Poland fights uphill battle over Nord Stream 2

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

A sign reading "Nord Stream 2 - Committed. Reliable. Safe" near the pipeline landfall facility in Lubmin, Germany, 15 October 2020. [Clemens Bilan/EPA/EFE]

Warsaw’s objections regarding the Nord Stream 2 pipeline are not linked with the energy security imperative or energy market distortions. It is actually unclear how the launch of the Nord Stream-2 pipeline could negatively affect Poland’s energy market, writes Danila Bochkarev.

Danila Bochkarev is a Senior Fellow, EastWest Institute. The opinions expressed solely reflect the views of the author, not of his organisation

In October 2020, Poland fined six companies, including Russia’s Gazprom. In Gazprom’s case, the fine amounted to $7.6 billion. Poland’s competition authority asserts that the new pipeline would have a detrimental effect on the Polish gas market.

. In May 2018, the Commission imposed on Gazprom a number of obligations addressing the “competition concerns” and enabling the “free flow of gas at competitive prices” in the Central and Eastern Europe.

This deal allows the EU’s competition watchdog to fine the Russian gas company without having to prove infringement, in case Gazprom breaks any of its’ obligations. Until present, the absence of such a fine has been the best proof of absence of any serious market misconduct.

While the Commission has never been supportive of Nord Stream 2, competition concerns were not the problem here.

Neither did Germany, where the pipeline lands, consider it a competition issue. BNetzA’s decision to reject a derogation request was based on a different interpretation of the project’s “completion” not on the concerns over the breach of the EU competition rules.

Since the pipeline had not been fully laid by 23 May 2019 (deadline for derogation indicated in the new Gas Directive), the regulator has rejected the application for derogation.

Additionally, a study by Frontier Economics and the Institute of Energy Economics (EWI) released in April 2020 showed with regards to the Nord Stream 2 pipeline that the project will have positive effects on security of supply and competition in the European gas market.

A question arises, if the competition from a neighboring gas pipeline is such an important threat for Poland’s gas market, the investments in Poland’s new gas import infrastructure might have been poorly planned.

Just a note: the expansion of the country’s gas infrastructure is co-financed by European taxpayers.

In November 2019, the Commission has approved a 130 million euro grant for the expansion of Świnoujście LNG. Initial terminal’s construction was also supported by a €224 million EU grant. In April 2019, the Baltic Pipe project received another EU grant (215 million euro).

Warsaw seems to use a different approach to its’ domestic energy market, apparently supporting its’ energy champions often at the expense of competition and the consumer benefits.

Part of the problem is home-made as 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 costliest 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, EFET stressed the negative effect of the amended storage regulation 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”.

Additionally, in November 2019, the European Commission sent a reasoned opinion to Poland on the grounds that the Polish gas storage obligation is inconsistent with the EU law provisions.

In this context, the decision by EU competition commissioner Vestager to clear PKN Orlen’s acquisition of Grupa Lotos (“a question of enormous priority … strengthening our international position”, according to Kaczyński, head of the ruling Law and Justice Party) despite “serious objections from her own officials” comes as surprise after the blockage of Alstom-Siemens merger. According to Politico, Commission officials “acknowledged the strong political pressure from Poland”.

It is evident that Warsaw’s objections regarding the Nord Stream 2 pipeline are not linked with the energy security imperative or energy market distortions. In less than two years, Poland will be able to import more gas than it consumes via “non-Russian” routes.

The “gas storage saga” and the Orlen – Lotos merger also shows that the competition is not Warsaw’s top priority when it comes to the (domestic) energy market and Nord Stream -2 is unlikely – even theoretically – to negatively affect Polish consumers.

Neither is the fine likely to become a factor affecting the Nord Stream 2 completion: the funds committed for the construction are all but spent and the pipeline is almost completed. This will become a legal issue to be debated in the European courts for years to come.

The logic of Warsaw’s energy actions — aimed as it seems at the promotion of its’ energy champions – make it consider other regional infrastructure projects as competitors both in Poland and abroad, against which any attack is justified, even if it breaks with EU norms.

The question remains open how this approach is compatible with the EU market rules and whether the EU will do anything about it.

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