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03/12/2016

Commission wants to vet member states’ energy deals

Europe's East

Commission wants to vet member states’ energy deals

South Stream map [Gazprom]

Member states’ energy deals with non-EU nations should be scrutinised by the European Commission before they are signed, according to a draft plan for the flagship Energy Union that outlines a strategy to diversify energy suppliers.

“Active participation” in gas negotiations could avoid “undue pressure or market distortions,” caused by inter-governmental agreements (IGAs) with “countries not respecting European rules”, the draft said. The IGAs would be assessed to ensure they comply with EU energy market and supply security rules in a “mandatory pre-consultation” with the Commission.

EU governments must currently notify the executive of IGAs that affect the internal energy market or supply security. Revisions to these 2012 rules should broaden this scope to other types of contracts, the draft said.

While some member states may bristle at a perceived Brussels power grab, the drive for “mandatory pre-consultation” stems from a series of IGAs signed by Russia and six EU countries; Bulgaria, Hungary, Greece, Slovenia, Croatia and Austria.

The secretive deals with Russian state monopoly Gazprom fell foul of EU state aid and competition rules. These breaches froze the Russian sponsored South Stream gas pipeline, which was later cancelled by Moscow.

>> Read: Russia says South Stream project is over

A Commission communication on the Energy Union is scheduled for publication on 25 February. The draft is dated 30 January, is under inter-service consultation and subject to change.

Russia and Ukraine

The Energy Union is the EU’s response to the Russian threat to its gas supplies. The majority of Russian gas imports to the EU, about 30% of its annual needs, goes through Ukraine.

In 2009, Russia turned off the taps, causing shortages in the EU.

Since then, the situation has worsened with the annexation of Crimea, the shooting down of the Malaysia Airlines flight by Russian backed separatists, and EU sanctions on Russia.

Most recently, pro-Russian rebels were shelling encircled Ukrainian government forces leaving a European-brokered peace deal on the point of collapse.

>> Read: Battle rages near Debaltseve despite truce

Despite this, the EU  “will consider reframing the energy relationship with Russia” at “the appropriate time”.

But this would only be based on a level playing field in terms of fair competition, opening up the market, and environmental protection and safety, according to the draft.  

In the meantime, particular attention will be paid to upgrading the strategic partnership on energy with Ukraine, which the document described as an important transit country.

New suppliers

The EU imports 53% of its energy, making it the largest energy importer in the world.

The draft sets out a series of measures to diversify the EU’s energy suppliers. A new energy and climate diplomacy push will support this effort, the draft said.

The EU will use “all its foreign policy instruments” to make deals with producing and transit countries such as Algeria, Turkey, Azerbaijan, Turkmenistan and Iran, the Middle East and Africa.

Work on the Southern Gas Corridor, a European Commission initiative, needed to be intensified, to facilitate Central Asian gas exports to Europe.

>>Read: Šef?ovi? give his blessing to Southern Gas Corridor

The Commission will develop a comprehensive liquefied natural gas (LNG) and storage strategy, as it develops energy infrastructure across the EU.  LNG is not dependent on pipes for transport, meaning it can be supplied by countries from other continents.

LNG hubs in Northern Europe had enhanced supply security, the paper said. Similar hubs for multiple suppliers should be set up or completed in Central and Eastern Europe and the Mediterranean area.

Gas

The executive believes that gas can complement renewable energy, and offer a lower carbon energy alternative in many member states.

The EU could collectively buy gas in times of crisis and break supply monopolies, according to a draft plan for the EU Energy Union.

But any such move would be on a voluntary basis, and get scrutinised, in order to ensure it does not breach World Trade Organisation laws or competition law, it warned.

>> Read: EU energy boss says joint gas buying would have to be voluntary

When he was Poland’s prime minister, European Council President Donald Tusk last year suggested that member states could join forces to negotiate better gas contracts with Russia’s state monopoly Gazprom. Gazprom’s prices to Poland, which uses around 16 billion cubic metres of gas annually, are among the highest in Europe. 

But some countries, such as Norway, oppose the plan, arguing it would breach trade rules.

>> Read: Poland masterminds gas trading hub for Central Europe

Nuclear, oil and fracking

The paper warns that the EU is highly dependent on uranium imports to those member states that use nuclear energy. To prevent supply security problems, requirements on countries under the Euratom Treaty will be updated and strengthened. The EU will take measures to reduce its oil dependence, especially in the transport sector, the draft said.

The paper states that domestically-produced energy could help reduce the EU’s energy import dependence.

That would include renewables, but also controversial “non-conventional oil and gas resources”. Fracking could play a role, but only in those countries that chose to explore it, and only if it was in line with EU environmental standards, the document said. 

Background

In December 2013, the Commission found that all the bilateral agreements (IGAs) for the construction of South Stream gas, signed between Russia and Bulgaria, Serbia, Hungary, Greece, Slovenia, Croatia and Austria, are all in breach of EU law and need to be renegotiated from scratch.

>> Read: South Stream bilateral deals breach EU law, Commission says

The respective IGAs are:

  • Bulgaria – January 18, 2008;
  • Serbia – January 25, 2008;
  • Hungary – February 28, 2008;
  • Greece – April 29, 2008;
  • Slovenia – November 14, 2009;
  • Croatia – March 2, 2010;
  • Austria – April 24, 2010.

Apart from breaches to EU energy market rules forbidding energy producers from simultaneously owning transmission networks (so-called ownership unbundling), which are common to all seven agreements, the IGA with Bulgaria seen by EurActiv also shows that:

  • Bulgaria committed to provide the most favourable tax regime to Gazprom, which according to the EU Commission is in breach of the EU's state aid rules;
  • At one point, the inter-governmental agreement (IGA) stipulates that Bulgarian and Greek companies would be subcontracted, and at another, that preference would be given to companies from the states of the Parties (Bulgaria and Russia), which is against EU competition rules;
  • The IGA stipulates that tariffs for using the pipeline would be established "by the Company", which is in contradiction with the powers of the national regulator to approve transmission tariffs in accordance with EU law.

Timeline

  • 25 February: Commission launches communication on Energy Union

Further Reading