanks in part to the influence of Moscow’s business and political allies in some Western European countries. Gazprom, and the Kremlin behind it, had grown accustomed to operating with impunity within the EU.

Stunned, therefore, by the commission’s decision to uphold EU anti-trust law, many in Moscow are asking: Why now? And, what is behind this move? (Kommersant, Vedomosti, Nezavisimaya Gazeta, October 3-7).

Multiple factors have converged to trigger this move at this time. Four sets of factors are apparent:

1. The commission’s own growing authority, under outstanding leadership by the Energy Commissioner since 2010.
2. Continuous development of the EU’s common energy policy and energy law, most recently the Third Package of market legislation which, once adopted, must now be enforced.
3. Fast-growing demand for imported natural gas in the EU’s energy mix, a situation that Gazprom and its allies cannot be allowed to abuse at European consumers’ expense.
4. Open challenges orchestrated by Gazprom and the Russian government recently against EU policies in the energy sector.

Among all these factors, fast growth in gas demand and provocative behavior by Moscow may be seen as short-term triggers of the EU’s anti-trust action.

Gas demand projections in Europe have recently been revised upward, following political decisions to phase out nuclear energy and environmental restrictions on coal-fired power plants. The financial crisis is slowing down the development of heavily subsidized renewable-energy technologies. Shale gas in Europe is still a long shot. Libyan supplies are discontinued until further notice. All this increases demand for natural gas generally and Russian gas in particular.
Russia is completing its Nord Stream pipeline to Europe while Gazprom is set to increase its market share even further in the EU. This would spell an even heavier transfer of wealth from European consumers to Gazprom under the existing long-term, fixed-price, take-or-pay, market-monopolizing, secretive contracts. The European Commission could not fail to undertake anti-trust action in such circumstances.

The Russian government and Gazprom had multiplied their challenges to EU energy policies in recent months and weeks. Although the European Commission had all along accepted Gazprom’s Nord Stream project, Moscow redoubled efforts to oppose the EU-backed Nabucco. It also came out (in Iran’s company) against an EU-backed trans-Caspian pipeline from Turkmenistan. The Kremlin and Gazprom intensified pressures to capture Ukraine’s gas transit system, frustrate the EU-proposed modernization of Ukraine’s system and expand Gazprom’s transit monopoly alongside its supply monopoly. Moscow and some of its West-European allies also agitated against implementation of the EU’s Third Legislative Package, in force since March, which requires divestiture of Gazprom’s ownership stakes in pipelines and storage sites in EU territory.

Russia staged a contract-signing event in mid-September for its South Stream pipeline project, with several Western European companies acting as Gazprom’s allies against the European Commission. This political project is quintessentially an anti-EU effort, opposing key objectives of EU supply security.

South Stream is intended as a Nabucco-stopper, a Turkmenistan-blocker, a Ukraine arm-twister, and an EU law-breaker. It pursues each of these goals by: seemingly posing a competitive threat to Nabucco; positioning to close the westbound outlet for Turkmen gas; pressuring Ukraine to give up its gas transit system under the threat of South Stream bypassing it; and defying EU legislation through Gazprom’s acquisitions of South Stream pipeline sections in the participant countries. Gazprom takes the position that its infrastructure acquisitions in EU countries are a matter of “market liberalism,” and conversely the divestiture (unbundling) requirements are “illiberal.”

Viewed in light of the EU’s common energy policy, the South Stream signing event in September amounted to throwing a political gauntlet to the EU. Anti-trust investigations by the European Commission are usually long-running. The commission initiates such investigations on well-founded suspicions, takes a long time to study the evidence, and gives the suspected party opportunities to answer questions during this procedure. Such investigations can take many months to reach their conclusions. If a company is found in violation of anti-trust law, it faces heavy fines. Under EU law, such fines can reach up to 10 percent of that company’s business turnover.

At the current stage, Gazprom and its affiliates are not accused; they are being checked. But “these are not routine checks [either],” according to the EU’s competition authorities (Nezavisimaya Gazeta, October 7).