The South Stream saga continues

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At the end of January we will witness another EU-Russia summit and tension are already rising.  Earlier this week, Vladimir Chizhov, Moscow’s ambassador to the EU, bluntly argued that the deals signed by six member-states plus Serbia on the South Stream gas pipeline were not up for revision. It was for Brussels to adapt its legislation to the intergovernmental agreements (IGAs), not the other way around. This is a direct challenge to the Energy Commissioner Günther Oettinger.

Back in December, Oettinger declared the agreements in question as breaching EU law (which applies to Serbia too, thanks to the Energy Community Treaty) and threatened with infringement procedures. He then summoned ministers from Austria, Bulgaria, Croatia, Hungary, Greece, Slovenia and Serbia, and was mandated to renegotiate the IGAs in conformity with existing rules. That includes, first and foremost, third party access to South Stream but also procurement and subcontracting with regard to construction. The assertivness of the European Commission was a slap in the face of EU members such as Bulgaria which had not only fast forwarded the setup of a joint company but were also keen to start the physical work on the project. But now it seems that the Kremlin is willing to fight back on behalf of Gazprom. The next episode in the saga is due on Friday when Oettinger is meeting Russian energy minister Alexander Novak.

While Russia is obviously in a chest-thumping mode, in realtity South Stream’s prospects are very much dependent on European Commission’s course of action. Unless a some sort of derogation for third-party access to the pipeline is granted by Brussels, Gazprom will have little incentive to invest in such a massively costly undertaking. Yet, as the Opal pipeline shows, the Commission is unlikely to accommodate the Russian giant. Especially in times when demand in key European markets is relatively low, Gazprom will have to swallow the notion that it cannot use the full volumes of pricey infrastructure it puts in place.

Not to forget the anti-trust case launched against Gazprom, ongoing since 2011, over alleged abuse of dominant position (blocking rival suppliers, preventing re-export of its gas, overcharging customers). Facing a fine of up to  €10 billion the firm has followed a much more conciliatory line at least compared to Chizhov’s bellicose tone. In December Gazprom also submitted a settlement proposal to the EU. The Commission is now weighing in whether the offer is acceptable or whether charges should be pressed.

Chizhov’s statement might be pure posturing and will resound well inside Russia. But it is clear that EU common energy policy has moved ahead from where it was 5 or 10 years back. The European Commission, and in particular Oettinger and Almunia know that their actions matter even if the Kremlin pretends power politics trumps easily EU law.

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