Restoring the Romanovs

The FT makes their case for energy regulation, arguing that Gazprom needs to prove it can play by the rules in Europe to be treated as a normal commercial partner. Financial Times:

Blocking Gazprom Twice this week, European Union institutions have infuriated important trading partners. On Monday, the Court of First Instance drew the wrath of the US by ruling against Microsoft. On Wednesday, the Commission roused similar anger in Moscow over its plans to restrict non-European companies’ ability to control energy assets in the EU. For all the protestations from José Manuel Barroso, the Commission’s president, that the measures were not aimed at any specific target, it escaped no one that their greatest impact would be on Gazprom, Russia’s state-controlled gas company. In taking this first step to curb Gazprom’s European ambitions, the Commission has acted bravely and correctly. It has not, however, gone far enough. The Commission proposed that in an “unbundled” EU energy market, in which the ownership of energy transmission and distribution networks is separated from supply businesses, companies from outside the EU should not be able to own those networks unless they are themselves unbundled. As the Kremlin would sooner restore the Romanovs than break up Gazprom, that would prevent the company taking control of Europe’s gas pipelines and power grids. As a way to protect competition against the market power of a single powerful gas supplier, this is a sensible move – as far as it goes. But the EU should also restrict Gazprom’s control over other critical components of the EU’s energy infrastructure, such as power stations and terminals to import liquefied natural gas. The fundamental question is whether Gazprom will act like any other company, for example when making decisions on investment in new capacity. Given the close relationship between its board and the Kremlin, and its role as the national champion of Russia’s vast gas reserves, the EU cannot assume that the answer will be yes. These additional limits on Gazprom’s expansion need not last forever. The company has the right to demonstrate, over time, that it should be treated as a normal commercial partner, although Russia would also need to offer reciprocal terms to Europe, including transit rights for EU companies to use Russia’s gas pipelines. Until those conditions are fulfilled, Gazprom should be allowed to sell all the gas it wants in the EU, but not control how it is transported or used. Europe is dependent on Russian gas supplies, and becoming more so. But that does not mean it should not stand up for itself.