Constructive Meeting Between Russia and EC, Says Almunia
Three steps forward, three steps back in the past day for the relationship between Russia and Europe.
On the one hand, the bilateral agreements signed by Gazprom with Bulgaria, Serbia, Hungary, Greece, Slovenia, Croatia and Austria are in breach of EU law, said the European Commission. On the other hand, the largest extractor of natural gas in the world said to be ready to come up “in the coming days” with proposals to find a solution to the anti-trust case opened by European institutions in August. Despite all the difficulties, a way out could come in the next months. The Vice-President of the European Commission sounded pretty confident about this.
THREE STEPS FORWARD
Alexander Medvedev, Deputy Chairman of the Management Committee and Director General of Gazprom Export, said that Russia needs Europe as Brussels needs Moscow. In occasion of the conference South Stream: The Evolution of a Pipeline, he explained that Gazprom is willing to find mutually beneficial solutions.
The Russian company is likely to propose changes to its business. Changes could include the South Stream project and its existing position in Central and Eastern European gas markets. Careful and attentive proposals could pave the way to the reconciliation after months of tensions.
In August, European Commission opened formal proceedings to investigate alleged Gazprom’s anti-competitive practices. At the moment, EU regulators are studying Gazprom’s practices in the Old Continent, over allegations of dominant position abuse.
The steps forward came on Wednesday, with the conciliatory declarations of Medvedev. He made clear that Gazprom is willing to cooperate with Brussels. And European institutions welcomed his declaration. They said they are prone to assess Gazprom’s draft proposals.
“I met today with Mr. A. Medvedev, deputy chairman of Gazprom, together with Mr. A. Yanovsky, Deputy Minister of Energy of Russia. This was a constructive meeting, during which Gazprom expressed its willingness to explore the possibility of a commitment based solution to the Commission's competition concerns,” Joaquin Almunia, Vice-President of the European Commission, said in a note released on Wednesday.
THREE STEPS BACK
If some achievements were clear on Wednesday, some problems between Russia and the European Union equally emerged strong in the last hours.
European Commission voiced potential problems for the South Stream project in Europe, indicating that Bulgaria, Serbia, Hungary, Greece, Slovenia, Croatia and Austria are called to ask for re-negotiation with Russia.
“The Commission has looked into these intergovernmental agreements and came to the conclusion that none of the agreements is in compliance with EU law,” Klaus-Dieter Borchardt, director for energy markets at the European Commission, said on Wednesday.
Despite the 63 billion cubic metres (bcm) of gas that flow through the pipeline had already found buyers, Gazprom’s plans could need revision in the coming months. The message did not leave any doubt: additional diplomacy is needed.
"I can only reiterate our willingness to work constructively… It will take not months; it will take maybe two years," Borchardt added.
The South Stream construction was started in December 2012, with first commercial deliveries expected in late 2015. Borchardt acknowledge that European institutions cannot stop the construction of the infrastructure. Hence, Gazprom and Russia have almost two years to come up with solutions, exactly the same time span hypothesized by Borchardt to find solutions.
The main bone of contention stems from the Third Energy Package, the EU legislation meant to foster competition in the European gas and electricity markets. The core element of the Third Energy Package is the ownership unbundling, which requires the separation of companies’ generation and sale operations from their transmission networks. In other words, the owner of the resource cannot be the owner of the infrastructure used to carry the resource. The EU has been crystal clear about this.
“What I can say is the intergovernmental agreements will not be the basis for the construction or the operation of South Stream. Because if the member states or states concerned are not renegotiating, then the Commission has the ways and means to oblige them to do so. And South Stream cannot operate under these agreements,” Borchardt explained in the European Parliament.
The EU official did not exclude the possibility of exemptions from unbundling obligations, but he explained that “it will not be a easy task.” Eventual exemptions could come only in a subsequent phase of the project. In this sense, Brussels did not close all the doors to Moscow, but made clear that there are conditions to follow. Other than the ownership unbundling, Borchardt highlighted that the EC requires non-discriminatory access of third parties to the pipeline and a different tariff structure.
The three requirements set by the European Commission might be a hurdle. Now it remains to be seen how these difficulties will be dealt with. A solution is not trivial, especially with rising tensions between Brussels and Moscow over Ukraine.
Some signals could come soon. As said in November, the European Commission expects to conclude its investigation by spring 2014. Next months will tell the relationship between Brussels and Moscow. The timing could give Europe a bit of an edge, but Moscow has equally some cards to play. A price war could be detrimental for many.