UPDATE 1-EU,Russia at odds over energy, Putin warns on prices

Thu Feb 24, 2011 12:02pm EST

Related Topics

* Russia's Putin warns EU policy could drive up prices

* Says EU energy package tantamount to property theft

* EU describes energy talks as "frank"

(Releads, adds quotes, details)

By Darya Korsunskaya and Pete Harrison

BRUSSELS, Feb 24 (Reuters) - Russian Prime Minister Vladimir Putin warned the European Union on Thursday its rules on energy infrastructure could drive gas prices higher, making clear the extent of disagreement with the EU on energy policy.

Speaking to reporters after talks with European Commission President Jose Manuel Barroso, Putin said the EU's rules on the ownership of pipeline infrastructure, known as the third energy package, would ultimately harm European consumers.

The rules impose limits on the ownership of EU pipeline infrastructure by gas suppliers and call for the "unbundling" of over-concentrated ownership. Under the rules, Russia could be forced to sell off some of its pipeline network.

"We consider that the full and the mechanical implementation of this package could lead to a rise in energy prices on the European energy market," Putin said, adding:

"The third energy package, it is quite clear, will harm the activities of our energy companies. We are talking in practice about the confiscation of property."

Barroso tried to paper over the differences, saying the EU and Russia had made solid progress during several hours of talks between members of the Russian cabinet and the EU executive, and said the rules were the same for all countries.

"We believe our third internal market energy package is non-discriminatory," he said, pointing out that Norway, for example, had to follow the same set of directives, which he said were compatible with World Trade Organisation rules.

"What we are asking of foreign companies is to accept the same rules that we are implementing for our own companies.

"There are differences in the way we look at this third energy package but there was a very frank and open discussion on this matter ... We want Russia to remain our most important partner in gas," he said.

The EU imports around 40 billion euros ($55 billion) of gas each year, with 40 percent of imports coming from Russia. Maintaining the consistency of those supplies is central to the EU economy and the bloc's long-term energy security goals.

In 2009, Russia cut off energy supplies to Ukraine, a transit point to Europe, because of a dispute over payments, leading to gas shortages in many EU member states.

EU-Russia differences over the energy rules have complicated relations when Russia is looking to secure EU backing for its entry to the WTO. Russia is the largest economy outside the global trading bloc.

NORTH AFRICA UNREST

Speaking ahead of Thursday's meeting, Putin described the energy rules as "robbery", saying they threatened billions of dollars' worth of new pipelines that will carry Russian gas to Western European customers from Siberia and the Arctic.

Officials said on Thursday that Russia's main objection to the EU laws was that they might force Gazprom (GAZP.MM), Russia's largest company and the world's largest extractor of gas, to divest from stakes in a Lithuanian gas network.

The EU, Russia's biggest trading partner, wants Putin to remove a host of import duties on goods such as farm equipment, cars and timber, implementing pledges Russia has made during its 18-year bid to join the WTO.

The European Union's $16 trillion economy dwarfs Russia's $1.5 trillion gdp but Russia supplies 23 percent of the European Union's total gas needs and the EU's dependence on imports is likely to rise in the coming decades.

Putin highlighted that dependence on Thursday, saying unrest in Libya made Russia's pipelines more important than ever.

Instability in North Africa and the Middle East may force Europe to reconsider the risks of diversifying gas imports away from Russia, whose South Stream export pipeline plan rivals the EU's Nabucco link to tap supplies from the Caspian basin.

Russia says the EU's push to improve competition in its energy market threatens pipelines that have been started, including an onshore extension to the Nord Stream pipeline, and will endanger the security of future supplies.

The plan included a so-called "Gazprom Clause" designed to prevent companies from outside the bloc from buying up strategic distribution networks without approval by governments.

Russia is the EU's single largest gas supplier, followed by Norway, Algeria, Nigeria, Libya, Qatar and Egypt. (Additional reporting by Douglas Busvine and Thomas Grove in Moscow and David Brunnstrom in Brussels; editing by Andrew Roche)

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