Gazprom, the Russian majority state-owned multinational energy corporation, was producing in 2011 513.17 billion cubic meters (18.122 trillion cubic feet) of natural gas, which was 17% of the worldwide production and 83% of the Russian production, Gazprom was the dominant gas supplier in Central and Eastern Europe.[1] The proportion of Europe’s gas bought in the spot market rose from 15% in 2008 to 44% in 2012[2].
Against this background, in September 2011, the European Commission carried out inspections at the premises of gas companies in several Member States (see MEMO/11/641) and on 4th of September 2012, the European Commission announced an anti-trust investigation into Gazprom’s activities. This was based on “concerns that Gazprom may be abusing its dominant market position in upstream gas supply markets”[3].
The investigation continued with Gazprom being charged by the European Commission with using territorial restrictions to engage in anticompetitive behavior and using its dominant position to impose unfair prices. The company was accused of preventing competition in Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia. The territorial restrictions prevented the import of gas at potentially more competitive prices. The restrictions also prevented gas from reaching areas of high demand and avoiding areas of excessive supply. Gazprom was also accused of compelling entities to consent to the now defunct South Stream pipeline by necessitating a consent clause in long term contracts[4].
Summing up, analyzing the behavior of Gazprom during a period, the European Commission was concerned that Gazprom may be abusing its dominant market position in upstream gas supply markets in Central and Eastern European Member States, in breach of Article 102[5] of the Treaty on the Functioning of the European Union.
The implementation of art. 102 TFUE is defined in the Antitrust Regulation (Council Regulation No 1/2003), which can be applied by the European Commission and by the national competition authorities of EU Member States. Article 11 par. (6) of the Antitrust Regulation provides that the initiation of proceedings by the European Commission relieves the competition authorities of the Member States of their competence to also apply EU competition rules to the practices concerned. Article 16 par. (1) of the same Regulation provides that national courts must avoid issuing decisions which would conflict with a decision contemplated by the European Commission in proceedings it has initiated.
In light of the above, the European Commission has informed Gazprom and the competition authorities of the Member States that it has opened proceedings in this case. There is no legal deadline to complete inquiries into anti-competitive conduct and the duration of an antitrust investigation depends on a few factors, including the complexity of the case, the extent to which the undertaking concerned cooperates with the European Commission and the exercise of the rights of defense.
On 22nd of April 2015, the European Commission sent a Statement of Objections to Gazprom, alleging that some of its business practices on Central and Eastern European gas supply markets constitute an abuse of its dominant market position in breach of EU Antitrust rules[6].
The Commission’s preliminary conclusions in the Statement of Objections were: (i) Gazprom might be hindering cross-border gas sales, via territorial restrictions in its supply agreements with wholesalers, preventing the export of gas in eight EU Member States (Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia), which has a negative impact on gas prices, preventing cross-border flows of gas and leading to market partitioning, hindering gas from flowing where it is most needed and where prices are commercially most attractive; (ii) Gazprom’s alleged unfair pricing policy and, in order to assess whether individual price levels in a country are unfair, the different Member State prices were compared to a number of different benchmarks, such as Gazprom’s costs, prices in different geographic markets or market prices and based on this analysis, the European Commission has come to the preliminary conclusion that the specific price formulae, as applied in Gazprom’s contracts with its customers, have contributed to the unfairness of Gazprom’s prices, due to Gazprom’s specific price formulae, which links the price of gas to the price of oil products and seem to have largely favored Gazprom over its customers and Gazprom has charged unfair prices in five Central and Eastern European countries (Bulgaria, Estonia, Latvia, Lithuania and Poland); (iii) Concerns on gas transport infrastructure, meaning that there were concerns that Gazprom leveraged its market dominance in Bulgaria and Poland, by making gas supplies conditional upon obtaining certain infrastructure-related commitments from wholesalers (It seemed that, in Bulgaria, Gazprom made wholesale gas supplies conditional upon the participation of the Bulgarian gas incumbent wholesaler in a large-scale infrastructure project of Gazprom, despite high costs and an uncertain economic outlook and in Poland, Gazprom made gas supplies conditional upon maintaining Gazprom’s control over investment decisions concerning one of Poland’s key transit pipelines, Yamal, which is one of the main infrastructures that could allow gas from suppliers – other than Gazprom – to enter the Polish market). In my opinion, the latter is the worst and could have been also subject to a criminal investigation.
The above is summed up in the following image:
On 24th of May 2018, the European Commission announced the Decision relating to a proceeding under Article 102 of the Treaty on the Functioning of the European Union and Article 54 of the EEA Agreement (Case AT.39816 — Upstream gas supplies in Central and Eastern Europe)[7], which was aimed at addressing Gazprom’s market practices in Central and Eastern Europe. This decision introduced a comprehensive set of regulations designed to substantially alter Gazprom’s operations in these gas markets:
- Elimination of contractual barriers to free gas flow: Gazprom was required to remove restrictions that prevented customers from reselling gas across borders.
- Facilitation of gas flows to and from isolated markets: Gazprom was obligated to enable gas flows to and from regions in Central and Eastern Europe that remained isolated due to inadequate interconnection infrastructure, such as the Baltic States and Bulgaria.
- Implementation of a structured process to ensure competitive gas pricing: Customers were provided with mechanisms to ensure that their gas prices align with the competitive price levels observed in Western European markets, particularly at liquid gas hubs.
- Prohibition of leveraging dominance in gas supply: Gazprom was prohibited from exploiting its dominant position in gas supply to gain undue advantages related to gas infrastructure from its customers.
Collectively, these obligations addressed the European Commission’s competition concerns and sought to achieve the objective of enabling the free flow of gas in Central and Eastern Europe at competitive prices. As a result, the European Commission made these obligations—referred to as “commitments”, legally binding on Gazprom under Article 9 of Council Regulation (EC) No 1/2003 of 16 December 2002, which governs the implementation of competition rules established in Articles 81 and 82 of the TFUE.
In the event of non-compliance, the Commission is authorized to impose fines of up to 10% of the company’s global turnover, without the need to demonstrate an infringement of EU antitrust rules.
More broadly, ensuring effective competition in the gas markets of Central and Eastern Europe requires not only the enforcement of EU competition regulations, but also investment in diversifying gas supply sources, the adoption of targeted European and national energy policies, and the effective implementation of these measures. This is why the creation of a European Energy Union remains a strategic priority for the Commission.
Details on Gazprom’s commitments according to the revied proposal as of 15th of March 2018
To address the Commission’s competition concerns, Gazprom had to comply with a set of commitments,
aimed at ensuring the free flow of gas at competitive prices across Central and Eastern Europe. The initial commitments were offered by Gazprom and were put to market test on 16th of March 2017. The revision reflects the feedback from stakeholders, as the market test resulted in a significant number of replies from a wide range of stakeholders, including governments, national competition authorities, gas wholesalers, industry associations and academics, which helped to clarify and ensure the effectiveness of the final obligations. These revised commitments were formalized under Article 9 of Council Regulation (EC) No 1/2003, which allows the European Commission to make binding decisions, without finding an infringement, provided the commitments adequately address the identified issues[8].
The obligations on Gazprom will be in place for 8 years since the date of establishment, except for the Commitments regarding the cancellation of the South Stream project (see paragraph 21 of the Decision), for which the period shall be 15 years, as from 28th of May 2018.
Key Commitments in the Revised Proposal
- Removal of contractual barriers to free gas flow in Central and Eastern Europe
One of the core issues identified by the European Commission was the presence of territorial restrictions in Gazprom’s contracts. These restrictions prevented customers from reselling gas across borders, effectively segmenting markets and limiting competition. Under the revised commitments, Gazprom agreed to eliminate all clauses that restricted the free flow of gas. This measure was intended to foster a more integrated and competitive gas market in the CEE region by enabling cross-border trade and ensuring that customers can access gas from multiple sources.
Furthermore, Gazprom had to adapt provisions in its contracts regarding the monitoring and metering of gas in Bulgaria, which have isolated the Bulgarian gas market from neighboring EU gas markets. This allowed the transfer of control from Gazprom to the Bulgarian operator of gas transmission infrastructure. Following the market test, Gazprom clarified several technical elements to ensure the obligation would be fully effective.
- Facilitation of gas flows to and from isolated markets
Another significant concern was the isolation of certain Central and Eastern European markets, such as the Baltic States and Bulgaria, due to insufficient interconnection infrastructure, which limits the ability of Gazprom’s customers to re-sell their gas to and from these countries, even if they have spare volumes.
Gazprom committed to facilitating gas flows to and from these regions by cooperating on infrastructure projects and optimizing existing pipelines. This included obligations to ensure reverse flow capabilities and access to key interconnectors, thereby enhancing market integration and energy security for isolated Member States.
- Establishment of a structured process for competitive gas pricing
The European Commission’s investigation revealed that Gazprom’s pricing practices in the Central and Eastern European regions often deviated from competitive benchmarks, leading to inflated gas prices. To address this, Gazprom agreed to implement a structured process to ensure that gas prices in long-term contracts reflect competitive market conditions. This included the introduction of price review mechanisms tied to Western European benchmarks, particularly those at liquid gas hubs. These mechanisms were designed to provide customers with an effective tool to challenge prices that did not align with competitive standards, i.e.: (i) customers could demand lower prices when their gas prices diverged from competitive Western European price benchmarks, (ii) new gas prices had to be set in line with price levels in competitive Western European gas markets and (iii) arbitration was used if Gazprom did not agree within a strict deadline.
- Prohibition of leveraging dominance in gas supply
The European Commission also found that Gazprom had used its dominant position in gas supply to secure favorable terms in infrastructure agreements, such as obtaining control over pipelines or storage facilities. Under the revised commitments, Gazprom was prohibited from leveraging its market dominance to gain undue advantages in such deals. This measure was aimed at preventing anti-competitive behavior and ensuring a level playing field for infrastructure development.
To better deal with future intergovernmental agreements, the European Commission put forward a legislative proposal to make intergovernmental agreements on gas and oil subject to prior scrutiny by the Commission. This proposal has entered into force in 2017. There is no legal deadline for the Commission to complete antitrust inquiries into anticompetitive conduct, which may result sometimes in inefficiency and potential abuse.
Implications for the Central and Eastern European gas market
The revised commitments marked a significant step toward addressing the competition concerns in the Central and Eastern European gas markets. By eliminating territorial restrictions, facilitating infrastructure development, and aligning pricing mechanisms with competitive benchmarks, the commitments aimed to dismantle barriers to market integration and enhance energy security. These measures were particularly crucial for smaller and isolated Member States, which had been disproportionately affected by Gazprom’s practices.
Moreover, the commitments supported the broader goals of the European Energy Union, which seeks to create a unified and resilient energy market within the EU. By promoting the free flow of gas and competitive pricing, the commitments contributed to the diversification of supply sources, reduced dependency on dominant suppliers, and increased market transparency.
Broader Considerations
While the commitments addressed key competition concerns, their long-term success depended on complementary measures. These included investment in new interconnectors and storage facilities, adoption of well-targeted energy legislation, and effective implementation of EU energy policies. The integration of renewable energy sources and the development of alternative gas supply routes, such as liquefied natural gas (LNG) terminals, also played a critical role in enhancing energy resilience and reducing reliance on dominant suppliers like Gazprom.
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Conclusion
The revised commitments proposed by Gazprom on 15th of March 2018 represented a pivotal moment in the European Commission’s efforts to ensure fair competition in the CEE gas markets. By addressing territorial restrictions, market isolation, pricing irregularities, and abuse of dominance, these commitments laid the groundwork for a more competitive and integrated energy market. However, achieving the full potential of these measures required sustained efforts in infrastructure development, policy implementation, and supply diversification. As such, the commitments not only resolved immediate competition concerns but also aligned with the EU’s strategic vision of building a robust and unified European Energy Union.
The compromise appears relatively minor for Gazprom, especially when compared to the potential alternative of an infringement decision that could have resulted in fines of up to USD 8 billion. However, the unforeseen invasion of Ukraine and the subsequent sanctions significantly altered the context, culminating in Gazprom suspending dividend payments for the first time since 1998 and the European Union was already more prepared to leave behind the Russian gas dependence.
[1] On 18 December 2007, Frank-Walter Steinmeier (who was then Foreign Minister of Germany) and Dmitry Medvedev signed an agreement on behalf of BASF to exploit another gas field. At the time, German demand was 40% covered by Russian supply. Some German academics warned that Germany had become too dependent of Russia but Steinmeier, citing the new Ostpolitik, disregarded them. Source: “Russia’s Gazprom – Corrupt politicians and the greed of the west”.
[2] “Paying the piper.” The Economist 4 January 2014.
[3] Naeem, Asad (4 September 2012). “EU launches anti-trust case against Gazprom: Commission”. Business Recording. Archived from the original on 17 September 2013. Retrieved 4 September 2012.
[4] https://www.politico.eu/article/gazprom-going-down-russia-sanctions/
[5] Article 102 TFUE (ex-article 82 TEC) Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
[6] https://ec.europa.eu/commission/presscorner/detail/en/memo_15_4829
[7]chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52018XC0723(01)
[8] “EU ends antitrust case against Gazprom without fines”. Reuters. 24 May 2018. Retrieved 26 February 2022