Derek Brower: Commission Issues New Gazprom Challenge

Brussels is getting bold. But will it work? By Derek Brower, journalist THE EUROPEAN Commission’s third package on energy liberalisation, released in Brussels yesterday, made an implicit threat to Gazprom’s ambitions to expand across the continent, calling for foreign companies that want to buy majority control of gas and power assets in the EU to provide reciprocal guarantees for European firms wishing to do the same in their home countries. Jose Manuel Barroso, the Commission’s president, claimed that the reciprocity clause the Commission had added to its package was not directed at any specific country or company. But Gazprom’s spectre hangs over the new proposals. The new statement was the boldest indication yet that Brussels plans to make it difficult for Gazprom to buy control of Europe’s energy sector. In attaching the new clause to its desire to see full liberalisation of the EU’s gas and power markets, the Commission made clear that it sees Gazprom’s expansionist aims in the Continent as a potential barrier to the fulfillment of that goal.

Wulf H. Bernotat, CEO of E.ON, is opposed to the new EU energy policy proposal

But that is a risky strategy. The other proposals in the package are likely to face stiff opposition in Europe, especially in France and Germany. That could leave the reciprocity policy as collateral damage should the package be rejected for other reasons. That’s because the Commission has not backed down from its call for member states to ensure that national energy champions fully unbundle their distribution and generation assets. When the Commission demanded the same in January, France and Germany swiftly rejected the proposals. The latest iteration brought the same response. France’s economy minister, Christine Lagarde, said her country would do “everything [it] can to oppose” the proposals. Her German counterpart, Michael Glos, echoed that, and said he “strictly reject[ed]” the package, which was “too bureaucratic” and would compromise the “high quality and security of German electrical power networks”. E.On, along with EdF, GdF, and RWE one of the companies targeted by the liberalisation proposals, said that unbundling “doesn’t increase competition and doesn’t lead to higher investment in networks and doesn’t lead to lower prices”. Analysts said that the Commission’s persistence with the unbundling drive was “courageous”, given that it knows it is unlikely to see it endorsed by the member states, as it must be before going into the law books. Recognising that, the Commission says that an alternative for companies that do not agree to full unbundling would be a beefed-up regulator that will oversee their activities, including their investments into infrastructure. Brussels would itself oversee that independent service operator. But if the package is rejected outright, it will also leave the Commission’s strategy on Gazprom mired in difficulties. That being the case, said one analyst, an “unholy alliance” is likely to emerge in coming months between Gazprom, Germany and France in an effort to oppose the package. It is also not clear how the reciprocity clause would be applied in practice. Although it could prevent Gazprom from buying outright a company like the UK’s Centrica, with which it has been linked, it would not prevent the firm from pursuing its strategy of bilateral joint ventures with other European firms. At the Baumgarten gas storage facility in Austria, for example, a deal with OMV gives Gazprom a strategic stake in that asset – but not majority control. Furthermore, Gazprom is already engaging in some reciprocity. A recent deal with Eni gave the Russian company access to downstream customers in Italy. In exchange, Eni joined Gazprom in the Russian upstream. The deal might have been on Gazprom’s terms, offering little in the way of European energy security, but the company can still point to it as an example of a reciprocal swap of assets. Ultimately, the Commission’s stance looks more like rhetoric than a new policy. Russian spokesmen have already rejected it as “protectionist”. And it could yet fall victim to the same problems that continue to beset the Commission’s attempts to fashion a genuine common energy policy: opposition from powerful member states. But on the rhetorical field, new battle lines have been drawn. Even if the EU’s member states aren’t serious about Russia and liberalisation, at least its civil servants are. www.derekbrower.com