Polish Agency Slaps Max Fines on NS 2 Companies (Update)
(Adds comments from Uniper, OMV and Shell at end)
Poland’s anti-trust agency UOKIK has imposed the maximum penalty on the Swiss Nord Stream 2 company and its foreign financiers following a two-year investigation, it said October 7. This is 10% of their annual turnover, payable within 30 days. All agreements between them must also be terminated, it said, to “reinstate the state of competition from prior to the concentration."
UOKIK director Tomas Chrostny said he had not identified any attenuating circumstances. “The activities of the six companies negatively impacted competition on the natural gas market in Poland – a market that is of great importance for the entire economy and for the situation of individual households.”
It said the six companies – Russian Gazprom, French Engie, German Uniper and Wintershall, Austrian OMV and Anglo-Dutch Shell – concluded a number of finance agreements that gave the same rights and obligations they would have enjoyed as members of a joint venture, a structure proposed in 2015 that the agency later prohibited on the grounds it would limit competition in the Polish gas market. Gazprom was to pay half the €9.5bn cost of building the 55bn m³/year sub-sea pipeline, and the other five were to each pay 10%.
UOKIK said the agreements between the parties “effectively confirmed their significant and indispensable role in the entire project,” as they not only covered financing but also authorisations allowing them to affect the operation of NS 2. Furthermore, by having ownership rights to NS 2 in the event of default, the financing parties have become “quasi” stockholders. “The advantages and obligations stemming from participation in the undertaking were clearly defined for all parties involved,” said UOKiK.
Chrostny said that all entities were aware of the activities undertaken, as exactly the same economic operators had previously financed the establishment of NS 1 gas pipeline, enjoying the same shareholdings. [That is not strictly true as Shell was absent from NS 1 and Gasunie is absent from NS 2]. Less than a year later, after Chrostny voiced his serious concerns regarding the concentration, Gazprom signed agreements concerning NS 2 gas pipeline with five western European energy companies.
Chrostny said this was just a ‘workaround:’ the goal of all efforts undertaken was the same. “If the project were solely of a financial nature, then Gazprom could easily obtain financing from the government of the Russian Federation or from commercial banks. Perhaps they would be able to pull it off on their own. It needs to be stressed that operating as a financial institution is not the core activity of any of the remaining concentration participants. First and foremost, Uniper, Engie, OMV, Shell and Wintershall are customers, and sometimes also competitors of Gazprom on the gas market. The fact that a joint venture is financed by participants of the gas market and not by a financial institution proves that all the entities involved share the same economic interests. Without the participation of those entities, Nord Stream 2 would not be able to operate and to pursue the gas pipeline construction project in the European Union, meaning that most probably it would not be established at all."
Explaining the application of the maximum fine, Chrostny said none of the companies had observed national laws, which are equivalent to those in force in the European Union. Therefore, completion of the project constitutes a breach of legal provisions and fair competition rules, resulting in increasing the degree of dependence of gas recipients, on the internal market, from a single supplier: Gazprom.
Polish state monopoly PGNiG has vowed never to buy Russian gas again when its contract with Gazprom expires next year. It is investing in production off Norway and in LNG infrastructure, to be supplied with long-term contracts with Qatar Petroleum and Venture Global in the US, among others. Poland has also been the target of numerous complaints from the European Commission for certain requirements that have made trading there disadvantageous except for PGNiG, and many traders have left.
Nevertheless, Chrostny writes, NS 2 has the potential to "bring about serious consequences for the economy of Poland and of the European Union, in particular by introducing territorial restrictions affecting the deliveries of natural gas, and by increasing the prices of gas to end customers, in particular to Polish consumers."
The fines are: Gazprom, zlotys 29.1bn ($7.6bn); Engie Energy, zlotys 55.5mn; Uniper, zlotys 29.9mn; OMV, zlotys 87.7mn; Shell, zlotys 30.2mn; and Wintershall, zlotys 30.8mn.
Uniper, OMV, Shell disagree with UOKiK
Uniper does not share the assessment which UoKiK has presented in its decision, it told NGW. "The agreements concluded between the NS 2 financial investors and Gazprom are not a joint venture but financing agreements. Financing agreements do not constitute a notifiable concentration under Polish merger control law and there is no such precedent in the previous practice of competition authorities, including UoKiK. Uniper is considering a possible appeal against the UOKiK decision. A decision can take up to four to five years. Depending on the decision, fines would not be due until then.
"We are convinced that NS2 has an energy-economic rationale and that Germany and Europe will need more gas in the future and will have to be supplied with it flexibly and reliably – security of supply! – and from various sources –diversification! This is why we at NS 2 are committed as a financial partner and are also pushing ahead with the construction of an LNG terminal (for the Atlantic routes, among others). Both are commitments for the coming decades," the company said in an email.
Austrian OMV said in an email that it "has received the decision from the Polish anti-monopoly authority and will analyse it in more detail. OMV is of the clear opinion that it has complied with all applicable laws." And Shell said: “We strongly disagree with UOKiK’s Decision. We are reviewing the basis of the decision and considering our next steps.”