[NGW Magazine] Energy Community extends a hand to UK

This article is featured in NGW Magazine Volume 2, Issue 11

By Mark Smedley

The UK would be welcome to apply to join the Energy Community, the director of its secretariat told the Flame conference on May 11. But every club has its rules.

Now in its 12th year, the Energy Community brings together the European Union and nine ‘contracting party’ nations in the Black Sea and former-Yugoslav regions to create an integrated, competitive energy market enabling cross-border trade and investment in gas and power. Ukraine is the largest such member while Georgia, another former Soviet republic, is the newest. Turkey and Norway are observers.

If in 2019, the UK leaves not only the EU – then, in 1973, still the EEC – but also its single market and customs union, it would be the first full member state to do so since the EEC came into being in 1957, and thus the first ex-EU country that might become a Community ‘contracting party.’   

As they go to the polls on June 8, UK politicians are split over Europe, with opposition (Labour, Scottish Nationalist Party, Liberal Democrats) parties arguing that – if the UK exits the EU in 2019 – it should secure a deal to stay in the EU Single Market, including for energy. 

The ruling Conservatives though say that no agreement over the Single Market would be preferable to a ‘bad deal’. 

Janez Kopac became director of the Energy Community’s secretariat in Vienna for four and a half years, having been director-general of energy at Slovenia’s economy ministry from late 2008 until early 2012. Here he answers NGW’s questions.

How would you like the European Commission to improve its dealings with Energy Community countries?

The Energy Community has been referred to as a wider Energy Union. And rightly so, as it extends the full set of EU energy policy and law to its neighbours, tying them to the internal energy market under the unique governance framework of the Energy Community Treaty. One of the goals of the current reform of that treaty is to provide for a true level playing field between the EU’s member states and the participating non-EU countries based on full equality. 

You said at Flame that you would welcome a UK application to join the Energy Community, if it were to leave the EU and (unlike Norway) also exit the Single Market. Did you mean that ironically?  May former EU states join the Energy Community? 

Any non-EU country in Europe can join the Energy Community if it considers that in its own best interests and the other parties to the treaty agree to an accession. For a long time, the Energy Community has been perceived as a “waiting room” for EU accession. This has not reflected the reality for years. 

With the accession of Moldova, Ukraine and most recently Georgia, the Energy Community has turned into a long-term project of building a pan-European energy space. An objective assessment of a given non-EU country’s best interest will take the nature and the particular features of the Energy Community into account, and not an outdated perception.  

What could the UK/GB offer the Energy Community, and what could it offer the UK - especially in terms of an area for resolving issues with the EU regarding gas trade, and an informal dispute resolution forum?

The UK has always strongly supported the Energy Community and has an excellent reputation in all its member countries. The Energy Community, on the other hand, has many interesting features including offering market access, fair and easy decision-making procedures, a functioning dispute resolution procedure and the possibility for flexible solutions. 

Many pro-Brexit politicians are strongly opposed to any jurisdiction 'post Brexit' by the European Court of Justice (ECJ) over the UK. But is acceptance of ECJ rulings an absolute pre-condition for membership of the Energy Community?

The Energy Community does not have its own Court of Justice and thus does not issue judicial decisions which could be binding on a party. In their decision-making, the institutions are to follow the case law of the EU Court of Justice, but this obligation is part of homogeneity rules which govern any common market.

The Flame traders' panel on May 11 - particularly TrailStone's head of gas Didier Magne - applauded what Ukraine has done to facilitate gas trading, to date, while noting that next steps depend on the Stockholm Arbitration (contrasting Ukraine's progress with Poland). Do you agree?

The most urgent thing to be done in Ukraine’s gas sector is the unbundling of the transmissions system operator in line with the EU’s Third Energy Package. As long as this process – which the Secretariat initiated over a year ago – remains stuck, Ukraine is not compliant with the rules it wants others to apply.

Ukraine wins round I of Stockholm

The critical obstacle to unbundling is the lack of a ruling from the Stockholm arbitration tribunal, where the two companies,  Naftogaz Ukrainy and Gazprom have been contending two contracts for three years this June. The ship-or-pay contract is with Naftogaz, not its transportation arm. NGW reported on issues relating to Ukraine in the run-up to the key Stockholm arbitration decisions in its last issue on pages 4 to 7.

There was no update on unbundling as NGW went to press, but Naftogaz, the parent company of the transporter, UkrTransgaz, announced some positive news on May 31. The take-or-pay clause in its contract with Russian Gazprom has been greatly reduced and the penalty payment demand has been rejected and so has the ban on re-exports. Further, as of 2014, the gas price has been linked to the NetConnect Germany hub. However there is still the unresolved issue of whether Ukraine took Russian gas that it did not pay for in 2014.