Commission v. Gazprom: The Antitrust Clash of the Decade?
This new CEPS Policy Brief boldly asserts that the antitrust case launched by DG Competition against Gazprom on September 4th will turn out to be the landmark antitrust case of this decade, in much the same way that Microsoft v. Commission was the defining antitrust lawsuit of the last decade. The paper argues that, for a host of political and economic reasons, this case is likely to be hard fought by both sides to a final prohibition decision and then onwards into the EU courts. In the process, the European gas market and the powers of DG Competition in the energy field are likely to be transformed.
1. Introduction
It may well be that the Gazprom antitrust case launched by DG Competition on September 4th will turn out to be the landmark antitrust case of this decade, as Microsoft was of the last decade. The argument of this paper is that, for a host of political and economic reasons, this case is likely to be hard fought by both sides to a final prohibition decision and then onwards into the EU courts. In the process, the European gas market and the powers of DG Competition in the energy field are likely to be transformed.
In an ordinary energy antitrust case, the most likely option would be a quiet private settlement by an Article 9 ‘commitment decision’. That option is much less likely to be a realistic one in this case. The political and economic circumstances of this case are exceptional. Gazprom is under a substantial degree of structural and market pressure; its potential antitrust liability is significant and DG Competition is determined to ensure a genuine open single market in gas. It is open to question as to how far the Gazprom board and the Kremlin would ever be prepared to sufficiently compromise with the Commission in order for a Commitment Decision to be agreed.
The case therefore may well be subject to a full European antitrust process; a prohibition decision with fines attached, a series of legal challenges by Gazprom to the EU General Court and onward to the European Court of Justice. Given the political resistance already evident in Moscow in the preliminary blocking statute, there is also the potential for a series of parallel Commission non-compliance cases as in Microsoft. There are also grounds for believing that the Gazprom case may well generate interest in the Central and Eastern European Baltic states in deploying their own regulatory and civil law procedures against Gazprom. These national processes would be engaged against Gazprom in respect of antitrust liabilities incurred under national law prior to their accession to the European Union.
The potential landmark nature of the case flows first from the mixture of core antitrust issues, from illegal resale clauses to abusive denial of third party access to exploitative pricing, combined with a host of structural supply security and geostrategic questions. Secondly, its importance derives from the prospect that the case may lead to the dismantling of the Gazprom model as a network of long-term supply contracts linked to oil arranged with vertically integrated domestic energy incumbents and its final replacement with a single interconnected European gas market relying on gas to gas competition in a number of hubs.
The Kremlin should really be deploying the antitrust case to force Gazprom to reform. Because of increased global gas liquidity, the economic crisis and consequent lack of affordability of the EU’s climate change strategy, the size of the European gas market will enlarge over the next decade. Russian gas companies could have a major role in an enlarged European market. However, to prosper in such an enlarged European gas market, the Russian market must itself be liberalised.
As the case proceeds, it may well be that the modernisers in the Kremlin administration may obtain the upper hand and will be able to seek a settlement with the Commission. If they do not, then there is likely to be a major prohibition decision resetting their terms of business in the European Union, a host of ancillary litigation and at the end a very different European gas market from the one in which Gazprom currently operates.
This paper is divided into six sections. The second section looks at Gazprom’s current market and structural vulnerability in the context of the shale gas revolution; section 3 puts the case in the context of the European Commission’s programme for the creation of a single market in gas, energy liberalisation and the maintenance of free competition across the Union. Section 4 examines the allegations made against Gazprom by the Commission and their implications. The 5th section considers the initial Russian reaction. And, in conclusion, the final section offers some proposals for the Russian government to reform its gas market, which may also then provide a basis for settlement with the Commission. The conclusion also considers the implications for EU-Russian relations should there be no settlement.
Download the full analysis on The Centre for European Policy Studies website
Alan Riley is Professor at City Law School, City University, Grays Inn, London.