European Commission objects to alleged abuse of power by Gazprom in Central and Eastern Europe.
According to the European Commission, Gazprom has been involved in a number of questionable practices in the Central and Eastern European gas markets. The Commission has stated that these practices are in violation of the European Union’s competition rules, leading the Commission to send a Statement of Objections regarding Gazprom’s violations.
A study by the Commission shows that Gazprom abused its dominant market position to divide the market in Central and Eastern Europe. Gazprom would prohibit its customers from re-selling gas to other countries in addition to charging unfair prices. Furthermore, the company may have abused its dominant market position by only supplying gas to wholesalers who consented to certain commitments regarding gas-related infrastructure.
Currently, Gazprom has 12 weeks to respond to the Statement of Objections. Additionally, they may request a hearing in order to provide a defense against the accusations. The Commission has stated they will fully respect Gazprom’s right of defense. The Commission has also agreed not to pass any decisions until Gazprom has presented their case. The Statement of Objections in no way prejudges or predetermines the final outcome of the investigation.
Margrethe Vestager, the Commissioner for competition policy in the EU, has commented, “Gas is an essential commodity in our daily life: it heats our homes, we use it for cooking and to produce electricity. Maintaining fair competition in European gas markets is therefore of utmost importance”.
“All companies that operate in the European market – no matter if they are European or not – have to play by our EU rules.
I am concerned that Gazprom is breaking EU antitrust rules by abusing its dominant position on EU gas markets. We find that it may have built artificial barriers preventing gas from flowing from certain Central Eastern European countries to others, hindering cross-border competition. Keeping national gas markets separate also allowed Gazprom to charge prices that we at this stage consider to be unfair. If our concerns were confirmed, Gazprom would have to face the legal consequences of its behaviour.”
The Commission’s preliminary findings in the Statement of Objections
Gazprom is the largest gas supplier in a number of Central and Eastern European countries. Based on its investigation, the Commission believes that Gazprom actively thwarts competition in the gas markets of eight EU countries: Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia. The Commission has discovered significant evidence supporting their claim that Gazprom applies an unfair strategy:
For one thing, Gazprom enacts territorial restrictions on wholesalers and industrial customers in the aforementioned countries. These restrictions include export bans which prohibit the countries from exporting Gazprom’s gas, as well as destination clauses which require that the purchased gas only be used in a specific area. On top of this, Gazprom has refused to change the location to which gas is delivered in a number of countries. The Commission has decreed these actions prohibit free trade in the European Economic Area.
The aforementioned territorial restrictions often result in higher gas prices. Gazprom is currently engaging in unfair pricing policies in the five EU countries of Bulgaria, Estonia, Latvia, Lithuania and Poland. Charging wholesalers prices much higher than the costs incurred, Gazprom has abused its power in pursuit of supplemental profits. Gazprom’s utilization of a price index that links their prices to the price of a basket of oil product has massively favored their own economic vitality over that of their customers.
There is also ample reason to believe Gazprom is abusing its dominant market power to corner countries into accepting certain commitments and deals if they wish to receive gas. Many gas sales were contingent upon customer investments in a pipeline project promoted by Gazprom or the allowance of Gazprom more control over a pipeline.
The Commission provisionally concluded that Gazprom’s practices are an abuse of its dominant market position, prohibited under Article 102 of the Treaty on the Functioning of the European Union (TFEU). If this is indeed the case, the cross-border sale of gas has been hindered, decreasing the liquidity and efficiency of gas sales. Trade between EU countries has been disrupted due to these artificial barriers resulting in higher gas prices.
