Antitrust Law Daily Wrap Up, ANTITRUST NEWS: European Commission issues statement of objections to Gazprom, (Apr 22, 2015)

By Linda O’Brien, J.D., LL.M.

The European Commission (EC) has sent a statement of objections to Gazprom, informing it of the Commission's preliminary view that some of the company’s business practices in Central and Eastern Europe gas markets constitute an abuse of its dominant market position in breach of European Union (EU) antitrust rules, the EC announced today.

Russian government-controlled Gazprom is the dominant gas supplier in a number of Central and Eastern European countries. It has a market share well over 50 percent and in some cases up to 100 percent in these markets.

On the basis of its investigation, the Commission's preliminary view is that Gazprom is breaking EU antitrust rules by pursuing an overall strategy to partition Central and Eastern European gas markets with the aim of maintaining an unfair pricing policy in eight Central and Eastern European member states (Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia). According to the EC fact sheet, Gazprom implements this strategy by (1) hindering cross-border gas sales, (2) charging unfair prices, and (3) making gas supplies conditional on obtaining unrelated commitments from wholesalers concerning gas transport infrastructure.

Territorial restrictions. First, Gazprom has included a number of territorial restrictions in its supply agreements with wholesalers preventing the export of gas in those eight member states. These clauses include export ban clauses, destination clauses, and other measures that prevent the cross-border flow of gas. As a result these member states do not have access to imported gas at potentially more competitive prices. The Commission has already made clear in past decisions that territorial restrictions and measures to partition the market are anticompetitive.

Unfair pricing policy. Second, the Commission's investigation concerns the prices that Gazprom’s customers such as gas wholesalers and industrial customers pay for their gas. These wholesale prices play an important role in determining the prices for gas charged at retail level to households and businesses. They can also impact the prices of industrial goods for which energy costs are an important factor in the production costs.

Gas transport infrastructure. Third, the EC has concerns that Gazprom leveraged its market dominance in Bulgaria and Poland by making gas supplies conditional upon obtaining certain infrastructure-related commitments from wholesalers.

Gazprom has 12 weeks to reply to the Statement of Objections and can also request an oral hearing to present its arguments.

EU Commissioner in charge of competition policy Margrethe Vestager said, "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 behavior."

Companies: Gazprom

News: Antitrust