What should we make of the EU ruling against Russia's Gazprom?

Russia's gas giant got away without paying a massive fine to the EU. Did Brussels make the wrong decision?

by
    Russian President Vladimir Putin and Gazprom CEO Alexei Miller inspect the work on the Turkish Stream gas pipeline project aboard a pipeline-laying ship in the Black Sea on June 23, 2017 [Reuters]
    Russian President Vladimir Putin and Gazprom CEO Alexei Miller inspect the work on the Turkish Stream gas pipeline project aboard a pipeline-laying ship in the Black Sea on June 23, 2017 [Reuters]

    These days the European Union is going through tough times. It is being bullied by the Trump administration over trade. It is facing a revisionist Russia becoming increasingly aggressive next door. It is limping on from one internal crisis to the other, most recently bracing itself to face a populist eurosceptic government in what used to be an EU stronghold - Rome. 

    Long gone are the days when politicians and pundits across the "old continent" could proudly wrap themselves in the blue, star-studded flag. Pessimism, a time-honoured European trait, is en vogue again, it seems. 

    Amid today's EU retreat, few would remember that day in late September 2011, when Brussels flexed its supranational muscle. On September 27, European Commission officials raided 20 Gazprom offices in 10 European countries, including Germany and the Czech Republic. The Commission had launched a major investigation into whether the Russian state-owned gas giant was breaking the EU's antimonopoly rules and taking unfair advantage of European consumers. 

    That was long before Vladimir Putin came back as a president, before the Ukraine crisis, and before the sanctions and the standoff between Moscow and the West. Governments in Germany, France and other major European countries were comfortable with then Russian President Dmitry Medvedev, as was the Obama administration.

    Business ties thrived. Gazprom controlled one-third of the EU gas market, with its share going up to 100 percent in some former Soviet satellites. Foreign policy analysts cast it as the Kremlin's ultimate geopolitical tool. 

    Despite the warm relations, Brussels decided to move against the Russian heavy hitter anyway. It had fresh memories of the 2006 and 2009 gas crises, when Russia cut the supply of gas to Europe through Ukraine because of its pricing dispute with Kiev. 

    Nearly seven years later, the European Commission competition authorities released their judgment on the Gazprom case. The initial reading of the decision sparked anger among some EU countries who hoped for tougher measures against Russia, but did the EU lose by going softer on Gazprom?

    Dependence on Russian gas

    The Russian company was found to have abused its dominant position - overcharging consumer countries, inserting clauses preventing the re-export of its gas in the multiyear contracts signed with national utility companies, tying price discounts to EU member-states' consent to join strategic ventures such as the South Stream pipeline.

    Yet the Commission resolved to accept the settlement offer Gazprom made in March 2017 in connection with this case. In other words, the Russians avoided paying hefty penalties which could have been as high as 10 percent of Gazprom's turnover.

    By comparison, last year Google was handed out a record-breaking 2.4 billion-euro ($2.7bn) fine for violating the EU's anti-trust law by bundling its Android operation system used by mobile devices and its own applications. Back in 2004, Microsoft had to cough up 497 million euros ($794m) in fines for similar infringements.

    Not only has Gazprom gotten off the hook, but it is doing better on the European market. Last year set an all-time high for its sales - 193.9 billion cubic metres - after several years of contraction.

    Recovery in the core eurozone economies is clearly one reason for the hike, as well as robust growth in Turkey, Gazprom's second-most significant customer after Germany. What is more, strategic projects such as the Nord Stream 2 pipeline running under the Baltic Sea and TurkStream crossing the Black Sea are making headway.

    The government in Berlin is resisting pressure from the Trump administration to walk away from Nord Stream 2. Although US liquefied natural gas (LNG) might make it to the German market, Gazprom argues that the gas its ships through pipelines will remain cheaper and more competitive.

    The recent trips of German Chancellor Angela Merkel and French President Emmanuel Macron to Russia suggest senior politicians in Europe are interested in resuscitating business ties. France's Total just sealed a gas deal with Novatek, owned by Putin's friend Gennady Timchenko, at the St Petersburg Economic Forum headlined by Macron.

    Why the Gazprom ruling is an important achievement

    Still, the European Commission's ruling is anything but a win for Russia. Gazprom has bowed to Brussels' conditions. The ban on re-exporting gas is now buried in the past.

    Countries can choose where their gas is delivered. A volume bound for Bulgaria could be sent to Hungary. That is an extra incentive to invest into interconnectors to link national grids, a goal championed by the EU common energy policy for a decade now.

    Prices Gazprom charges in Central and Eastern Europe will be linked to those in the West allowing national companies to seek arbitration against Gazprom. The difference in rates has always been a sore spot for countries having Russia as a dominant or, in some cases, only supplier.

    Lastly, Gazprom agreed not to seek damages against Bulgaria for abandoning South Stream project back in 2014. It is worth remembering that the pipeline was cancelled because it did not comply with the EU's competition rules in the first instance.

    In sum, the settlement implies that sovereignty-minded Russia has accepted to be the rule-taker and recognised the EU's authority as a rule-maker. Not a small feat.

    It is too soon to declare victory for the EU's quest for energy security. As long as there is no or limited access to alternative suppliers of natural gas in Central and Eastern Europe, the Union will be at a disadvantage. Diversification is moving forward, to be sure. 

    On June 12, Turkey is inaugurating the Transanatolian Pipeline which, in the next decade, will bring gas from Azerbaijan to the Balkans and Italy and establish the so-called "Southern Corridor".

    Last year, Lithuania received its first consignment of LNG from the US. Countries like Croatia and Greece are promoting plans for LNG terminals, too. But Russia's footprint is still large in terms of market share.

    That is why the EU matters. Without its formidable regulatory power and capacity to promote integration among previously fragmented national markets, it would be Moscow dictating the terms. What we have today is much more of a level playing field.

    The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial stance.

    How will a divided West tackle a resurgent Russia?

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    How will a divided West tackle a resurgent Russia?


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