On 21 April 2015, the EU Commission announced that it had sent a statement of objections to Gazprom, the Russian gas supplier, over allegations of an abuse of dominance by the company in Eastern European markets.
It is reported that the Commission were ready to send the statement to Gazprom last summer but delicate geopolitical considerations including the need to supply the Ukraine with gas over the coming winter meant the Commission took the view not to antagonise Moscow. This reticence seems to have now passed with Margaret Vestager, the EU Competition Commissioner, making it clear that the investigation and objections were independent of world politics and based purely on the enforcement of the EU competition rules.
Gazprom is accused of breaching the prohibition against an abuse of dominance in Article 102 of the TFEU by partitioning markets across Eastern Europe including in Poland, Bulgaria and Estonia with the aim of driving up unfair prices. This partitioning is allegedly maintained by measures (such as export bans or licenses) made by Gazprom to limit the cross border sales of gas between these countries, leaving Gazprom able to control pricing.
Gazprom is further accused of maintaining unfair pricing levels by setting the prices against an oil benchmark at an unfairly high rate. Lastly Gazprom is accused of linking supply to unrelated infrastructure conditions in those EU Member States, allegedly again with the purpose of maintaining its own pricing and control over supply.
Interestingly, Gazprom has responded by publicly reminding the EU that Gazprom is a “strategic state-controlled entity” and incorporated outside of the Commission’s immediate reach. Perhaps the key question is not one of competition law and whether an abuse of dominance has occurred but rather, if an abuse of dominance is legally established by the Commission and a fine levied against Gazprom, what the Commission can do?
Gazprom may well refuse to pay any fine if levied, stating that it is politically motivated. It could also take drastic measures such as restricting supply to Eastern Europe. The Commission could act against any European assets that Gazprom own but that would require the cooperation of the very countries that rely upon Russia for their gas supply. That said Gazprom still supplies 60% of its gas to Europe and cutting off supplies would severely hurt its revenues.
So the position is finely balanced with alot to lose on both sides.
The EU Commission, whilst no doubt abiding by the rule of law and its own independence, may have waded into geopolitical zero sum game, unable now to retreat, and perhaps even, unable to fully win.
The most likely solution seems a negotiated settlement with the company, where the company would alter its alleged infringing behaviour in agreement with the EU Commission to drop the case. However, such as settlement could take many years of hard fought negotiations, in the meantime the status quo for Eastern Europe is unlikely to change.