Gazprom escapes EU fine in antitrust probe over market position in CEE

Gazprom escapes EU fine in antitrust probe over market position in CEE
By Wojciech Kosc in Warsaw May 24, 2018

Russian gas giant Gazprom will not be fined for abusing its market dominance in Central and Eastern Europe but will have to comply with EU rules ensuring a more competitive gas market in the region, the European Commission said on May 24 in a settlement decision ending a seven-year probe.

The decision will come as a disappointment in a number of CEE member states of the European Union, which had lobbied for the Commission to fine Gazprom for what they said – and the Commission agreed – were years of overcharging for gas and blocking its free flow between individual markets. 

The Commission decided, however, that a settlement laying out rules for Gazprom to follow in the future would be a better option. That is in line with earlier hints from the EU executive arm that it would rather focus on the future of Gazprom’s relationships to its state clients in CEE rather than the past.

"Now Gazprom has to take positive steps to integrate gas markets in Central and Eastern Europe [and] to enable gas to flow freely at competitive prices. This is the start of enforcing Gazprom obligations. Broken obligations can lead to fine of up to 10% of turnover," European Commissioner for Competition Margrethe Vestager said on Twitter.

More specifically, the Commission has ordered Gazprom to observe the following rules:

  • the company must not put up contractual barriers to the free flow of gas and has to remove any restrictions placed on customers to re-sell gas across borders;
  • Gazprom will also have an obligation to facilitate gas flows to and from isolated markets – namely the Baltics states and Bulgaria – whose gas grids are not linked to other EU member states due to the lack of interconnectors;
  • its customers in CEE will be able to demand lower prices when their gas price diverges from competitive Western European price benchmarks and new pricing will have to be set in line with price level in competitive Western European gas markets;
  • Gazprom will also be barred from acting on any advantages concerning gas infrastructure, which it may have obtained from customers by having leveraged its market position in gas supply.

The Commission's decision can also be seen as an indirect proof of how low Poland – which stood as CEE advocate on the issue – has fallen in the ranks of EU diplomacy after populist Law and Justice (PiS) government took over in 2015 and has warred with Brussels on a number of issues since. At the same time, Warsaw has bragged it was "rising from our knees" in terms of international position.

"We are disappointed that the long term anti-trust proceedings against Gazprom ended without imposing fines, lack of compensation for aggrieved companies, and only marginal concessions from the Russian monopolist," Poland's deputy Foreign Minister Konrad Szymanski told PAP.

He also said that the decision was worrying "in the context of aggressive Russian policy towards the EU and its member states" and that it hinted at EU's agreeing to a "long-standing Russian practice of using Gazprom as an external policy tool towards CEE member states of the EU."

"It’s a pity. But still it’s a step forward," Lithuanian Prime Minister Saulius Skvernelis told reporters in Vilnius, according to Reuters.

As a broader policy, Warsaw and the Baltic states have been working to reduce its dependence on Russian gas supplies by buying gas from Qatar via an LNG terminal and working with Denmark to build the Baltic Pipe to pump Norwegian gas.

Gazprom predictably said the decision was to its liking.

"We are satisfied with the commitments decision announced today by the European Commission in relation to the settlement of the investigation," Gazprom deputy chairman Alexander Medvedev said in a statement. "We believe that today's decision is the most reasonable outcome for the well-functioning of the entire European gas market."

The Commission charged Gazprom in 2015 with using its market dominance to overcharge CEE countries and blocking cross-border gas sales in order to segment the CEE market to control what the Commission said was "excessive" pricing.

The charges were the effect of the Commission's investigation into Gazprom's business in CEE that began in 2011 after Lithuania filed a formal complaint.

Gazprom and the Russian government, which controls it, denied any wrongdoing, hinting that the case could be politically motivated. The relationship between the EU and Russia has been at a low since 2014 when Moscow annexed Crimea from Ukraine, deteriorating further after the poisoning of Russian double agent Sergei Skripal in London in March.

Russia also claimed that Gazprom’s contracts with CEE countries complied with EU regulations at the time, and questioning them now is retroactively applying new EU rules – the so-called Third Energy Package, adopted in 2009 – which Moscow finds unacceptable.

Gazprom still found itself under pressure, and in late 2016 tabled a set of measures to address the Commission’s concerns, most importantly, offering to allow cross-border sales. That followed hints from Brussels and Moscow that a settlement was possible to end the dispute.

The CEE governments – especially Poland and Lithuania – are now likely to renew their grievances with the Commission as disregarding the views of the eastern part of the bloc in the name of appeasing Russia.