Russia and the EU: Playing Russian energy roulette in Europe

By
Michael LaBelle
– October 16, 2011Posted in: Commentary

From the movie Casablanca:

Rick’s Cafe – when Captain Renault decides to shut down the establishment.

Rick: How can you close me up? On what grounds?

Captain Renault: I’m shocked, shocked to find that gambling is going on in here.

[A casino worker gives Renault a wad of money.]

Casino Worker: Your winnings, sir.

Captain Renault: [Quietly] Oh, thank you very much. [Loudly] Everybody out at once.

Thus the anti-monopoly raids on Gazprom offices across the European Union in September 2011 appear to have set off a rocky period between Captain Renault and Rick Russia and the EU. [See my interview in the Prague Post on this issue]

The response by Russia is President Medvedev was to ask Gazprom and the Energy Ministry how to operate under the EU’s 2009 Third Energy Package. The stipulations in the Package requires, “Companies to sell or spin off their transmission businesses, require them to hand grid management over to an independent operator or oblige them to make the unit more independent through internal action.” There are two things that are odd about this. First, it is now 2011, the package was passed over 2 years ago. Did Medvedev just get to the memo from 2009 ? (and I thought I was behind on my emails) Second, there really is no need to worry about this requirement. The Germans in negotiating the package, managed to water down the unbundling requirement thus protecting their companies, and Gazprom at the same time. Some would say these were not unconnected.

‘Independence’ is a loose term. Making a company’s transmission unit “more independent through internal action,” places little demand to have a fully functioning business that makes independent decisions on network operations. The purpose of having an independent transmission company is to prompt competition by having multiple companies buying and selling gas through a network that does not discriminate between suppliers and buyers.

However, for Gazprom there is little to worry about. Even if Gazprom spins off its transmission business in the EU there is no way to ensure it is independent. If Hungary could never find out who owned RosGas that purchased Emfesz, or Surgutneftegaz that bought the MOL shares, then the continued obscure structure of Russian companies – or appointed board members that stick to the wishes of Gazprom, will result in limited independent action by a gas transmission company from Russia. Even in the US, this type of requirement is hard to police.

The true reason for the sudden rocky period, may be the additional pressure that is building on Russia for the proposed requirement that the EU Commission know the conditions for existing and new bilateratel gas agreements  between a Member State and a third country. This will see the EU insert itself into the contract negotiations between Gazprom/Russia and Member States.

If there is one thing Rick doesn’t want, it is for Captain Renault climbing into bed with him and his past lover, Yvonne.

Let's keep the EU out of our relationship

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About Michael LaBelle

Michael LaBelle provides a critical but light hearted analysis of the complex field of EU and CEE/SEE energy politics and business. He is based in Budapest, Hungary. He can be reached at michael.labelle(at)energyscee.com