Poland’s cherry picking of EU energy rules makes no sense

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Coal pollution from Polish chimneys. [Doin Oakenhelm/Shutterstock]

When it comes to EU energy policy, Warsaw does not always adhere to the letter and the spirit of EU law and tends to select rules a la carte, adapting them to Poland’s narrowly-defined interests, writes Danila Bochkarev.

Danila Bochkarev is a senior fellow at the EastWest Institute.

Poland is steadily establishing itself as a diversified natural gas and energy hub in the east of the EU. Warsaw has already invested heavily in energy infrastructure and further projects are being planned.

The positive impact of EU funds on the Polish economy is undeniable. Poland has been allocated over €86 billion in EU funds within the framework of the current seven-year EU budget (2014-2020). Moreover, an important fund reserved for projects of common interest (PCI) will also go to Poland.  PCIs have access to a total of €5.35 billion in subsidies from the Connecting Europe Facility (CEF), the EU’s €30 billion fund for boosting energy, transport, and digital infrastructure between 2014 and 2020.

The list of projects of common interest (PCI) published by the European Commission on 14 October 2013 includes six infrastructural investments of GAZ-SYSTEM S.A., a gas transmission system operator (TSO) within Poland. According to the TSO, these projects have “special importance to an enhanced security of supply and the diversification of natural gas supply sources in Europe as well as the development of the integrated and competitive market”. These projects include:

  • North-south gas interconnections in Central-Eastern Europe and South-Eastern Europe (with Czech Republic and Slovakia);
  • A Poland–Lithuania gas interconnection (GIPL);
  • A Baltic pipe to bring Norwegian gas to Poland;
  • The Świnoujście LNG terminal extension;
  • Entry points extension on the Yamal- Europe pipeline in Lwówek and Włocławek;
  • A Western line in the north-south corridor within Poland together with the Poland-Czech interconnection.

Poland is already in a good position to diversify its energy market and additional infrastructure will allow this country to receive natural gas from different sources – LNG, Norwegian supplies, Gazprom’s gas and reverse flow from Germany. Furthermore, new infrastructure has already made gas deliveries to the east (Ukraine) and south (Czech Republic and Slovakia) possible thus transforming Poland into an emerging energy hub.

In addition, new supplies of LNG, supplies from Germany and even from Lithuania – when the GIPL pipeline is finalised – put Polish energy companies in a stronger negotiating position vis-à-vis Gazprom, currently Poland’s major supplier of natural gas.

Last but not least, new security of supplies rules adopted by the European Commission (according to these rules, member states will have to help their neighbouring countries out in the event of a serious crisis so that European households have stable access to energy) made the concept of Energy Security practically irrelevant for Poland.

The energy infrastructure in place and existing EU regulations have made Polish the energy market fully competitive and immune to price and supply volatility shocks. However, the Polish government’s energy politics are often uncompliant with EU energy rules. While profiting from the EU regulatory framework and financial assistance, Warsaw does not always adhere to the letter and the spirit of the EU law and tends to select rules a la carte, adapting them to Poland’s narrowly defined interests.

For example, the national gas market in Poland remains partly shielded from competition and restricted to the new entrants due to the strict storage regulations amended in 2016. These storage obligations – one of the most costly in Europe – are generally perceived by a number of market players as inefficient and counterproductive, representing the barrier to the development of a secure, liquid and competitive market in Poland and increasing cost of energy for Polish consumers.

In a letter sent by the European Federation of Energy Traders (EFET) to the Polish Ministry of Energy, Energy Regulatory Office and to the Polish national TSO Gaz-System on July 3, 2017, EFET stressed the negative effect of the amended Act on Reserve of crude oil, refinery products and natural gas on “market participants involved in both the trading and importation of natural gas into Poland” and reinforce the “dominance of the national incumbent”. EFET also underlined that this amendment “represents an unacceptable withdrawal of an acquired legal right … this has caused those market players being locked into future costs linked to business decisions that were taken under a different legal and regulatory framework”.

Warsaw is also reluctant to fully commit to the Europe’s de-carbonisation initiatives widely supported by the majority of the EU member states. On 14 May 2017, the Warsaw Business Journal reported that Grzegorz Tobiszowski, Poland’s deputy energy minister, announced that his country had launched a procedure to block the Commission’s Winter Package aimed at cutting Europe’s CO2 emissions. Poland is reluctant to abandon environmentally unfriendly coal and share Europe’s de-carbonisation burden. It is therefore not surprising to hear Mr. Tobiszowski announcing that Poland will generate nearly 60% of its energy from coal in 2030.

 

Construction of a new energy infrastructure helped Poland to emerge as a competitor to Germany’s North-South gas corridor and this is good news for the EU’s single gas market and European customers. Markets and consumers – not politicians – should decide which source is more convenient. On the contrary, trying to accuse other countries and companies of non-market behavior is not constructive and is unlikely to bring additional benefits.

For example, Poland’s PGNiG recently issued its’ observations on the commitments proposed by Gazprom to DG COMP. The Polish gas company criticised a number of the projects related to Gazprom including the Nord Stream 2 pipeline. PGNiG claimed Nord Stream 2 will force Gazprom “to raise the prices for CEE Countries”. Additionally, such a practice would “block significant capacities within Europe, preventing other suppliers from selling gas to CEE Countries … will incentivise Gazprom to abuse its dominant position against PGNiG”.

This claim is based on the static assumption, while the future is dynamic and the markets will respond to price differences. Eventual price divergence between east and west would therefore justify new interconnectors. Furthermore, network codes have already changed the capacity booking and new rules are already in place to build additional capacity. Consequently, market players will be able to book pipelines to access the hubs in the west as capacity is sold via an open auction process, and unused capacity, even if it is reserved, is always available to the market.

Trying to shield the national market from healthy competition and employing the rules a la carte will be counter-productive for Polish consumers and energy markets in the short- and mid-term. Furthermore, promoting one infrastructure/supply solution at the expense of others – especially with the help of non-market mechanisms – could have a seriously damaging effect on Europe’s competitiveness.

On the contrary, if Poland fully liberalises its energy market and stick to the EU’s “rules of the game”, it will be able to achieve both national and EU goals by honoring its’ climate commitments, getting access to competitive energy supplies and reducing the country’s energy dependency via the access to alternative energy supplies.

Disclaimer: The views expressed here are solely those of the author and do not represent views of his organisation.