The European Commission has issued a statement of objection to Russian energy giant Gazprom, formally accusing it of abusing its dominant market position in the central and Eastern European gas market, in violation of EU competition law.
While this is a competition case and the EU’s competition commissioner, Margrethe Vestager, insists that the case is not political, the context would suggest it is about much more than just playing by the rules. It is likely to be a litmus test of the state of European integration, the EU’s credibility and the nature of EU-Russia relations.
The antitrust charge
Gazprom, the Russian state-owned gas extractor and exporter, is accused of hindering competition on the gas market by imposing territorial restrictions in its supply contracts with eight member states (Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia). These are both export bans and destination clauses requiring that gas be used in particular places.
The European Commission argues that these measures prevent the free flow of gas within the EU, and indeed in the past it has successfully challenged similar restrictions on EU markets. Gazprom is also charged with unfair pricing in Bulgaria, Estonia, Latvia, Lithuania and Poland. This pricing is possible partly through using certain formulas that link gas prices to oil products (a practice known as oil indexation), which unduly favour Gazprom.
In Bulgaria and Poland, Gazprom may also be leveraging its dominance by making gas supplies conditional on receiving unrelated concessions concerning gas transport infrastructure (demanding investments in Gazprom-promoted projects).
Politics at play
The geopolitical context within which this antitrust case comes is undeniably significant. Russia has made its gas exports a foreign policy tool. It was able to divide and rule through its pricing policy (charging lower prices in the west and much inflated prices in the east) and supply cut-offs.
Russia has used its energy exports to put political and economic pressure on importing states, especially in the east, on multiple occasions. As one report from the Swedish Defence Research Agency observed:
Russia has still not let go of the idea that the former Soviet territory belongs to Moscow. Russia clearly perceives these states as its sphere of influence where other rules or ethical norms apply than what is customary in [Western] Europe and in relation to [Western] Europe.
Litmus test for EU membership
The investigation into Gazprom follows a formal Lithuanian complaint, one of the allegedly harmed member states. When joining the EU the new member states opened their markets to products from western Europe and agreed to pool sovereignty together in exchange for, among others benefits, the protection of EU law.
During the accession process some undertook various additional commitments, which led to their increased dependence on Russian gas imports. Lithuania, for example, closed its Ignalina nuclear plant and Bulgaria closed its nuclear reactors in Kozloduy.
If the European Commission were to disregard this case and allow Gazprom’s practices to continue without their proper investigation, the faith in the European project would be seriously questioned in the eyes of new member states and their citizens. After all, what good is the EU if it protects only some (that is, those in the old member states)? This issue is only more relevant in light of the developments in Ukraine.
Similarly, the commission is the guardian of EU treaties. Were it to ignore such an important complaint formally brought by a government of one of the new member states, it would undermine its credibility there. By addressing any identified violations, the EC has an opportunity not only to restore competition, but also to make the EU a more united and stronger player. This potential is reflected in the Lithuanian president’s comment on Twitter, regarding the matter:
Acting with integrity
There is also an external political dimension to this case. A permissive approach towards Gazprom is likely to question the European Commission’s integrity in the eyes of important partners like the US. In the past the EC did not refrain from blocking large mergers between US firms such as General Electric and Honeywell in 2001, or imposing huge fines on US firms for violations of EU competition law, including Microsoft and Intel. A lax approach towards Gazprom would put the commission’s hard-earned political capital at risk, especially in the trans-Atlantic context.
The commission should therefore approach the Gazprom case in a business-as-usual manner, transparently and diligently adhering to its past practice. It should not stop short of addressing any identified violations, even if it were to encounter legal challenges or was faced with external pressure. It is a matter of faith in the EU rule-of-law, and the commission’s credibility.
At the same time, like in all competition cases, the commission should be open to the prospect of a settlement – a procedure which it uses effectively – in its enforcement efforts if this is of benefit to all.