Alan Riley: Gazprom Vs. The European Commission
The European Commission’s investigation of Gazprom is extremely serious for the Russian government-controlled gas company. This is no small bureaucratic inquiry. The antitrust investigation is being undertaken by the commission’s Directorate General for Competition. As Microsoft knows, DG Competition does not give up, and it does not tend to lose. In fact, DG Competition has not lost an abuse-of-dominance case before the European Court of Justice since the EU’s antitrust rules came into force in 1958.
The commission does not launch investigations unless it has already obtained a substantial amount of evidence. That evidence likely comes from its raids of Gazprom’s premises in the Czech Republic and Germany in September 2011, and from complainants and the commission’s own extensive market monitoring. Once an investigation is formally launched, more complainants usually come to the Commission with more evidence, thereby expanding the inquiry.
The initial focus of the Gazprom investigation regards three key issues. First is Gazprom’s suspected hindering of the free flow of gas by dividing markets. This concern is most likely based on the company’s past use of destination clauses that restrict the resale of its gas. Any such “no resale” clauses in gas supply contracts have the effect of splitting up the single market and are per se illegal in the EU.
Second, the commission says that Gazprom “may have prevented the diversification of the supply of gas.” This is largely a reference to steps that it may have taken to deny third-party gas suppliers access to its pipelines. It could also be a reference to attempts to frustrate construction of other gas facilities, including liquefied natural gas and alternative pipelines.
On this point, a key problem for Gazprom is that the EU’s provisions against abuse of dominance, contained in Article 102 of the Treaty of Rome, are much broader in scope than their U.S. equivalent (the anti-monopolization provision in Section 2 of the Sherman Act). The EU’s Article 102 imposes a “special responsibility” on dominant companies to respect competition. Given that Gazprom has market shares upward of 50% of total gas consumption in central and eastern Europe and the Baltic states—in some countries as high as 100% market share—these obligations can become extremely onerous.
Many European governments may question whether Gazprom has ever taken its EU antitrust obligations seriously. The Lithuanian government alleges that Moscow has made a range of threats against it in response to Vilnius’s desire to fully liberalize Lithuania’s gas market. Lithuania decided to start liberalizing its gas market in 2008. Four years later, it pays some of the highest gas prices in Europe.
However, the most threatening element so far of the commission’s investigation is its third focus: the link between oil and gas prices in Gazprom’s long-term contracts, which Russian officials have vigorously defended. Moscow fears that given the liquidity of modern gas markets—thanks to the shale gas boom and the upsurge in liquefied natural gas production—any major break in the oil-gas link will threaten Gazprom revenues.