Gazprom Criticises EU Over South Stream Gas Pipeline
By Christian Oliver in Brussels and Jack Farchy in Moscow
Gazprom has accused the EU of applying double standards to block its landmark gas pipeline into Europe in a case that looks increasingly likely to spiral into an acrimonious legal showdown.
The confrontation over the South Stream pipeline comes as Russian, Ukrainian and EU officials meet in Berlin on Friday to try to forge a compromise in a dispute over Kiev's gas price and prevent supply disruptions to Europe.
Construction work on South Stream, a proposed pipeline running from the Black Sea to Austria, is expected to start next month but Russia is accusing the EU of trying to block the project because of the crisis in Ukraine. Last week, Vladimir Putin, Russia's president, threatened to divert the pipeline and complained Brussels was "constantly throwing a spanner in the works".
The EU is worried about whether the pipeline will abide with its competition rules that are intended to stop gas supplies being dominated by an export monopoly such as Gazprom.
The main battleground for an impending legal struggle is likely to be Bulgaria, where South Stream is due to enter the EU. Officials from the EU say their primary concern is whether Bulgaria's parliament will amend the national energy law to rule that an offshore segment of South Stream lies outside EU competition directives.
This week, José Manuel Barroso, president of the European Commission, made an unusually direct threat of legal action against Bulgaria's socialist government, one of the EU's political parties with the closest ties to Moscow. "Some of the agreements that have been or are being negotiated on South Stream are in contradiction of European Union rules, so we will act," he said.
But Gazprom has now responded by accusing the EU of hypocrisy over the case. It says that the pipeline running from Russia under the Black Sea to the Bulgarian port of Varna is an import pipeline and not part of the EU's transmission grid, which would be subject to competition law.
The European Commission said it applies the same rules to all pipelines and added that any infrastructure in EU waters must abide by EU competition laws. These rules are intended to prevent one company dominating the supply chain by insisting on auctions for supplies along transit routes.
In a document explaining its legal position, Gazprom's South Stream Transport company said the EU was applying rules to penalise Russian gas that it did not apply to the Greenstream, Maghreb, Transmed and Galsi pipelines that import North African gas into Spain and Italy.
"The South Stream offshore pipeline in this regard . . . does not fall under the scope of the third energy package," the Gazprom document said.
Brussels is also probing other concerns in Bulgaria such as the way South Stream construction contracts were awarded to Russian and Bulgarian companies. The main construction company is set to be Russia's Stroitransgaz, owned by businessman Gennady Timchenko, who is on a US sanctions list because of his links to Russia's leadership. EU officials are also examining whether the transit fees are in line with regular commercial rates.
The legal disputes over Gazprom are likely to be coloured by whether a deal can be brokered in Berlin over a gas price for Ukraine. Moscow has softened its position in recent weeks, indicating it would be ready to lower prices for gas supplies to Ukraine from the level of $485 per thousand cubic metres that was announced by Gazprom in April.
However, it has maintained that Kiev should pay off at least some of its accrued debt as a precondition to negotiations, with a plan proposed by the European Commission for Ukraine to pay $2.5bn over the next week.
Without a deal, Gazprom is threatening that it could cut supplies to Ukraine from June 3.
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