Russian media claims talks with Poland on Nord Stream 2 "deal" are underway

Russian media claims talks with Poland on Nord Stream 2
Russia is seeking to split opposition to Nord Stream 2
By bne IntelliNews July 25, 2016

Warsaw is in talks with Moscow over a deal to drop its opposition to Nord Stream 2, the expansion of the gas pipeline linking Russia to Germany, Russian media claimed on July 25. It seems likely the reports are simply more Russian mischief making as Moscow seeks to dissipate opposition to the project within the EU.

Poland and most of Central and Eastern Europe (CEE) are worried Nord Stream 2 will allow Russian giant Gazprom to bypass the region as it sends exports to western Europe. That would increase the Kremlin's political and economic leverage in the region.

Warsaw is a leading voice in the effort to get Brussels to block Nord Stream 2. The scheme, which vitally has the backing of Germany, seeks to double the capacity of the route under the Baltic Sea to 110bn cubic metres per year. Poland has managed to secure at least a partial say on authorisation of the project.

Poland imports around two thirds of the 16bn cubic meters (cm) of gas it consumes annually, most of it from Russia. Since Nord Stream 2 would impact the country's gas market, Poland’s anti-monopoly office UOKiK has won the right from the EU to issue a ruling on the participation of EU companies in the consortium planning to build the pipeline.  UOKiK warned on July 22 that Nord Stream 2 could strengthen Gazprom’s position in Poland and limit competition on the gas market. 

Should the watchdog say no, it would potentially leave Gazprom to build Nord Stream 2 on its own, should it get the go ahead from Brussels. The Russian company hopes to create a consortium with five EU-based companies - E.On, Engie, BASF, OMV, and Shell – to facilitate financing, but currently holds full ownership.

Covert compromise?

Russian newspaper Kommersant reported on July 25 that Warsaw and Moscow have begun talks on a compromise deal. According to the unnamed sources quoted, Poland could accept changes to its gas supply contract with Russia, including on price. It would also offer increased independence for Poland by allowing Warsaw to tap gas supplies directly from Germany.

"A reasonable regulator needs not to ban transactions, he needs to win [and] make big international companies to agree to terms that would bring maximum benefit to Polish consumers," an unnamed lawyer said in the Russian report.

At the same time, Kommersant suggests that a Polish ruling to block the consortium is also perfectly possible. In Warsaw, with the government run by the vehemently anti-Russian PiS, that looks close to a foregone conclusion.

"The Poles first accused us of monopoly, and now are looking to ban the engagement of additional partners," one Gazprom source complained to Kommersant.

Should that happen, Gazprom is ready to launch a legal battle in Polish courts, the newspaper suggests. Or the state giant could just comply with whatever ruling UOKiK might eventually make.

However, given the ongoing battle over authorisation of the project in Brussels even with the support of the EU's biggest economy, it seems highly unlikely Gazprom would have any chance of pushing the project through without the interest of German partners. 

On top of that, neither Russia nor Gazprom are in a good spot regarding financing right now, making the role of EU partners crucial. Some Polish experts hint that the report - as speculative as it is - is in fact a concealed offer from Russia to the Polish government.

Pressure points

On the other hand, it could constitute yet more mischief making in Moscow. Russia is well practiced at picking off individual states in CEE from EU policy, in a bid to divide-and-rule. Poland, as the clear leader of opposition to Nord Stream 2, and with an entrenched position against the project, is likely not a target for turning.

Poland has reacted nervously to any hint it might let Nord Stream 2 happen, while working hard to increase alternative supplies via a new LNG platform and plans to build a link to Norway. In late June, Warsaw denied strongly Russian claims that it had requested gas deliveries from the planned project.

Sowing doubt amongst other states currently opposing the pipeine appears a more likely aim, and especially amongst the Visegrad Four group. Gazprom claimed on June 30 that it has agreed a role for Slovakia.

Bratislava has also been a leading light in objecting to Nord Stream 2, due to its role carrying Russian exports from Ukraine to Austria, but it is also closer to Moscow than many others in the region. While the Slovak government has not commented on the Russian claim, neither has it issued a denial. That may hint it is ready to talk.

There are several other points at which the Russian project appears to be successfully applying pressure. Earlier this month, the Czech Republic expressed alarm at reports that Poland wants to scrap a gas interconnector between the pair due to the likelihood of Nord Stream 2 gas filling up the Czech network.

Prague, which would likely develop a role as an important transit country should Nord Stream 2 go ahead, has been notable for its lack of support to its neighbours over Nord Stream 2. However, Poland quickly insisted it has no plan to ditch the gas link, which has already secured EU funding.