Warsaw Wavers Between Brussels and Gazprom

Publication: Eurasia Daily Monitor Volume: 7 Issue: 178

The Yamal-Europe Pipeline.
Moscow has apparently chosen Poland as a ground for testing the European Union’s common energy policy. In ongoing negotiations for a new supply agreement, Gazprom seeks to pressure Poland to circumvent or breach the EU’s legislation on energy market liberalization (Third Energy Package, 2009). Russia opposes these anti-monopoly measures. Failure to implement them consistently in Poland would leave the country dependent on Gazprom. It would also compromise the EU legislation from this early stage, setting a precedent that Gazprom could duplicate in other countries, whether in new or old members of the EU.
Exploiting Polish short-term vulnerabilities, Gazprom seeks to frustrate the implementation of EU law and saddle Poland with long-term disadvantages through the proposed supply agreement. With the heating season now starting, Gazprom apparently is waiting for Warsaw to grow nervous and concede. The latest negotiating round, on September 24 in Moscow, has only resulted in scheduling further negotiations to be held in October. While some interested parties in Poland seem disappointed, the delay offers Warsaw a chance to reassess this poorly negotiated draft agreement, and consult with Brussels to avoid the traps therein.
The draft agreement would increase Russian gas supplies to Poland from about 7.5 billion cubic meters (bcm) annually until 2009, to some 10.5 bcm annually from 2011 onward. Poland needs this increase to cover rising demand and compensate for volumes previously delivered to it via Ukraine by RosUkrEnergo (50 percent Gazprom-owned). Since RosUkrEnergo was removed from the business in 2009, Warsaw has been negotiating with Gazprom to replace and supplement those volumes.
Poland’s Oil and Gas Company (PGNIG, state-owned) seeks to import those extra 3 bcm per year for about five years, pending construction of a liquefied natural gas (LNG) terminal on Poland’s Baltic coast by 2014. However, Gazprom is demanding an agreement that could prolong its supply monopoly in Poland for decades to come. It also wants to shift the delivery route of those 3 bcm, from Ukraine into the Yamal-Europe pipeline via Belarus to Poland.
This pipeline, with a capacity of 33 bcm per year, carries Russian gas mainly destined for Germany, with lesser volumes for Poland itself. The 684 kilometer Polish section is owned and operated by Europolgas, comprised of Gazprom and PGNIG with stakes of 48 percent each, with their joint venture Gas-Trading holding 4 percent. The Yamal-Europe pipeline in Poland exists separately from Poland’s national gas transmission system.
Gazprom does not treat the proposed 3 bcm annual increase in deliveries to Poland as a normal commercial transaction. Instead, it wants to entangle the new agreement into a web of linkages that would perpetuate Polish dependence on Gazprom. To that end, it insists on the following points (Gazeta Wyborcza, August 31; Kommersant, September 2, 7, 13, 27):
1) Packaging the new agreement with the 1993 inter-governmental agreement on transit of Russian gas via Poland and deliveries to Poland, which runs to 2022; and setting the duration of deliveries by contract until 2037. All this would help Gazprom to continue monopolizing the Polish market for that duration, preventing diversification of Poland’s natural gas imports and discouraging investment in the LNG project.
2) Exclusive right for Gazprom to use the Yamal-Europe pipeline in Poland until 2045. This would consolidate Gazprom’s position in Poland and Germany for another generation.
3) Europolgas to retain ownership as well as commercial and other operating rights on this pipeline. Thus, Gazprom would be able to lock out any competitors, also precluding reverse-use of this line.
4) Poland’s national transmission operator, Gaz-System, to become technical operator of Yamal-Europe in Poland, limited to a service provider’s role. This would fall far short of the operator’s independence from the supplier.
5) Deeply discounted transit fees to remain in force on this pipeline. The discount is intended not only for Gazprom’s profit, but also to deprive Poland of plough-back funds for modernizing this pipeline independently of Gazprom.
6) A ban on Polish re-export of Russian gas to third countries, with a right for Gazprom in that case to reduce its gas supplies to Poland by a corresponding amount. This is in line with Gazprom’s traditional third-country clause, irreconcilable with the EU’s gas market legislation.
Gazprom claims that the EU’s Third Energy Package legislation does not apply in this case because the Yamal-Europe pipeline was built earlier by Russia (as if to claim extra-territoriality for the Polish section). It also argues that Russia is not bound by EU law because it is not a EU member (although Gazprom is half-owner of this pipeline on EU territory). It argues that EU countries have until 2012 to fully comply with this legislation, thus Poland supposedly need not comply in 2010 (although the proposed agreement with Poland would run for decades to come). Gazprom vice-president Aleksandr Medvedev has even warned Poland against “strictly interpreting” EU legislation, as if the interpretation were negotiable with Russia (Interfax, September 29).
Clearly, Russia seeks to create a Polish precedent for contravening the EU’s anti-monopoly legislation from the start and is hoping to protect Gazprom’s interests in Europe. If Warsaw tacitly accepts Moscow’s arguments and the proposed contractual terms, Gazprom will be able to invoke them in other EU countries, working with locally recruited allies to frustrate consumer interests and undermine EU law and policy.