Russian gas giant dodges fine in antitrust settlement with EU

The European Commission said Thursday that it had reached a settlement with Gazprom, concluding a long-running antitrust investigation into the Russian energy giant's dominance in regional gas markets.

Officials in Brussels said the company had accepted a series of concessions, but unlike with competition inquiries into other companies such as Google and Intel, it declined to issue any financial penalties. That provoked criticism in countries like Poland, which say they have been squeezed by the energy company in the past, and fear that the deal between Gazprom and the European Commission does not go far enough to prevent similar behavior in the future.

Still, the settlement could mark the end of a long legal tangle between the commission, the EU's executive arm, and the Russian state-controlled company, which is a major supplier of natural gas to Europe.

The commission had originally filed charges against Gazprom in 2015, accusing it of breaking the bloc's antitrust rules, leading to higher gas prices in five Central and Eastern European countries, including Bulgaria and Poland. Last year, it accepted provisional commitments by the company to address those charges.

On Thursday, it made that decision official.

"These obligations will significantly change the way Gazprom operates in Central and Eastern Europe, to the benefit of millions of European consumers," Margrethe Vestager, the European competition commissioner, told reporters in Brussels on Thursday.

Gazprom has accepted measures, the commission said, to assure the free flow of gas among European member states. The aim is to clear away market barriers and contractual terms that analysts say allowed Gazprom to charge higher prices.

The company, for instance, is required to remove any restrictions on customers' reselling gas across borders. It is also required to enable gas flows to countries like the Baltic states, whose gas markets remain isolated from the rest of Europe. Gazprom customers will have a right to demand lower prices if what they are paying diverges from benchmark prices determined by major European trading hubs, like the TTF in the Netherlands.

If the company breaks any of the rules, the commission can impose fines up to 10 percent of the company's world revenue.

"Gazprom won't be able to play hardball," said Jonathan Stern, an analyst in the gas program at the Oxford Institute for Energy Studies, a research institution.

That was not enough, however, to placate some Central and Eastern European countries.

"We are disappointed that the yearslong proceedings have ended with no fine for Gazprom, no compensation for affected companies, and with hardly any meaningful concessions on Gazprom's side," Poland's minister for European affairs, Konrad Szymanski, said in a statement.

Analysts said Vestager likely decided that it was preferable to obtain a clear set of concessions from Gazprom now, rather than impose fines that would likely trigger appeals from the company, and further years of legal battles.

Still, the deal may yet serve both parties.

Europe and Gazprom are highly dependent on each other. The bloc relies on the company for about a third of its natural gas, and Moscow earns hefty sums of cash from selling that gas to Europe.

Gazprom, as a result of the deal Thursday, will be free to continue to do business with important customers like Germany and Italy. And the settlement will further the commission's goal of ensuring that energy prices in Europe are determined by market forces, not by big suppliers.

"We believe that today's decision is the most reasonable outcome," Alexander Medvedev, Gazprom's deputy chairman, said in a statement.

The agreement on Thursday comes with the gas market in a markedly different position than when the investigation began.

The construction of interconnecting pipelines among countries, and the rise of gas trading particularly in Northern and Western Europe, have helped drive prices down. And Gazprom's market position has been further challenged by the prospect of increased supply from the United States, as well as a greater reliance on renewable energy sources that produce electricity, such as wind and solar power.

The settlement "is actually recognizing what the status quo would have been in two or three years' time," Stern said.

Business on 05/25/2018

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