Assault on Gazprom: European Union curbing appetite of Russian monopolist

Author : Olena Holubeva

Source : 112 Ukraine

May 24, after a three-year investigation, the European Commission imposed obligations on Gazprom, in case of non-fulfillment of which the company can be fined up to 10% of consolidated turnover
11:29, 6 June 2018

Read the original text at

European Commission (EC) has taken a number of measures to limit the influence of Gazprom company, Russian gas monopolist. At the end of May, after a three-year investigation, the EC obliged Gazprom to comply with a number of mandatory provisions, thanks to which the price of gas for Central and Eastern Europe could fall by almost 20%. If Gazprom violates the regulations, it can be fined up to 10% of the turnover. Also, the EC is considering expanding the gas directive to pipelines from the third countries. EC’s actions in terms of restraining Gazprom’s influence are positive for Ukraine, but they are still rather soft, experts say.

April 2015, EC has sent to Gazprom the notification of the beginning of the antimonopoly investigation, on the basis of which the recommendations were adopted. Russian monopolist is the main supplier of gas to the countries of Central and Eastern Europe, which until recently allowed it to sell gas to Poland, Estonia, Latvia, Lithuania, and Bulgaria at higher prices than other EU countries.

Related: Naftogaz Group illegally engaged in shipment of gas extracted by the state

"To date, the prices for Russian gas for the countries mentioned in the decision were set through negotiations and were often biased. For example, they were higher than for gas sold to Germany. Overall, the prices were higher up to 20%," director of "Razumkov Center" energy program Volodymyr Omelchenko said to According to the expert, Gazprom managed to achieve such favorable conditions for itself due to the infrastructure peculiarities. For example, the Baltic countries and Bulgaria have no alternative to Gazprom supplies. Gazprom supplied gas to the other countries in Europe (Czech Republic, Hungary, Poland, and Slovakia), negotiating a price with each country separately, through negotiations. At the same time, the Russian monopolist limited the possibility of re-exporting its gas between the countries with the corresponding items in the contracts.

According to the current decision of the EC, the Russian gas monopolist is obliged to eliminate from all contracts points prohibiting free circulation of gas between the countries of Central and Eastern Europe, it should also bring gas prices in line with benchmarks of liquid hubs (TTF in the Netherlands and NCG in Germany), in addition , it must allow the use of its gas pipelines to other companies.

Related: Yekaterinburg citizens to be cut off from gas supplies during FIFA World Cup 2018

The decision of the EC as a whole is positive and really will help to partially reduce the appetite of the Russian company, experts say. "Now the price of gas in Central Europe and Baltic states will be less dependent on the political decisions and agreements and will be tied to the market. The Kremlin will have significantly less leverage of political influence in Central Europe through Gazprom," Omelchenko assumed.

And Gazprom will be forced to comply with the requirements of the European Commission. The decision of the EC states that in case of non-compliance with the requirements, it might be might be fined up to 10% of the consolidated turnover. For instance, for violation of the binding requirements of the EC, in 2013, Microsoft was fined 561 million euros.

Related: Putin said he was ready to keep gas transit through Ukraine

If there is no compromise on the prices for the gas supplied by the Russian monopolist within 120 days, consumers can apply to arbitration, which must make a decision, proceeding from the fact that the prices should correspond to the current level for the EU (oriented to the level of liquid hubs). It is emphasized that such disputes can be considered exclusively in the courts of European jurisdiction. "The EU already knows at least fifty litigation disputes between countries and traders with Gazprom on the price of gas, some of them went to court, some ended in settlement agreements, and Gazprom's positions were often weaker than those of EU officials, and it was going to reduce the price," Omelchenko noted. Undoubtedly, the current solution would strengthen the position of European consumers.

The EC decision is likely to have a significant effect at the price of gas in Ukraine (despite the fact that we do not buy gas from Gazprom, but import it from Slovakia, Poland, and Hungary): most of the gas supplied to our country comes from the companies that had normal price conditions when working with Gazprom, Omelchenko underlined. According to him, the effect can be achieved if we buy more gas from central European companies, as the result of the decision of the EC in these countries, the price may decrease. This would become possible when implementing some infrastructure solutions. In particular, in the case of building an interconnector with Poland.

Related: Russia sends to Stockholm Court of Arbitrary documents on breaking gas contracts with Ukraine

On the other hand, the issue of the prices decrease or the margin of the supplier companies will increase (given that prices in the Ukrainian market remain high) is still questionable.

Experts also note that the current EC decision is rather mild. "It was expected that it would be tougher and Gazprom would at least be fined a large amount for the violations that it allowed all these years, but it did not happen," Omelchenko says. At the same time, he said, there is confidence that "the EU's offensive on the dominant position of Gazprom will continue."

Recall, the EC also considers the possibility of extending the provision of the gas directive of the Third Energy Package to gas pipelines coming from third countries to the EU countries (and in the opposite direction). What does it mean for Nord Stream-2, a Russian gas pipeline that poses a serious threat to Ukraine and involves the supply of gas to the EU bypassing the Ukrainian gas transportation system? The approval of this initiative means the need for separate negotiations between Germany and Russia regarding conditions functioning of the gas pipeline, which in any case will postpone the date of its commissioning. In addition, the application of the stipulated anbandling directive may force Gazprom to sell its stake in the project. All these factors could lead to the Russian monopolist's refusal to implement the project, experts suggest.

Related: Gazprom uses leverage to manipulate gas-dependent EU countries, - The Telegraph

The weakening of Gazprom's positions in the EU, in any case, is beneficial to Ukraine and may become an additional trump card in negotiations with regard to the extension of the transit contract after 2019. As you know, now the Ukrainian Naftogaz and the Russian Gazprom are in a state of an open war. Ukrainian company began the process of collecting a debt of $ 2.6 billion from PJSC Gazprom in foreign courts in pursuance of the decision of the Arbitration Institute of the Stockholm Chamber of Commerce. As part of this process, interim measures have been imposed on the assets of Nord Stream AG (which manages the Nord Stream project) in Switzerland, and shares in the Nord Stream and Nord Stream-2 offshore gas pipeline project companies have also been frozen. Ukraine confiscated all the funds of the Russian Gazprom, which were on the territory of the country. After the decision of the Stockholm Arbitration, Gazprom in turn, not in its favor, announced the initiation of termination of contracts for the supply and transit of gas from the Naftogaz of Ukraine.

Система Orphus

If you find an error, highlight the desired text and press Ctrl + Enter, to tell about it

see more