Nick Allen in Berlin -
The European Union has charged Russian energy giant Gazprom with violating competition laws, accusing it on April 22 of using its market dominance to overcharge clients in Central and Eastern Europe.
"We find that [Gazprom] may have built artificial barriers preventing gas from flowing from certain Central Eastern European countries to others, hindering cross-border competition," European Competition Commissioner Margrethe Vestager said in a statement.
"Keeping national gas markets separate also allowed Gazprom to charge prices that we at this stage consider to be unfair," added Vestager, who this month also brought charges against US technology giant Google in another landmark antitrust case.
The end result for state-owned Gazprom may be a fine of up to $3.8bn, according to VTB Capital in Moscow. The company, which supplies around 30% of Europe's gas, now has 12 weeks to respond and can call a hearing to make its defence.
The case, which began with raids on Gazprom offices in 2011 and was formally launched in 2012, focused on gas supplies to eight EU states - the three Baltic countries, Poland, the Czech Republic, Slovakia, Hungary and Bulgaria.
The company had hindered cross-border competition across the region and overcharged in five of the countries, the charge sheet said.
The development is likely to draw a belligerent response from Moscow, which views the antitrust case as politically motivated and part of its confrontation with the EU and US over Ukraine.
In a first reaction from Gazprom, the company said the charges against it were "unjustified".
"The adoption of the 'statement of objections' is just one of the phases in the antimonopoly investigation into Gazprom' s business in the European Union and does not mean Gazprom is guilty of violating EU anti-monopoly legislation," it said on its website.
Russian Foreign Minister Sergei Lavrov called the charges against Gazprom an "unacceptable" attempt to retroactively apply the EU's latest energy rules to earlier contracts.
"All contracts in effect now that Gazprom signed with its partners, were signed with full respect of the legal regime that existed in the EU at the time," Lavrov told three radio stations after the announcement.
"After the EU adopted the so-called third energy package … there have been attempts, and they continue now, to retrospectively, retroactively apply those requirements to old contracts as well. That is absolutely unacceptable," the minister said.
Vestager has repeatedly said the case is purely commercial and is not politically related. The case was sufficiently advanced to press to a conclusion last year, but was put on hold after Russia’s intervention in Ukraine so as not to inflame the situation further.
"It's very important for me to make sure that any company in the European market is being faced with the same set of rules and the same effort of enforcement," the Danish politician told the Wall Street Journal in February while discussing the Gazprom and Google cases.
In a speech in Washington earlier in April, Vestager warned that she was preparing for "consistent enforcement" in European energy markets to ensure competition and help the creation of a European energy union.
Without naming Gazprom, the commissioner cited a need to act "decisively against energy companies that harm rivals, block energy flows from one EU country to another, or threaten to close the tap".
A key area of concern during the Gazprom probe was the large price differences in its contracts, which tie gas prices for clients to the cost of crude oil in long-term supply contracts.
One complaint was that in bilateral deals with several Central and Eastern European countries, Gazprom allegedly linked natural gas prices with cooperation on other areas of political significance such as pipeline routes. If a certain country helps in pipeline projects it may receive a lower price for natural gas than their neighbours, which violates European competition laws.
A case in point was the recent discussion between the debt-stricken Greek government and Russia over possible concessions in exchange for Athens' assistance in extending the planned Turkish Stream gas pipeline from Russia, via Turkey and into Europe.
Who blinks first
Gazprom' s CEO Aleksei Miller had said the company will not fold easily on the issue of pricing. "If the European Commission will insist on equal prices," Miller said at a conference in Berlin on April, "then of course, as you understand, a base price is not the lowest price. It will be the highest price".
Gazprom can easily double the volume of gas delivered to Europe, but since there was no indication European clients needed this capacity, those volumes can go elsewhere, such as the Asian market, Miller said.
However, Russia will press ahead with its planned Turkish Stream pipeline to replace the South Stream pipeline which Russia cancelled in December, claiming EU obstruction of the line running under the Black Sea and into Europe via Bulgaria.
Russia has also warned Europe that it plans to stop shipping gas through Ukraine, its current main route to Europe, from 2020. With Gazprom planning to start deliveries to China by then, it "can sustain a pause" if the EU tries to block Turkish Stream, Miller said.
"Our competitive advantage is that we can pause, if we are forced to. And we can keep it long enough," said Miller, adding that "Russian gas will remain an irreplaceable element of the European gas market".
Meanwhile, the company is now talking to Greece about terms of extending the line deeper into Europe. Since Gazprom's partners will be able to build and then own the line’s supply network beyond its current termination point in Turkey, the project will not contravene EU competition laws, it stresses.
Energy Minister Alexander Novak, who accompanied Miller in Berlin, said that despite plans by the 28-country bloc to reduce Russia' s role in its energy supplies, the EU would rely heavily on Russian gas for at least 25 years.
During times of tension with Europe at earlier stages of his presidential terms, President Vladimir Putin also reminded gas clients that Russia had a hungry alternative customer to the east, referring to China.
Commentators say the antitrust case was unavoidable, given Russia' s increasingly confrontational stance towards the EU.
"Allowing politics to override market rules would set a truly terrible precedent. Other infringers would be emboldened," the Financial Times commented. "Nor should Ms Vestager pay too much credence to threats to cut supplies. These can be overstated. When it comes to gas, Europe may need Russia, but Russia also needs Europe. Its physical network makes switching customers difficult. In spite of its conflict with Kiev, Moscow only briefly turned off the taps on Ukraine.
"However, most of all the EU needs to remain true to its own policies," the FT added. "Russia' s 'divide and rule' tactics make a mockery of the single energy market. Having set itself the important task of liberalising gas supplies, the commission cannot afford to duck the challenge of dealing with Gazprom."
"Gazprom' s best course of action" is to reach a deal with the EU, Alex Fak and Valery Nesterov, analysts at Moscow-based Sberbank Investment Research, said in a research note before the charges were announced. "What we fear most at this point is a knee-jerk reaction from the Russian government, one that would escalate the situation and cost Gazprom far more in the end."
While the EU insists the Gazprom case is purely commercial, there are signs of growing unease at potential risks from Russian control over energy supplies in general.
On April 20, the British government ordered Russian billionaire Mikhail Fridman to sell his North Sea gas fields within six months, or petroleum licences will be stripped from the operator Dea amid fears for Britain's energy security.
Jason Corcoran in Moscow - Russian banks are disappearing at the fastest rate ever as the country's deepening recession makes it easier for the central bank to expose money laundering, dodgy lending ... more
bne IntelliNews - The Kremlin supported by national sports authorities has brushed aside "groundless" allegations of a mass doping scam involving Russian athletes after the World Anti-Doping Agency ... more
Jason Corcoran in Moscow - Revelations and mysticism may have been the stock-in-trade of Nikolai Tsvetkov’s management style, but ultimately they didn’t help him to hold on to his ... more