EC Makes Big Changes to Gazprom's Market: OIES

The European Commission (EC) has imposed harsher terms on Russian exporter Gazprom than were initially proposed, following the scrutiny of the proposals put forward for the market test by the EC and Gazprom, the Oxford Institute of Energy Studies (OIES) told NGW May 24. 

"Nobody can say that the directorate-general, competition (DG-Comp) has not taken notice of the points made by those who commented on the market test. And it is also very difficult to claim that DG-Comp  could have been more thorough in a process which has lasted only a few months short of seven years," said Jonathan Stern.

Leading the call for the EC to impose a fine on Gazprom was the Poland's dominant gas company, state-run PGNiG. "We are surprised and deeply disappointed by the European Commission’s statement, from which it follows that the application of the 3rd energy package rules may be limited," the company wrote in its statement. 

The EC launched a probe in 2011, examining allegations that Gazprom had taken advantage of its pipeline network, its capacity contracts abroad and the lack of competition in gas supply – especially in southeast Europe and the Balkans – to extract high prices for its gas. Part of the challenge facing the EU was separating Gazprom's legitimate commercial practices – sellers naturally want to extract as a high a price as they can from their customers – from violations of anti-trust law. In some countries it was the only gas supplier, for reasons that go back to the days of the Soviet Union and the Iron Curtain.

While the EC stopped short of imposing financial penalties for the "seven fat years," as PGNiG describes them, since the probe was launched, Gazprom does face the threat of a fine of 10% of its global turnover if it is found to breach the new terms. PGNiG said the EC had "clearly admitted that Gazprom may not implement the 'binding commitments' and, as in the case of Google, fines may be necessary to impose it." 

The OIES, in a paper written by Stern and Katja Yafimava and published in July 2017, said that Gazprom was likely to amend the initial commitments to take into account those concerns expressed during the market test that were reasonable and substantiated. The new commitments are very similar to what the OIES proposed, Stern said May 24. "But the amendments which we anticipated resulting from the market test are more than minor." These changes relate to the need for Gazprom to facilitate swaps at the customer's request, and charge transparent, fixed and much lower service fees than Gazprom originally offered. Also the price conditions have been made more explicit and toughened, he said.

According to the EC, Gazprom will now "replace" the lack of interconnection by giving relevant customers an option to deliver gas to and from the Baltic states and in central and eastern Europe: "In particular, customers that have bought gas, originally for delivery to Hungary, Poland or Slovakia, can choose to have Gazprom deliver all or part of it to Bulgaria and/or the Baltic States instead (and vice versa).

"This mechanism enables gas to flow to and from the Baltics and Bulgaria, as if gas interconnectors with EU neighbours existed already. It will allow Gazprom's customers to seek new business opportunities even before interconnectors become available, to the benefit of consumers and businesses in Bulgaria and the Baltic States.

Gazprom's deputy CEO Alexander Medvedev, who also used to head Gazexport, said May 24: "We are satisfied with the commitments decision announced today by the EC in relation to the settlement of the investigation. We believe that today's decision is the most reasonable outcome for the well-functioning of the entire European gas market."