Margrethe Vestager, the EU Commissioner for Competition, made a long-awaited
announcement May 24th, outlining the final decision on the anti-trust
investigation against Gazprom. The media headlines picked different angles,
some cheered the move for defending CEE customers, others pointed to a more
pessimistic and pragmatic read - no fine for Gazprom. The press release alluded
to the main achievement in the eye of the watchdog – the Russian gas giant had
finally agreed to play ball. At a closer look, feelings are mixed and certainly
a far cry from unqualified praise for the DG COMP’s work as the expectations in
the CEE countries that Gazprom will be disciplined and punished for abusing its
monopoly status were naturally greater.
The decision would undoubtedly raise eyebrows, when compared with
a similar agreement between Gazprom and the Turkish Botas, where the Russian
company agreed to an out-of-arbitration-court settlement to compensate Turkish customers
with $1 billion for overpriced gas sales in 2015 and 2016. The timing of the
announcement in Turkey was carefully picked not to precede Mrs. Vestager’s press
conference.
Let’s return to the basics – considering the impact on Bulgaria,
which by most accounts is the worst affected EU country by Gazprom’s abuse of its
monopoly status.
A rough cumulative estimate of the overpaid gas since 2012 would bring
the markup to $1 billion. Bulgaria, though, has never dared to trigger the
price review clause fearing reprisals from the Russian gas company on transit
flows. Now that the first line of Turkish Stream
has been laid there is little evidence that this restraint has generated any
benefits.
At the same time, the Ukrainian gas company Naftogaz took Gazprom
to Stockholm arbitration court and won sizably – over $2 billion in compensation
for overpaid gas.
The eight CEE EU members - Bulgaria, Hungary, Slovakia, Czechia,
Estonia, Latvia and Lithuania - chose to appeal and solicit the EC's support
and protection instead of pursuing their rights in court versus Gazprom. The DG
COMP’s decision means their choice has been wrong as it has not translated into
tangible results, allowing Gazprom to claim victory.
The ruling of the EC on the Gazprom case serves a eulogy to the
common EU energy policy. It comes at the right time as Germany expects to green-light
the start of the Nord Stream-2 pipeline project. In his turn, French President
Macron lobbied hard in Saint Petersburg on behalf of French companies’
interests in Novatek's Arctic LNG-2 project. He got in return a lecture on EU
security needs from President Putin, winning a vague promise from the Kremlin that,
one day, Gazprom’s export monopoly would come to an end.
Speculating on the Kremlin's will to revoke the pipeline export
monopoly of Gazprom might be a lifelong job – always seemingly close, but as
distant as ever in reality. Whatever lever the EC anti-trust body had against
Gazprom as a counterweight - it is gone after the final verdict.
Bulgarian Prime Minister Borissov did not waste any time joining the rush to Moscow, seeking
to grab a piece of the energy pie and offering to cooperate with Putin on the
extension of the Turkish Stream into the EU.
Exhibiting a queer sense of ‘energy solidarity’, the leading
nations in the EU, preferred to pursue their national agendas at the expense of
their neighbors and fellow member states. No wonder, at the end of the road, there
is less enthusiasm for ‘more Europe’ and a wave of nationalism spreading across
the continent. Fewer leaders in the CEE are willing to stick to a common EU
energy agenda, where the interests of Germany and France dominate. The EU
Energy Union thus is doomed, unable to bring in new converts.
The EC’s anti-trust body has put a sizeable effort in presenting
its work as a bold, comprehensive and far-reaching step, fomenting fresh
skepticism in the future of EU gas market liberalization against persevering Gazprom.
The EC’s new ‘rulebook’ claims to impose a new set of obligations that would change
the Russian monopoly’s behavior, yet this is more of a hope and wishful
thinking.
When one discounts the hype, and the verbiage is distilled for
content, few of the DG COMP achievements represent anything novel departing from
established legal practices. Most of the "gains' for CEE customers reflect
market standards for Russian gas sales in the EU, codified in 3-5-year-old
contracts with West European gas traders. These upgrades closely track precedents
in arbitration court rulings lost by the Russian gas giant, including but not
limited to the lifting of the re-export ban, the softening of the 'take or pay'
clause, the benchmarking to hub prices and the mandatory capacity release in
transit contracts, that have already contributed to some degree to enhance
competition in the CEE market. But few if anything should be specifically
attributed to the DG COMP ruling in the Gazprom’s case.
Mrs. Margrethe Vestager’s assertion that the "decision puts
an end to this behavior by Gazprom", removing obstacles that have stood in
the way of the free flow of gas in Central and Eastern Europe is a clear
overstatement. What stifles competition in the CEE gas market is the lack of credible
competitors to Gazprom and Moscow’s aggressive play in blocking serious
alternatives, raising entry cost to prohibitively high level. At the same times,
the Russian gas monopoly continues to enjoy exclusive privileged access to the
customers and transport infrastructure.
The DG COMP’s ruling on this anti-trust case does little to change
the status quo. LNG suppliers can hardly compete with Gazprom's pipeline gas –
not so much pricewise at EU maritime borders, say the LNG terminal in Greece –
but at end customer level. By the time LNG reaches the Bulgarian or Romanian
borders, they add €4–5 per MWh to the end price, which kills its competitive edge. Gazexport
in the meantime is spared the need to compete in gas supply tenders, profiting
from past bilateral long-term supply and transit contracts. For every 1000
cubic meters of gas, Gazexport pays in the range of $6 to cross Bulgaria, whereby
everyone else, including state Bulgarian companies, pay three times more, which
is a thinly veiled case of unlawful state aid and unfair trade practices.
It is not exactly clear how DG COMP will be able to convince the
public that it will succeed in translating the new rules into amendments to Gazprom's
gas sale contracts in the region - there are no binding deadlines, no
monitoring and compliance mechanisms. With or without the ruling of the EC -
Bulgaria will keep on relying almost 100% on Russian gas deliveries, virtually
sealed of competitive gas supplies, Both Bulgargas and Bulgartransgas are
likely to stick to existing contract arrangements, seeking to secure Russian
gas supplies and shipments, regardless of the ‘rulebook’ written and promoted
by the EC as a game changer.
The expectations for future more competitive spot prices,
replacing oil indexed prices, benchmarked on hubs, will not cure the evil.
Gazrpom will be free to reward 'friendly' behavior with larger discounts based
on volumes and political/business expediency, as was the case with the latest 10.25%
discount offered to Botas. To ascertain that Gazprom will help integrate CEE
gas markets implies a degree of cognitive dissonance.
It sounds like little consolation that every two years CEE
importers will be able to trigger price reviews and adjust price levels, instead
of the current practice – twice for the duration of the contract, usually 10 years.
It is worth measuring up the optimism of the DG COMP to the recent history of legal
disputes over prices Gazprom – it is hard to recall instances of Bulgarian
importers successfully initiating and closing price reviews. There is not much
leverage when things boil down to a single supplier over a single route.
The claim of the DG COMP that Bulgaria has been spared penalties
over the winding up of the South Stream project is also misplaced. Whereas
Gazprom stands no chance of suing the Bulgarian Energy Holding over lost
revenues or future profits, following the project's early closure, it has every
right to challenge in court the EC’s role in the process. Gazprom can recover
transferred funds in the equity capital of the joint venture company. It is therefore
unclear what exactly constitutes the specific added value of the anti-trust
ruling against Gazprom for Bulgaria, explicitly mentioned in the press release.
Also worth recounting is the right to change delivery points, presented
as another virtue of the settlement in Gazprom’s case. This was initially
requested by Gazprom in attempt to swap delivery points for gas to Bulgargas
from the Ukrainian-Romanian to Turkish-Bulgarian border. It was only after some
groaning and moaning from respective national gas companies in Bulgaria and
Romania that the Commission recognized the need for reciprocal right to change
delivery points for EU gas importers. It is true that, if applied, this right
to change delivery points at a short notice would add maneuvering space to CEE
gas importers.
The swap deals that Gazprom has agreed not to block, in accordance
with the ‘rulebook’ of the DG COMP, feature a hidden caveat - swaps would be
possible only in case transmission capacities are available. This potential
power tool to enforce liberalization of the gas market has been considerably
tamed, making business sense only if Gazprom is obliged to free unconditionally
unused capacity in transit lines, take part in capacity awarding tenders and
pay standard exit and entry tariffs.
Most of the net gains depend on circumstances and processes in
some unspecified future, with the Damocles sword, the same old threat of a 10%
fine of turnover, having lost credibility. There is no guarantee that the EC will not keep on with its lax attitude in
future infringements of Gazprom.
Judged
against the tough line of DG COMP against US high-tech leaders - Google (a fine
of €2.42 billion), Microsoft (a barrage
of fines and aggressive action - € 497
million (2004), € 260 million (2006), € 849 million (2008) with
escalating daily charges reaching € 3 million per day - the largest penalty
in the 50-year history of the EU
and € 561 million in 2013) and Intel - € 1.06 billion (2009) -
the evidently lenient approach of the EC towards Russia and Gazprom makes one
wonder – who is the EU’s ally – Russia or the US?.
To add insult to injury – the DG COMP sets a dangerous
precedent for future litigation against Gazprom for overpriced gas sales in the
past.
No wonder the Kremlin and Gazprom were quick to commend and
endorse the new line of understanding with the DG COMP – which settles the
6-year-old case, as they concede little or nothing that has not been already
conceded, just in time for the grand openings on Nord Stream-2 and Turkish
Stream.
The European Commission,
which had to teach Gazprom a lesson, looked into its ugly backyard and chose to
remain mute
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