“I‘ve gained access to the draft mandate of the European Council for EC negotiations with Russia on the Nord Stream 2 project. It’s a classified document and only a few people have access to it in every Member State, which means legally I am only allowed to discuss it”, says Wojciech Jakóbik, editor in chief of BiznesAlert.pl.
The mandate proposed by the European Commission- is a set of guidelines for the negotiations with Russia on applying a legal regime to the Nord Stream 2 pipeline. The critics of the project expect a full transposition of the EU law: i.e. third party access and ownership unbundling and other provisions of the 3rd Energy Package. They are concerned that in the absence of a full transposition of the 3rd Energy Package, Gazprom will use the new pipeline to consolidate its dominant position in Central and Eastern Europe (CEE), despite the ongoing changes on the EU energy market. Those who support the project claim that its offshore section should not be subject to the EU law. The mandate will determine whether the EC will have a strict approach upon Russia’s adherence to EU regulations.
In the above mentioned document, the Commission points to the fact that a well-functioning gas market has to strengthen EU’s energy security. Gas pipelines across Member State borders and free access to them is the basis of its functioning. This is why the EU supports only those projects that are in line with the “key principles of the Energy Union.” This is a reiteration of the EC’s position which had been already and repeatedly expressed in the past.
The mandate informs that once Nord Stream 2 would be constructed, over 80% of deliveries of Russian gas to Europe may be redirected to one route across the Baltic Sea. This is why the project will change the existing structure of gas deliveries. The role of gas transit “across Ukraine, Slovakia, Belarus and Poland may quickly wane,” the authors of the Commission’s document consider. In their opinion, Nord Stream 2 may improve Gazprom’s position on the EU market and thus “halt the process of creating an open gas market with competitive prices and diversified supply.”
The negotiations are necessary to establish a specific regulatory regime for the operation of the pipeline, which will introduce “key principles” (a key term that allows for negotiations). Legal transparency will benefit not only gas consumers, but also companies engaged in the project, and it is worth reminding that companies from Western Europe are engaged in it: Wintershall, Uniper, Shell, OMV and Engie.
The authors of the document consider that if Nord Stream 2 is constructed in a legal void or is subject to two legal regimes – Russia’s and EU’s- it will have a negative impact on the market because it will bypass “key” regulations by using specific technical parameters of the pipeline or by introducing two mutually-exclusive regulations for the same section. This is why it is believed that a special legal regime should to be created, similarly to that of TANAP or Nabucco pipelines, or of the North Sea gas pipelines from Norway.
The mandate defines the “key principles” which should govern the negotiations: transparency of the pipeline operation, non-discriminatory tariffs, appropriate level of non-discriminatory 3rd party access to the pipeline and a “level of unbundling between supply and transmission”. This will support the development of the EU energy market and ensure investment security for the project. The pipeline is also to be subject to the rules of transparency and equal treatment. The EC and Russia have to agree on these principles during the negotiations and only if that happens it will be possible to remove the contradictions between the EU and the Russian law.
The authors of the recommendation expect that the negotiations will encompass the possible impact of Nord Stream 2 on Central and Eastern Europe and gas transit via Belarus and Ukraine, with special emphasis on Ukraine’s energy security, which the EC should to defend on the basis of Article 337 of the EU-Ukraine Association Agreement.
Therefore, the Commission recommends the following:
- The Council should consent to the EU-Russia negotiations regarding a specific legal framework for Nord Stream 2. The resulting agreement should ensure that the potentially negative impact on gas transit routes- mostly via Ukraine-, and on the diversification and supply security efforts made by CEE as well, is limited.
- According to treaties the Commission should negotiate on behalf of the entire European Union and fight for the above mentioned principles. The negotiations have to be conducted in agreement with a committee which will be appointed by the Council. It is supposed to present negotiation guidelines in the form of an annex to the recommendations.Whereas the annex says:
- Regarding the unbundling, the EC should negotiate to guarantee a “full and structural separation” between gas supply and transmission as part of Nord Stream 2. The minimum option is the establishment of an independent transmission system operator, or an independent operator of the entire system (independent from Gazprom). It is imperative that the interested suppliers to have free access to the pipeline capacity, in order to guarantee competition. Some of the capacity has to be offered on short-term basis, in accordance with EU standards.
- The tariffs are to be determined in a non-discriminatory manner, and this will depend on regulatory institutions of the Member States. This might pertain to the German Bundesnetzagentur. All information about the functioning of Nord Stream 2 is to be readily available to all market players.
- The agreement has to include “defined measures” that will limit the potentially negative impact of the pipeline. This pertains to the protection of deliveries via the existing routes, such as the one across Ukraine after 2019, when Nord Stream 2 will be opened, as well as the efforts of CEE regarding the opening of the markets to new suppliers. The contract also has to include rules for settling disputes, adding amendments, and provisions for its potential termination and entrance into force.
Even if the EC-Russia negotiations would be successful it does not mean the Nord Stream 2 pipeline will actually be built. According to the treaties, the proposed contract will have to be approved by the European Parliament, which has been vocal about its disapproval of the project. If the EP rejects it, there will be no way for the pipeline to be constructed. It also needs to be decided whether the project should be suspended until the EC-Russia negotiations are over (the “standstill option” proposed by, among others, the Polish MEPs). On the other side, it is worth mentioning that the Nord Stream 2 company is moving at the stage of filing the application for national permits construction in Denmark, Finland, Germany and Sweden.
The draft mandate shows that the EC wants to pursue the interests of Central and Eastern European states and Ukraine. This does not guarantee that it will negotiate good terms, but it is a positive signal. If the contract is unfavorable, the Parliament may reject it. However, it remains to be seen whether the Council of EU will agree to such ambitious mandate of the Commission. For instance, Germany has already declared, through the voice of Chancellor Angela Merkel, that there is no need for an “extra mandate” for Nord Stream 2 on the grounds that the project is purely commercial. On the other hand, Estonia, which currently holds the Presidency of EU, stated that it might ask the EU Member States for a broader mandate, which will discuss all imports of gas from Russia. More elements-such the position of the Member States regarding the Commission’s mandate proposal-will be clarified after the upcoming informal meeting of energy ministers on September 19-21, 2017 and the Energy Council meeting of October 24.