Explainer: The EU's Antitrust Case Against Russia's Gazprom
April 22, 2015
by Carl Schreck
The European Union targeted Russia's state-owned energy giant Gazprom with antitrust charges on April 22, a move likely to exacerbate tensions between Moscow and the West.
Here are four things to know about the EU's case against Gazprom, which delivers up to one-third of the 28-member bloc's total supply of natural gas.
What Are The Charges?
Broadly speaking, the EU suspects Gazprom is abusing its dominant market position to squeeze higher prices from European countries that rely heavily on Russian gas, as well as impeding the free flow of gas within the EU.
The specific accusations are that Gazprom may have prevented some EU countries from re-exporting gas purchased from the company, unfairly linked gas prices to oil prices, and blocked countries from diversifying their gas supplies.
The allegations concern Gazprom's dealings with eight countries in Central and Eastern Europe that import all or a majority of their gas from Russia: Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, and Slovakia.
All of these countries have complained that Gazprom has charged them more for gas than numerous Western European states pay.
Is There A Political Dimension?
Western governments have long accused Russia of using Gazprom as a political tool to bully its neighbors and sow discord among EU members. Geopolitics have already impacted the pace of the investigation as well, according to sources in Brussels.
The initial phase of the probe began in 2011 with raids of Gazprom offices in the EU member states that complained about the firm's practices, and the formal investigation was launched in 2012.
EU sources told RFE/RL that the charges against Gazprom were ready last year but tabled due to concerns about further aggravating relations with Moscow following Russia's military incursion into Ukraine.
Brussels and Washington have both imposed sanctions on Russian officials and companies in response to the Kremlin's annexation of Ukraine's Crimea territory and backing of separatists in eastern Ukraine.
The standoff over Ukraine is "coloring the entire context" of the EU's case against Gazprom, says Jonathan Stern, chairman of the Natural Gas Research Program at the Oxford Institute for Energy Studies.
"It's taken a very, very long time to get this far, and now of course we're in a totally different political situation because of Ukraine," Stern told RFE/RL.
EU antitrust chief Margrethe Vestager, who assumed her post in November, has denied that the Gazprom investigation is driven by politics.
European Commission sources told RFE/RL this week that Vestager's announcement of antitrust charges against U.S.-based Internet giant Google demonstrate that the EU did not "single out" Gazprom.
What Are The Implications For Gazprom?
Gazprom has 12 weeks to respond to and defend itself against any charges and to negotiate a settlement with the EU. The company has indicated it is willing to pursue a settlement.
If no agreement is reached, however, the EU could impose fines of up to 10 percent of Gazprom's total sales or demand that the company alter its business practices.
Such penalties could prove costly for Gazprom at a time when Russia is already battling economic woes amid falling oil prices and Western sanctions.
Analysts with Russian state-owned lenders Sberbank and VTB estimate that Gazprom could be hit with fines of up to $2 billion or $3.8 billion, respectively.
What Reaction Can We Expect From Russia?
Given the current frayed ties between Moscow and the West, Russian lawmakers and officials are likely to portray any EU charges against Gazprom as an attempt to isolate and weaken Russia.
But it is unclear whether the Kremlin would respond with concrete measures such as those undertaken by Russian President Vladimir Putin two years ago.
After the EU formally launched the antitrust proceedings into Gazprom's pricing practices in September 2012, Putin signed a decree requiring Russian strategic firms that operate abroad to obtain government permission before disclosing information to foreign regulators, changing contracts, or selling property abroad.
The decree also requires the government to refuse permission to disclose information 'capable of damaging the economic interests of the Russian Federation.'
Moscow-based analysts Aleksandr Fak and Valery Nesterov of Sberbank CIB, the corporate- and investment-banking business of the leading Russian lender, wrote in a research note on the case this week that Gazprom could suffer further if Russian officials lose their cool.
"At this point what we fear most is a severe reaction from the Russian leadership," the analysts wrote. "Such a reaction risks an escalation in tensions that ultimately could inflict even more significant damages on Gazprom."
With reporting in Brussels by RFE/RL's Rikard Jozwiak in Brussels, the Wall Street Journal, rbc.ru, and Reuters
Copyright (c) 2015. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036.
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