Gazprom for monopolism in Eastern Europe will not be punished

The European Commission closed the antimonopoly case against Gazprom. Further action will not be taken against him.
Origin source
The European Commission (EC) decided to complete the investigation of the antimonopoly case against Gazprom. This is stated in the message of the Russian concern.

The EC found acceptable the proposals of Gazprom on the settlement of the case, adjusted for the results of the market test. It is noted that no further action will be taken against the Russian company accused of abusing its dominant position in the Eastern European markets.

The European Commission, in turn, announced in a press release that the outcome of the seven-year investigation was a set of obligations that the regulator expects from Gazprom. Brussels's decision "imposes on Gazprom a detailed set of rules that will significantly change the principles of Gazprom's work in the gas markets of Central and Eastern Europe," the EU executive branch said in a statement.

"We are convinced that the decision taken today is the most acceptable outcome for the functioning of the European gas market as a whole," said Alexander Medvedev, Deputy Chairman of the Gazprom Management Committee, whose words are quoted in the Gazprom statement.

How to start a business

The antimonopoly investigation against Gazprom began in September 2011, when EC representatives conducted sudden synchronous inspections with the seizure of documents in the offices of Gazprom's subsidiaries and counterparties in ten European countries. One of the initiators of the European case of Gazprom was Lithuania, which sent a complaint to the European Commission in January 2011, asking to investigate possible abuses of the Russian gas monopoly on the Lithuanian market.

Lithuania, 100% dependent on Russian gas, was the only EU country that filed such a complaint officially. The then Lithuanian Energy Minister Arvydas Sekmokas claimed that his country pays the highest price for Russian gas in Europe (10-20% higher than the rest). The European Commission's investigation related to the activities of Gazprom in eight countries - Lithuania, Latvia, Estonia, Poland, the Czech Republic, Slovakia, Hungary and Bulgaria.

In 2017, the Russian gas monopoly supplied to these countries 33.668 billion cubic meters. m of gas, or 17.3% of last year's exports of Gazprom.

In April 2015, the European Commission filed formal allegations of abuse of dominance in the markets of Eastern Europe.

Easily escaped

According to the Brussels regulations, Gazprom must eliminate any restrictions in contracts with importers that prevent the resale of Russian gas to other companies in other EU countries; Ensure free gas flows to isolated markets or from such markets (Baltic countries, Bulgaria); to provide customers of the concern that purchases gas under long-term contracts, price revision mechanisms in accordance with prices in the competitive markets of continental Western Europe (including prices for liquid gas hubs). In addition, Gazprom should refuse to impose conditions on some of its partners at the expense of the control over the gas infrastructure (previously the European Commission suspected that Gazprom was using projects such as South Stream, or existing gas pipelines as a tool of pressure).

The new rules, which Gazprom must adhere to, bear the status of legally binding, the European Commission notes. If Gazprom violates any of these obligations, the regulator may impose a fine on the company to 10% of its global proceeds without the need to prove a violation of EU antitrust rules (Gazprom's revenue in 2017 was 6.55 trillion rubles).

European Commissioner for Competition Margret Vestager explained why Gazprom was not fined after the investigation. "I know that some would like us to fined Gazprom regardless of the proposed solution. However, the fine would not allow us to achieve all our tasks to protect competition in this matter. We can get from Gazprom positive steps to integrate isolated gas markets only if Gazprom has committed to do it. And we can offer Gazprom's customers an effective right to review contract prices for gas only if we force Gazprom to take on this obligation, "Vestager said.

Rules for 8 years

The obligations imposed on Gazprom will be valid for eight years, the European Commission specified. "Our experience with other antitrust matters in the energy sector shows that the eight-year period is sufficient for Gazprom's market behavior to change steadily, and new standards of market behavior have been established," RBC explained in a source in the European Commission. In addition, the EU expects that long before the expiration of Gazprom's obligations in Central and Eastern Europe, a new infrastructure (for example, the Polish-Lithuanian gas interconnector) and new sources of gas will appear, so Gazprom's former market practices will be irrelevant, the interlocutor says. RBC.

Margaret Vestager also explained at a press conference in Brussels that during these eight years new gas contracts will be signed and they will include new provisions and opportunities for gas buyers, conditioned by today's decision on Gazprom. "Therefore, most likely, these benefits will last longer than eight years," she said.

"A number of interconnectors are already being built or are in the planning stage ... In eight years we will have another gas market," she added.

He himself proposed

The obligations of Gazprom announced today largely coincide with the proposals that it sent to the European Commission last spring. Even then, the company agreed to exclude from the contracts a ban on cross-border gas resale, and also to tie the price for West-European benchmarks to Poland, Bulgaria, Estonia, Latvia and Lithuania.

After receiving the proposals of Gazprom, the European Commission launched a so-called market test - it coordinated them with all stakeholders in Central and Eastern Europe (Bulgaria, Czech Republic, Estonia, Latvia, Lithuania, Poland, Hungary and Slovakia). His result was the list of the final obligations of the gas monopoly published today (dated March 15, 2018). As noted by Vestager, the market test and subsequent "intensive discussions" with Gazprom made it possible to improve the company's proposals for Europe.

For example, some consumers will be able to take advantage of the option of delivering Gazprom's gas to Bulgaria or the Baltic States instead of the initially agreed contractual reception points (in Poland, Slovakia and Hungary). For countries such as the Czech Republic, Hungary, Poland and Slovakia, which have interconnects between themselves and with Western European countries, it would be sufficient to remove restrictions on cross-border gas reselling. But countries such as Bulgaria, Estonia, Latvia and Lithuania do not have enough gas connections with neighboring markets, so it will be possible for them to receive gas on Gazprom's routes gas contracted for delivery to Poland, Slovakia or Hungary.

The fee that Gazprom will charge for this service is fixed at about 30% lower than originally suggested by the company, Vestager said, and Gazprom will be able to refuse the client in changing the gas reception point only if there is a justified lack of free gas transportation facilities.

Long overdue

"The solution that eliminates the segmentation of the market by Gazprom (the company will abandon restrictions on the resale of its gas by customers) should have been implemented long ago. In addition, an important innovation is that a number of European companies will have the opportunity to choose new points of delivery / receipt of contracted gas. It will be interesting to see whether these companies will compete among themselves for the opportunity to use this new flexibility, "said Thierry Bro, a gas analyst at the Oxford Institute for Energy Studies.

Gazprom's commitments to competitive pricing "will strengthen the positions of gas hubs in North-West Europe and, in general, the principle of market pricing for gas," says Bro. The leading gas hub in Europe, where a market benchmark is formed at prices, in recent years has become the Dutch TTF.

The agreements were reached a long time ago, but the process was artificially hampered by some EU members who were not aimed at resolving the issue in order to develop the market, but to intensify confrontation with Russia, said Alexei Grivach, deputy head of the National Energy Security Fund (FNEB). In his opinion, the European Commission had the political will and common sense to make the right decision. In general, Grivach calls the claims of the European Commission rather far-fetched, appealing to the fact that the European regulator compared prices in different European markets that do not have a common infrastructure, having different sources of supply and energy balances, different structures of the consumption market.

The initiators will think

After the announcement of the results of the investigation, Saulius Skvarniilis, the Lithuanian prime minister who initiated the investigation, said: "We will consider the option [appeal against the decision] and determine what to do" (quoted by Interfax).

Lithuanian Energy Minister Zhigimantas Vaičiūnas also specified that the country will continue to look for ways to compensate damage of € 1.5 billion, which, according to the Lithuanian authorities, has inflicted on the price policy of Gazprom to Lithuanian consumers.

The regulations issued by the European Commission (in the published part of the decision) do not remove all issues related to the problem, says Alexander Bazykin, managing partner of HEADS Consulting. So, one of the regulator's requirements is the liberalization of the terms of contracts and the removal of the restrictions prescribed in them, but at the same time Gazprom in no way undertakes at its own expense to develop local gas transmission networks to solve infrastructure problems - that is, despite the decision of the European Commission, de jure there is liberalization, but in fact it does not solve the problem of the isolation of markets, the expert explains.

The price revision mechanism will be included in both new and existing contracts. Within ten weeks, Gazprom will offer all existing customers in five countries (Bulgaria, Latvia, Lithuania, Estonia and Poland), where the European Commission had claims for pricing, adding to the long-term contracts a mechanism for regular price review. The basis for the revision will be "a significant change in economic conditions in European gas markets" or the retreat of contract prices from average import prices of gas in Germany, France and Italy or from quotations in the generally recognized gas hubs (TTF, NCG, etc.).

The whole business in the Czech Republic on one site: Restaurants, pubs, hotels, resorts, companies, institutions, museums, car services.

According to Ants Noot, member of the board of Estonian Eesti Gaas AS, quoted by Interfax, Gazprom's gas prices have already been adjusted to the average European level some time ago. To date, agreements in the Baltic countries are already tied to market prices on the gas exchange and are formed in all countries on the same basis. If a few years ago the price of gas sold in Estonia was significantly higher than the gas supplied to Central Europe, now there is no such difference anymore, said Eesti Gaas board member.