October 26, 2016 / 3:11 PM / 3 years ago

Gazprom putting 'final touch' to EU antitrust deal

BRUSSELS (Reuters) - Gazprom is finalizing a deal with European Union regulators to end a five-year antitrust case and avoid fines, signaling a thaw in business relations between Moscow and Brussels despite tensions over Ukraine and Syria.

A general view shows the headquarters of Gazprom in Moscow, Russia, June 30, 2016. REUTERS/Maxim Shemetov/File Photo

The Russian state gas exporter, which supplies a third of the EU’s gas, has been on the European Commission’s radar since 2012, culminating in charges last year that it overcharged customers in eastern and central Europe and blocked rivals.

Since then, Gazprom has offered concessions aimed at staving off a potential fine of up to 10 percent of its global turnover.

Gazprom deputy head Alexander Medvedev said it was putting the “final touch” to a proposal thrashed out with Europe’s Competition Commissioner Margrethe Vestager and Russia’s Deputy Energy Minister Anatoly Yanovsky on Wednesday in Brussels.

The deal reached in talks that dragged on two-and-a-half hours will be formally presented by Gazprom in the coming weeks, sources close to the process said, giving the Kremlin time to weigh in.

“It’s heavily politicized,” a Gazprom source said.

As part of the deal, Gazprom will drop clauses in its supply contracts with wholesalers and some industrial customers barring them from exporting its gas to other countries, another source said.

It will also have to address the EU’s other key concerns: that Gazprom set unfair prices in the Baltic states, Bulgaria and Poland and tied gas contracts to pipeline commitments.

“On the pricing issue, Gazprom will show more flexibility,” the second source said.

The EU’s deal-making is seen by some former Soviet EU members states as a failure to stand up to Russia and pry loose its grip over their energy sectors in a region where gas prices can make or break governments.

“If they want to show how strong they are, they should do it with the anti-monopoly case,” one EU diplomat said.

With the final details of any deal depending on feedback from Gazprom’s customers and rivals, critics will have a say.

Vestager said in a statement: “All options remain on the table at this stage.” Should the Commission accept Gazprom’s concessions, she said it could make them legally binding.

With a settlement, Russia would accept EU authority in applying competition law - something it has long balked at. If Gazprom failed to comply, the EU could resort to fines.

One EU ambassador said a deal could help unlock contentious pipeline projects, allowing more Russian gas to flow to sparsely supplied markets.

The EU is also moving to remove another thorn in energy relations. It will decide by Monday whether to lift a cap on how much gas Gazprom can pump via a link from Russia’s Nord Stream pipeline to Germany - a route bypassing Ukraine.

Full access to the Opal link is vital to Gazprom’s plan to double Nord Stream - a plan fiercely opposed by some EU nations which say it would deprive Ukraine of transit fees.

CUTTING A DEAL

Within a bloc divided over its stance on Russia, some EU nations see the move toward a settlement as running counter to calls for more sanctions on Russia over its bombing in Syria.

The Commission has cast the antitrust case as purely technical, but some EU officials said it was being closely watched to gauge decisions on other energy disputes with Russia, with one EU source calling a settlement a game changer.

In giving ground on some issues, the Commission is seeking guarantees Gazprom will retain Ukraine as a transit route after it contract expires in 2019, an EU source said. It also wants three-way talks with Kiev over winter transits, the source said.

Talk of a settlement follows Gazprom’s victory in a price arbitration case with Lithuania in June that Katja Yafimava of the Oxford Institute for Energy said might have weakened the EU’s case.

“They want to be sure that if the case goes to court, it can stand,” Yafimava said.

Gazprom’s preference for locking clients into long-term contracts - opposed by the Commission - has also been challenged by cheaper spot gas markets in Europe.

In response, Gazprom has offered discounts and contract renegotiations with major Western European customers.

Additional reporting by Oksana Kobzeva, Foo Yun Chee and Vladimir Soldatkin; Editing by Jane Merriman and Mark Potter

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