Unbundling Undone: The End of the Gazprom Clause

Competition authorities in the European Union face a very tough challenge in regulating foreign investment in energy infrastructure. For political reasons, it’s clear that they desire a level of “reciprocity” in the home market of each foreign investor – namely, that if Gazprom wants to own mid- and down-stream assets in Europe, it’s only fair that European companies be allowed direct shares in energy production projects. Such was the aim of the contentious but well intentioned “unbundling” proposal from the EC. The measure, it goes without saying, came under aggressive criticism both from Gazprom as well as several German and French national champions, who didn’t want to see their energy production companies severed from their supply and distribution entities. On Friday, the commissioners finally folded under the pressure, reaching an agreement which will allow each individual EU member state to decide whether to allow foreign bidders entering their market, significantly weakening Europe’s ability to protect itself from Russian market domination.

As we have written numerous times on this blog, Gazprom’s close friends in both Italy’s and Germany’s political and business leadership were instrumental in weakening the clause, much to the displeasure of the Poles and Baltic members. Wulf Bernotat, CEO of E.On, once absurdly commented that Brussels poses a larger threat to EU energy security than does Gazprom.If often seems that when it comes to energy, the entire purpose and political identity of the European Union exposes its deep fractures and crushing limitations, as individual member states pursue interests at the expense of other members. It kind of reminds me of the current financial crisis.