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EU commissioner says Gazprom won't be exception to trade rules

Jun 20, 2007
By TBT staff,

TALLINN - The European Union's competition commissioner has warned that Russia's Gazprom may have to divest its stakes in Baltic energy companies and a disputed Baltic Sea gas pipeline if EU member states adopt a new strategic energy plan that aims to foster competition.
Neelie Kroes, speaking to journalists in Tallinn on June 14, said that Gazprom, one of the world's largest corporations by market capitalization, would not be granted any exceptions if the energy plan, presented by the European Commission in January, is eventually put into force.
"EU regulations should apply to Gazprom as well as any other company from non-EU countries in the same way as they apply to EU companies," she said.

Specifically, Kroes said Gazprom would have to separate subsidiaries engaged in production and distribution of energy supplies.
Gazprom, which is majority owned by the Russian state, extracts nearly all its natural gas in Russia and owns several distribution companies in Eastern Europe, including 37 percent in Estonia's Eesti Gaas, 34 percent in Latvijas Gaze in Latvia and 37.1 percent in Lithuania's Lietuvos Dujos.
"This (separation of production and distribution) also applies to Gazprom 's they cannot fulfill both roles," the competition commissioner said. "Gazprom cannot own the distribution network of countries to which it supplies natural gas 's they have to separate their activities."

Kroes said the new competition rules, which aim to inject competition in the EU's energy industry, would also affect Gazprom's 50 percent stake in Nord Stream, the 5 billion euro gas pipeline project that will connect Russia and Germany via the Baltic Sea. The project has caused no small amount of consternation in the EU, particularly among Baltic Sea states such as Sweden and Finland.
"Gazprom should sell its stake in the Baltic Sea pipeline, and this will happen sooner or later," Kroes, who hails from the Netherlands, said.
After 18 months of research, in January the European Commission issued a report decrying the level of competition in the bloc's energy industry, claiming that energy giants with assets in both production and distribution were reluctant to invest in development.

Industrial heavyweights in France and Germany slammed the draft reform plan and promised not to let it see the light of day. Still, Kroes remains hopeful that the plan will win approval.
"I hope the EU will adopt new regulations that state that companies producing energy and distributing energy should be strictly separated and have different ownership," she said.
Estonian Economy Minister Juhan Parts, who spoke at the press conference with Kroes, said the Baltic state welcomed the EU's deregulation efforts that "would force Russia to behave in line with normal EU market rules."
"If you look at how Gazprom has acted on an international level, playing with gas prices in different regions, we see that their current activities are not in line with the rules of fair competition and also pose some security threats," Parts told Agence France Presse.

He expressed confidence that "sooner or later" the EU would compel Gazprom to sell its share in the Baltic Sea pipeline project. "All EU members should be more active and jointly address matters related to global energy security. We must build up a system that would disable the use of energy as a political tool," he said.
At the same time Kroes agreed with Parts that prior to separating energy production and distribution Estonia would need to ensure sufficient energy output and connections with other countries, the minister said.
"I'm glad that… Neelie Kroes agrees with me that Estonia must go through a logical cycle of development before producers and distributors can be separated," Parts said.
In the meantime, Baltic ministers have agreed to disconnect the Baltic grids from Russia and integrate them with Europe's in the near future. Eesti Energia CEO Sandor Liive said June 13 that research on such a move was first carried out in 1998 and the three Baltic utilities had agreed to conduct an additional study on technical aspects.

Joining the European power system would cost the Baltic states approximately 500 million euros, Liive said. The sum will cover both the building of two new links between Lithuania and Poland and the necessary investments in Baltic power stations.
The Baltic electricity system will have to be brought into line with the standards of the European system that reaches from Poland to Portugal.
The system switch entails building of converter stations for links with the Russian system. 

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