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Gazprom Wants EU Anti-Trust Probe Settled

Medvedev denies overcharging, wants amicable end

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Gazprom is seeking an amicable settlement of the EU antitrust probe against the Russian gas monopoly, Deputy Chairman Alexander Medvedev said on July 23, following a meeting with the Competition Commissioner Margrethe Vestager. It was their first meeting since charges were filed against Gazprom in April.

“As I have stated in the past, we prefer to settle this case amicably and will continue to engage with DG Competition [the EU’s antitrust body],” Medvedev said. “Today’s meeting provided a good framework for future discussions and we hope to make swift progress toward a mutually acceptable solution.”

The Commission, which has accused Gazprom of abusing its market power to control and overcharge Central and Eastern European countries, thereby infringing the EU’s competition rules, said the meeting was an informal exchange, with Gazprom giving its initial views on the statement of objections. Gazprom has until mid-September to lodge its formal response.

Medvedev said his meeting with Vestager was “productive”. However, Medvedev said the company disagrees with the Commission’s accusations that the Russian company overcharges clients, noting that Gazprom’s “prices are nearing a record low for our customers across Europe”. Gas prices have fallen due to the low oil prices.

Settlement talks between the Commission and Gazprom broke down early last year, when the conflict in eastern Ukraine strained relations between Brussels and Moscow.

In late April, Vestager announced antitrust charges against Gazprom, claiming its often-secretive contracts were hindering competition in the natural-gas markets in Bulgaria, the Czech Republic, Hungary, Estonia, Latvia, Lithuania, Poland and Slovakia. In Bulgaria, Poland and the Baltics the Commission also accused Gazprom of charging unfair prices by using complex formulas that link the price of gas to that of oil.

The issue is also political. Any agreement that Gazprom strikes with the Commission will have to be signed off by the Kremlin.

Gazprom, with revenues of €122 billion in 2013, faces a potential maximum fine of 10% of its revenue.

Alexei Kokin, a senior oil and gas analyst at UralSib Financial Corp in Moscow, told New Europe by phone on July 24 that if Gazprom rejected the EU demands it might cost the Russian company a large fine and it would still have to comply with Brussels’ decision. He added that Gazprom must realise that these charges are impossible to refute as they describe the situation as it is. “There is no way to beat the EU at its own game. The only way is to compromise,” he said.

“The easiest thing has been so far to compromise on the issue of re-export clauses. It helps Ukraine, okay, but it doesn’t hurt Gazprom that much. But there is also the big question – and actually that’s the reason why re-export has become an issue – the reason is that Gazprom’s pricing in Eastern Europe is not in line with any market logic. It’s just Gazprom using its monopoly power. Gas travels to Germany through Poland from Russia, it’s really puzzling – to put it mildly – to observe Poland buying gas at a premium to Germany so that’s not really defensible,” Kokin said.

“That’s why Gazprom must eventually agree to some sort of universal formula with multiple adjustments for individual countries or customers. That’s pretty much inevitable. What exactly this formula will be, how adjustments will be worked out and how exactly Gazprom will transition to the new pricing regime, that’s a different issue and if Gazprom just admits that something has to be done about Poland, Bulgaria and others in Eastern Europe then negotiations will probably begin over the specifics of these pricing formulas and negotiations over what’s acceptable to the EU and how Gazprom can get there,” the UralSib analyst said.

This would let Gazprom keep some influence over the process. “Alternatively it might just say ‘no’ and get slapped with a fine and eventually have to adjust its prices anyway. So, it’s best to cooperate at this point because it’s not in a very strong position,” Kokin said.

Even if nothing is done now, Gazprom’s monopoly will be eroded, he said. The EU would simply build more pipelines and help Eastern Europeans get more connections with the system and invest in making the pipeline system in Europe better interconnected.

“Investment wouldn’t be so huge but it would bring immense benefits to Europeans. Eventually it would let LNG [liquefied natural gas] from pretty much anywhere get injected into the system, let’s say in Rotterdam, in Belgium, in Netherlands, and then it could end up anywhere in Europe. And that would be a situation where Gazprom would have its power even further diminished and it would no longer have any captive countries. If Gazprom has thought it over to a logical end, it must have realised it has very few long-term trump cards,” Kokin said.

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Co-founder / Director of Energy & Climate Policy and Security at NE Global Media

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