International Business TransactionRegout Sgolne

Europe vs. Gazprom: the clash of the decade?The Gazprom clause and the antitrust case

Supervisor: Pr. T. Germain

Yeditepe UniversityAcademic Year 2013-2014Table of ContentsIntroduction3Chapter 1. Gazprom clause4Section 1. Definition4Section 2. Third energy Package6Section 3. Harmonization on the EU side?6Section 4. Third Country7Chapter 2. Russia as third country7Section 1. Russia as energy superpower8Section 2. Kremlins influence vs Europe9Section 3. Challenges9Chapter 3. WTO compatibility of the Third country regime10Chapter 4. EU-Russia relations11Section 1. Commission v. Gazprom case11Section 2. In the future? Security of energy supplies?13Conclusion15Bibliography16Jurisprudence16Legislation16Doctrine16Annexes18

Introduction

Over the past half century, Russia has been a vital supplier of energy to the EU. But if Russia is important to the EU, the EU as a neighbour with half a billion energy consumers in a unified internal market is just as important to Russia.

Energy had been chosen at the Paris EU-Russia Summit of 30 October 2000 as the most positive component in bilateral relations that would help to lead our common European continent into deeper integration. However, over the last ten years, energy relations between the EU and the Russian Federation have been subject to considerable media exposure (Ukraine in 2008)[footnoteRef:1]. European efforts to reduce the Russian state-owned companys sway over gas price have been quite successful[footnoteRef:2]. [1: Roadmap of the EU-Russia Energy Cooperation until 2050, Progress report July 2011, Expert papers, 29th july 2011, p. 1.] [2: Unkown author, Paying the piper, The Economist, 4 january 2014. ]

The past decade has been characterised by significant changes in energy markets globally, with significant volatility in the oil markets and, partly as a consequence, in gas markets, a significant jump in energy demand from newly industrialized countries (especially China), serious concerns about the geopolitical consequences of peak oil and increasing concerns and efforts to address climate change. At the same time, the rising complexity of energy policies both in producing and consuming countries is locking the world into a very complex global energy market where security lies in stability of those markets rather than in national go it alone policies. Exporters, be it OPEC, Russia or other oil and gas producers hope for security of demand as much as consumers ask for security of supply. Stability in the commercial environment is indispensable.

This paper will be divided in four different parts. I shall examine, first, the Gazprom clause, the principle of unbundling and the Third-energy Package. What is it? Why was it included in the Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009? Following this, I shall describe the position of Russia as Third country and what it implies for the Kremlin. Thirdly, I will discuss the WTO compatibility of the Third country regime (also called Gazprom clause).And eventually, I will address the issue of the Eu-Russian relations and especially the consequences of the Gazprom antitrust case[footnoteRef:3]. [3: Commission opens proceedings against Gazprom, 4 September 2012, Commission Press Release, IP/12/937. ]

Chapter 1. Gazprom clause[footnoteRef:4] [4: Mostly inspired from T. Cottier, S. Matteotti-Berkutova and O. Nartova, Third Country Relations in EU Unbundling of Natural Gas Markets: The Gazprom Clause of Directive 2009/73 EC and WTO Law, Working Paper N 2010/06, NCCR Trade Regulation, Bern, 2010, 16 p. ]

The Commission has consistently argued that liberalization increases the efficiency of the energy sector and the competitiveness of the European economy as a whole. Liberalization of energy markets in Europe was supposed to facilitate consumers to freely select their gas suppliers and achieve competitive deals out of various providers. While most member states had implemented the electricity and gas directives by September 2000, a Commission inquiry concluded that further measures were necessary in order to complete the internal energy market and to secure its benefits. The second gas and electricity directives, adopted in June 2003, includes unbundling, whereby energy transmission networks mandatorily have to be run independently from the production and supply side. According to the directives, markets for all non-household gas and electricity customers are to be liberalized by July 2004. For private households, the deadline is July 2007. After these dates, businesses and private customers would theoretically have been able to choose their power and gas suppliers freely in a competitive marketplace.

However, the majority of consumers still require a real choice as there have been a very few new entrants in the energy market due to "a number of serious malfunctions"[footnoteRef:5], which has been revealed by a Commissions enquiry into the energy market.[footnoteRef:6] Among others the following shortcomings were identified[footnoteRef:7]: a lack of liquidity, preventing successful new entry; an inadequate current level of unbundling between network and supply interests; customers being tied to suppliers through long-term downstream contracts. This compelled the EU Commission to propose a third energy liberalisation package.[footnoteRef:8] [5: Europa Press Report, Energy: Member States must do more to open markets; competition inquiry identifies serious malfunctions, 15 November 2005, reference IP/05/1421. ] [6: The European Commission launched an inquiry into competition in gas and electricity markets in 2005, pursuant to Article 17 of Regulation 1/2003 EC. ] [7: DG Competition report on energy sector inquiry, SEC (2006) 1724, 10 January 2007. ] [8: T. Cottier, S. Matteotti-Berkutova and O. Nartova, Op.cit., pp. 1-2. ]

Section 1. Definition

More choice, investment and security of supply lie at the heart of the 3rd energy package. EU energy market will become more competitive as energy companies will have to separate supply production from transmission activities.The new energy liberalization package contains main provision for separation of production and distribution operations (unbundling) of vertically integrated energy companies[footnoteRef:9]. This new provision would be also applicable to foreign companies bidding to acquire a significant control or interest over an EU network which would have to adhere with the similar hiving-off needs as EU firms. Article 11 sets the certification requirements for a transmission system operator from third countries. National regulators have the right to refuse certification of a transmission system operator controlled by an individual or group of individuals from a third country if the company fails to comply with the requirements imposed in the Article 11. [9: See for the understanding of vertically integrated energy undertaking, Note of DG Energy & Transport on Directives 2003/54/EC and 2003/55/EC on the Internal Market in electricity and natural Gas, The Unbundling Regime, 16 January 2004.]

Indeed, the article 11 of the Directive states that: 1. Where certification is requested by a transmission system owner or a transmission system operator which is controlled by a person or persons from a third country or third countries, the regulatory authority shall notify the Commission.The regulatory authority shall also notify to the Commission without delay any circumstances that would result in a person or persons from a third country or third countries acquiring control of a transmission system or a transmission system operator.2.The transmission system operator shall notify to the regulatory authority any circumstances that would result in a person or persons from a third country or third countries acquiring control of the transmission system or the transmission system operator.3.The regulatory authority shall adopt a draft decision on the certification of a transmission system operator within four months from the date of notification by the transmission system operator. It shall refuse the certification if it has not been demonstrated:(a) that the entity concerned complies with the requirements of Article 9; and(b) to the regulatory authority or to another competent authority designated by the Member State that granting certification will not put at risk the security of energy supply of the Member State and the Community. In considering that question the regulatory authority or other competent authority so designated shall take into account: (i) the rights and obligations of the Community with respect to that third country arising under international law, including any agreement concluded with one or more third countries to which the Community is a party and which addresses the issues of security of energy supply;(ii) the rights and obligations of the Member State with respect to that third country arising under agreements concluded with it, insofar as they are in compliance with Community law; and(iii) other specific facts and circumstances of the case and the third country concerned.

In other words, under the Third Country clause, companies from outside the EU would be subject to the same rules as domestic investors, ie, firms with generating businesses would not be permitted to own transmission businesses unless they set up genuinely independent system operators. So the third liberalization package extends the idea to third countries. This would automatically exclude companies such as Gazprom whose main businesses are extraction and generation. But countries could obtain an exemption from this rule if they had signed an international agreement with the EU in which they promised to observe the rules on independence of transmission system operators. Foremost in the Commission's mind was the attempt to get Russia to sign the energy charter.Section 2. Third energy Package

The proposed text of Third energy liberalization Package was published in September 2007, it comprised European Commission recommendations for the reforms of EU electricity and gas regulatory frameworks and mainly aimed to enhance its transparency, competitiveness and flexibility of the European energy market.The new energy liberalization package contains main provision for separation of the operation of gas pipelines and electricity networks from the business providing gas or generating power (unbundling). So EU markets will become more competitive. The wide-ranging rules adopted by the Parliament 21 April 2009 will also improve consumer rights and promote regional solidarity in the event of severe gas supply disruptions. Section 3. Harmonization on the EU side?

Unbundling is not entirely popular. France and Germany opposed the Commissions plans. Along with Austria, Bulgaria, Greece, Latvia, Luxembourg and Slovakia they believe that enforced unbundling is unconstitutional and could have a negative social consequences. So eight EU states (cited above), led by Germany and France, refused to take the path of so-called full ownership unbundling (in which a parent company sells its transmission networks to a different firm). Instead, they followed a softer line: a parent company retains ownership of transmission networks, but owned by the same set of shareholders and heavily supervised by a national regulator.[footnoteRef:10] [10: R. Goldirova, EU weakens 'Gazprom clause' on foreign energy investors, http://euobserver.com/economic/26914, 13 October 2010, consulted on 13 June 2013. ]

On 17 December 1991, the Energy Charter establishing a legal framework to develop international energy cooperation between European states, including Russia, was signed. It consisted of trade, transit, and investment principles and the contracting parties final intentions to negotiate a binding treaty to stabilize energy relations on the European continent. On 16 July 2009, Russia left the Energy Charter and decided to sign a energy agreement with Germany. No one criticized the German government because every other thought it could do the same. Germany has played a key role in facilitating divergent approaches within Europe towards Russia.There is a need to plan a pan-European approach toward Russian energy concerns. Russia is only one challenge among many. Creating a common nuclear strategy for the European Union, for example, will also be an extremely complex challenge. Europe must concentrate on a few simple priorities and go further than simple policy papers on energy security, sustainable energy, and intelligent energy. A common European strategy might be a bit too much to ask for, but it is necessary if Europe wants to be a major player on the world energy stage. Understanding what is at stake is the easy task; offering a viable way forward will be the real challenge. The energy crises between 2001 and 2008 did not unify Europe. The energy interests of EU member states are still divergent. A French-German partnership on energy does not exist.Section 4. Third Country

The European Parliament and the Council were really scared about allowing companies from third countries to control a transmission system or a transmission system operator.In recital 22 of the Directive they elaborate this concern as follows:The security of energy supply is an essential element of public security and is therefore inherently connected to the efficient functioning of the internal market in gas and the integration of the isolated gas markets of Member States. Gas can reach the citizens of the Union only through the network. Functioning open gas markets and, in particular, the networks and other assets associated with gas supply are essential for public security, for the competitiveness of the economy and for the well-being of the citizens of the Union. Persons from third countries should therefore only be allowed to control a transmission system or a transmission system operator if they comply with the requirements of effective separation that apply inside the Community...The security of supply of energy to the Community requires, in particular, an assessment of the independence of network operation, the level of the Communitys and individual Member States dependence on energy supply from third countries, and the treatment of both domestic and foreign trade and investment in energy in a particular third country. Security of supply should therefore be assessed in the light of the factual circumstances of each case as well as the rights and obligations arising under international law, in particular the international agreements between the Community and the third country concerned.

Thus, the Third energy liberalization Package sets forth provisions for the prevention of control of transmission systems or their owners by companies from non-members of the European Union until they satisfy certain requirements. In order to regulate the open gas markets and ensure security of supply, Article 11 sets the certification requirements for a transmission system operator from third countries. The clause addresses concerns that ownership unbundling would lead to the acquisition of strategic EU energy transmission assets by foreign companies.[footnoteRef:11] National regulators have the right to refuse certification of a transmission system operator controlled by an individual or group of individuals from a third country if the said company fails to comply with the requirements stated in the articles 9 and 11 of the Directive (unbundling and security of energy supplies). [11: Europa press release, Energising Europe: A real market with secure supply, reference: MEMO/07/361, Date: 19/09/2007]

Chapter 2. Russia as third country

As mentioned above, this paper will address the status of Russia as third country operator. As the EU embarks on the third wave of energy reforms, political observers are cautioning that the gas sector must be administered with additional care as the present schemes may cause nervousness with Russia, Europes largest gas supplier.[footnoteRef:12] The main European gas supplies are from Russia (42 %), Norway (24 %), Algeria (18 %), Nigeria (3,1 %), Libya (2,0 %), Qatar (1,4 %), Egypt (1,1 %) and others (1,7 %).[footnoteRef:13] Moreover, the dependence of individual Member States on Russian gas differs significantly and for some member nations, it may amount up to 100% of all consumption.[footnoteRef:14] [12: Eur Activ Network, Liberalisation of EU Gas sector, http://www.euractiv.com/en/energy/liberalisation-eu-gas-sector/article-171067, consulted on 19 May 2013. ] [13: Commission, Assessment Report of Directive 2004/67/EC on Security of Gas Supply, SEC (2009) 978 = COM (2009), 363, p. 63; Commission, Second Strategic Energy Review, Annex II: An EU energy Security and Solidarity Action Plan, Europes current and future energy position, COM (2008), 744, vol II, p. 7.] [14: House of Lords, Parliament Standing Committee on EU, The European Union and Russia. The stationery Office of UK, London, 2008, p. 47]

Gazprom is Russias largest oil and gas company. It is said to control about 17% of the globes gas reserves.[footnoteRef:15] Gazprom contributes about one-fourth of Russias tax revenues. Though, the company was government owned initially, it was later converted into a joint- stock company in 1993. Initially, the Russian government had about 40 percent of its shares, which was increased to fifty one percent in 2003. [15: Gazprom, Gazprom in figures 2004-2008, 2009. ]

Two reasons have reiterated European cautioning of Russian energy blackmail. First, in January 2006 and then in 2009, Russia temporarily stopped the gas supply and Western European consumers were potentially strongly affected. Second, EU efforts to formalize energy relations with Russia did not succeed; Russia has consistently refused to sign any kind of binding agreements, such as the European Energy Charter Treaty. After numerous failed attempts to finalize bilateral energy co-operation agreements with Russia, the Commission proposed strict rules for energy relations with third countries. The move is widely seen to be targeted at Russian energy giant Gazprom.Section 1. Russia as energy superpower

World gas reserves are abundant, with the potential for at least sixty years of consumption.[footnoteRef:16] These reserves, however, are concentrated in a few countries such as Iran, Qatar, and Russia. In Russia, there is no uncertainty about the quantity of gas available and the ability to exploit it properly. [16: BP Statistical Review of World Energy, 2008 and 2009.]

Gas production there will increase over the next twenty years, giving Russia the lead on gas markets for quite a long time provided that Gazprom and the Russian government agree to invest in key infrastructure and gas fields. Nevertheless, in contrast with the flexibility of oil markets, gas exports will still be dependent on pipelines and regional markets due to the prohibitive cost of delivering liquefied natural gas (LNG) via tankers to consumer areas.[footnoteRef:17] [17: S. Meritet and A. Baltierra, Developing LNG in North America: Impact on Prices of Natural Gas, CGEMP, Universit de Paris Dauphine, 24th USAEE/IAEE Conference; Handbook Utility Management, the future of LNG trade, Springer Berlin Heidelberg, 2008.]

As the likelihood increases that Russia will dominate the European Unions (EU) energy supply, questions have emerged as to whether Russia would use the energy weapon to influence EU member policies and extract political concessions.[footnoteRef:18] The European Union is almost 50% dependent on imports for its energy consumption and it will be 70% in about 15 years. A large part of its oil and gas imports will come increasingly from Russia. [18: K. Smith Stegen, Deconstructing the energy weapon: Russias threat to Europe as case study, Energy Policy, Philadelphia, Elsevier, Oct, 2011, Vol.39(10), pp. 6505-6513.]

Since 2000, Vladimir Putin is trying to consolidate the energy sector under state control. This meant radically reversing the liberal policies from the two decades before (of Gorbachev and Yeltsin). The government effectively nationalized the majority of the energy sector (Gazprom, Rosneft and Transneft). Section 2. Kremlins influence vs Europe

Since Putin, the Kremlin became more and more aggressive in negotiating supply contracts witg the former Soviet states and Europe, locking them into large volumes at extraordinarily high prices because these customers had no alternative energy supplies. The Kremlin also began cutting energy supplies to certain markets (in Ukraine) in order to shape other political negotiations. The whole strategy helped Russia to be more stable and strong. Gazprom criticized the new clause and even threatened Europe. But at the end of the day, Europe didnt speak with on voice to Russia. But the Third Energy Package has given EU member nations the political and legal tools to mitigate Gazproms dominance in their respective natural gas supply. This common framework also allows European members to present a more unified front in challenging certain business practices they believe are monopolistic (see infra Commission investigation). Russia is not able anymore to use natural gas pricing or supply as a foreign policy tool. Section 3. Challenges

Inside the European Union, gas resources are undergoing a much-observed depletion, especially since European production started decreasing in the North Sea.[footnoteRef:19] 2008 was certainly the peak year of European gas production, though new fields may still be found.[footnoteRef:20] Falling production explains why supply from European fields will only meet around two thirds of continental European gas demand by 2015, and less than a quarter of demand by 2025.[footnoteRef:21] [19: World Energy Outlook 2009.] [20: World Energy Outlook 2008.] [21: Natural Gas Industry Study in 2030, International Gas Union, 24th World Gas conference, Argentina, http://www.wgc2009.com consulted on April 15, 2013. ]

Europes energy consumption will maybe continue to decrease because of the crisis, or only just preclude any growth in consumption in the next decade.Moreover the accelerated development of new and updates liquefied natural gas import facilities is going to help Europe to find other ways for energy supply. By building the North Stream and South Stream natural gas pipelines, Russia is reinforcing its position to export energy to Europe. Russia is wishing to maintain long-term strategic partnerships with Germany and Italy through those pipelines (no more leverage from Minsk and Kiev). Moscow is also adapting its prices. Indeed, Gazprom has begun expanding the natural gas discounts formerly reserved for strategic such as Germany or Italy. Then the Kremlin is focusing its energy and funds on developing connections to the growing East Asian energy markets (Eastern Siberia-Pacific Ocean oil pipelines: next very expensive project). Moscow appears to be aware of all the 21st century challenges but the future is uncertain. Chapter 3. WTO compatibility of the Third country regime

The eighth WTO Ministerial conference held December 15-17, 2011 in Geneva approved Russias accession after 18 years of difficult negotiations. The decision was historic because Russia had been the largest economy in the world outside the WTO system after Chinas accession in September 2001 (15 years of negotiations for accession[footnoteRef:22]).[footnoteRef:23] On 22 August 2012, the WTO welcomed the Russian Federation as its 156th member.[footnoteRef:24] [22: Dr. J. Gu, China and the WTO, Institute of Development Studies, UK, 21 December 2006, http://www.die-gdi.de/CMS-Homepage/openwebcms3.nsf/(ynDK_FileContainerByKey)/ADMR-7BBFVT/$FILE/Jing-Gu_China_and_the_WTO.pdf?Open, consulted on 29 March 2013., p. 1. ] [23: V. Evseev, R. Wilson, WTO accession: Implications for Russia, http://www.irex.ru/files/Gaidarfellowship/2012/Evseev-Eng.pdf, 2012, consulted on 28 of March.] [24: http://www.wto.org/english/thewto_e/acc_e/a1_russie_e.htm, consulted on 29 March 2013. ]

This paper assesses whether the clause is compatible with current obligations of the EU under the World Trade Organisation (WTO), in particular the General Agreement on Trade in Services (GATS).Article 11 of the Directive refers to the certification requirements for a transmission system operator from third countries. Article 11(a) requires a foreign operator to comply with all and the same conditions as EU operators under Article 9, in particular unbundling, while the second requirement under Article 11(b) requires that the granting of a certification does not jeopardize the security of energy supply.The question arises to what extent the EU is entitled to impose additional requirements to third State operators under WTO rules. In their 2010 analysis (while Russia wasnt part of the WTO), T. Cottier, S. Matteotti-Berkutova and O. Nartovas stated that the EU is entitled to operate privileged rules under Article Vbis GATS relating to regional integration. The third country clause, entailing additional conditions, is not inconsistent per se with WTO law as no obligations to grant national treatment can be currently found in the field. National treatment requires that imported goods be treated no less favorably than domestically produced products. Its operation, however, needs to take into account MFN[footnoteRef:25] obligations under Article II GATS which regional integration is an exception. In other words, Europe can impose such a regime thanks to the principle of regional integration, which allows the EU to operate privileged relations among Member States. It will not be considered as being against WTO liberal regime. [25: Most favoured nation principle is based on a non-discrimination principle that is applicable to all services between all the WTO member states]

In case of a dispute settlement, EU could try justifying its certification decisions on the unbundling of transmission systems under general exceptions relating to public order and national security under Article XIV and XIVbis GATS respectively.Chapter 4. EU-Russia relations

This chapter will tackle another issue that the one already discussed above. Indeed, even if the Gazprom clause has some consequences on the EU-Russia relationship, other factors have to be taken into account. It has been heard that Russia is not playing a fair game towards the EU regarding the energy supplies. But what are really the accusations against Russia? Section 1. Commission v. Gazprom case[footnoteRef:26] [26: Mostly inspired from A. Riley, Commission v. Gazprom: The antitrust clash of the decade? CEPS Policy Brief, N285, 31 October 2012 consulted on http://www.ceps.eu/book/commission-v-gazprom-antitrust-clash-decade, consulted on 20 May 2013. ]

On the 4th of September 2012, the Commission opened proceedings against Gazprom. It may well turn out to be the landmark antitrust case of this decade, as Microsoft[footnoteRef:27] was of the last decade. The case will be hard fought by both sides because what is at stake is crucial. DG Competition will need to fully explore the potential of the Unions antitrust case law and legislation. In the process, the European gas market and the powers of DG Competition in the energy field are likely to be transformed. This investigation has worried Gazprom because Europe provides 40% of its revenue. It has been rumored that Gazprom is close to agreeing a settlement[footnoteRef:28]. [27: Cases COMP/C-3/37.792, Microsoft; T-201/04 Microsoft v. Commission; T-167/08 Microsoft v. Commission.] [28: Unkown author, Paying the piper, The Economist, 4 january 2014.]

1. HistoryIt is difficult to allege that DG Competition is somehow unfairly focusing its attention on Gazprom. The Gazprom investigation is part of a much larger programme initiated in the late 1990s to bring about a fully functioning and operational single market in gas. This programme includes the first[footnoteRef:29], second[footnoteRef:30] and third[footnoteRef:31] energy packages and the Sectoral Inquiry into the electricity and gas markets launched in June 2005[footnoteRef:32]. The Sectoral Inquiry was a major investigation into anti-competitive activity across the European electricity and gas markets. The evidence provided by DG Competition, which the media and most commentators largely overlooked, indicated that there was widespread anti-competitive activity across both sectors. [29: Directive 1998/30/EC of the European Parliament and of the Council concerning the Common Rules for the Internal Market in Natural Gas, OJ 1998 L204.] [30: Directive 2003/55/EC of the European Parliament and of the Council concerning the Common Rules for the Internal market in Natural Gas and Repealing Directive 1998/30/EC, OJ 2003 L176/57.] [31: Directive 2009/73/EC of the European Parliament and of the Council concerning the Common Rules for the INternal Market in Natural Gas and Repealing Directive 2003/55/EC, OJ 2009 L211/94. ] [32: Sector Inquiry Pursuant to Article 17 of Regulation 1/2003 in the European Electricity and Gas Markets, Communication by Ms. Neelie Kroes in Agreement with Mr Piebalgs, Brussels June 2005.]

The Inquiry also provided the Commission with good reasons to press ahead in prosecuting energy companies for breach of the competition rules and evidence with which to do so. Over a dozen major European energy companies were prosecuted including EDF,[footnoteRef:33] GDF/Suez[footnoteRef:34], E.ON37[footnoteRef:35] and RWE[footnoteRef:36]. [33: EDF, Long-term Contracts in France, COMP /39.386, March 2010.] [34: E.ON/GDF, Market allocation in European Gas Markets, Case COMP/39.401; GDF Foreclosure, Case Comp/B-1/39.316.] [35: E.ON/GDF, op.cit. and E.ON Gas Foreclosure, Comp/B-1/39.317. ] [36: RWE, Gas Foreclosure, COMP/39.402. ]

2. AccusationsThe launch of DG Competitions case against Gazprom involves in essence three principal allegations with respect to resale obligations, suppression of alternative competition and pricing. The Commission is investigating three suspected anti-competitive practices in Central and Eastern Europe. First, Gazprom may have divided gas markets by hindering the free flow of gas across Member States. Second, Gazprom may have prevented the diversification of supply of gas. Finally, Gazprom may have imposed unfair prices on its customers by linking the price of gas to oil prices.[footnoteRef:37] [37: Antitrust: Commission opens proceedings against Gazprom, http://europa.eu/rapid/press-release_IP-12-937_en.htm, Brussels, 4 September 2012]

3. Russias reactionThe initial Russian reaction has been to introduce a Federal Decree under which all strategic enterprises to obtain consent for their foreign economic activity with the government.[footnoteRef:38] Strategic enterprises and their subsidiaries will in future only be able to disclose information to foreign governments and international organisations with the consent of the Russian government. Consent will also be required to amendments to contracts and commercial pricing policy. [38: Presidential Decree to help Gaprom in Standoff with European Commission, ITAR-TASS, 12 September 2012, http://www.itar-tass.com/en/c39/518529.html, consulted on 22 May 2013. ]

Practically this blocking statute is likely to have very little effect. In the first place DG Competition has already raided Gazproms offices in the Czech Republic and Germany. It has also been able to obtain information from other energy companies Gazprom does business with and from complainants. In respect of the Federal Decree it looks like a case of shutting the door after the horse has bolted. Even after the Decree, it is open to question how effective it will be. The worst reaction would be a gas cut-off (just like in 2009). It will undermine the companys market position. Once the Member States see more threats of non-compliance with EU law coming out of the Kremlin, they will start accelerating their search for new gas sources, be it shale gas, LNG or new pipelines sources (North Africa?). In other words, by taking an aggressive confrontational approach to DG Competitions investigation, Gazprom would actually undermine its own market position.

Section 2. In the future? Security of energy supplies?

The Kremlin should be seeking to use the Gazprom case to force change within the company and in the broader Russian gas market. Leaving Gazprom as the dominant player in the exploration, production, wholesale and retail levels of the market, combined with its export and pipeline monopoly is not good for Russian economic development or for Russian consumers. Moscow should be giving serious consideration to negotiating a Commitment Decision with DG Competition that puts pressure on Gazprom to face up to liberalization.This would involve as part of the decision accepting the unbundling rules; selling or isolating downstream assets from supply operations and providing more gas into existing hubs. Internally, this case should be made to keep the prices low domestically and enable Russian gas to be competitive on the European market. Sadly, the Kremlin will surely act in its own self-interest and will be used as a political instrument.

Conclusion

The European Commission attempts to curb the risks of its growing gas import dependency by the promotion of rules (such as the Gazprom clause) and market-based multilateral energy governance. Internally, attempts to establish fully competitive gas and electricity markets are intended to enhance European energy security and to yield increased energy solidarity, forming the basis for a common external energy policy vis--vis Russia. Externally, the European Commission has coherently attempted to apply its rules logic to gas relations with Gazprom in order to create a level playing field.Indeed, even if Russia and Europe are very dependent from each other, the Commission has decided to open proceedings against Gazprom and also to insert the Gazprom clause in the last directive. After having analyzed WTO law, it doesnt seem to be a problem for Europe to take such actions. But Russia, now that it is a member of the UN organization, can always decide to take the case in front of the Dispute Settlement body. But still, Europe couldnt find a way to speak univocally to the Federation of Russia and the hopes for an energy single market are disappearing. No single market for energy is feasible. Alexandre Dumas wanted the musketeers to be one for all, all for one but Europe is acting by the motto, set forth in Gerard Ourys 1971 film La Folie des Grandeurs, of one for all, every man for himself.Gazprom and the Kremlin are facing new challenges and opportunities. So they are adapting their policies. The threat of cheaper gas supplies entering Europe (LNG, shale gas) will probably be a wake-up call for Russia. Gazprom needs to find funds for its future investments. Europe is aware of the monopolistic position of Russia on the energy market and it is trying to do its best to prevent Russia from other anti-competitive actions (through the Gazprom clause and the anti-trust case). The long-term sustainability of the model Russia is moving toward remains doubtful. Over the long term, Europe gas industry should be reorganized through a diversification and security of supplies. The creation of a European gas agency should be an interesting move. But first it should make a better use of the already existing directives[footnoteRef:39]. [39: Directive 2004/67/CE to facilitate the coordination group of supply measures]

There is a need for cooperation. For better or for worse, Russia and Europe must rely on each other for at least the next several decades.

Bibliography

Jurisprudence

- Cases COMP/C-3/37.792, Microsoft; T-201/04 Microsoft v. Commission; T-167/08 Microsoft v. Commission.Legislation

- Directive 1998/30/EC of the European Parliament and of the Council concerning the Common Rules for the Internal Market in Natural Gas, OJ 1998 L204.- Directive 2003/55/EC of the European Parliament and of the Council concerning the Common Rules for the Internal market in Natural Gas and Repealing Directive 1998/30/EC, OJ 2003 L176/57.- Directive 2009/73/EC of the European Parliament and of the Council concerning the Common Rules for the Internal Market in Natural Gas and Repealing Directive 2003/55/EC, OJ 2009 L211/94. - Presidential Decree to help Gaprom in Standoff with European Commission, ITAR-TASS, 12 September 2012, http://www.itar-tass.com/en/c39/518529.html, consulted on 22 May 2013. Directive 2004/67/CE to facilitate the coordination group of supply measuresDoctrine

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Annexes

Philippe Rekacewicz, Le Monde diplomatique, 2007

Philippe Rekacewicz, Le Monde diplomatique, 2007.

1