European antitrust regulator threatens to charge Gazprom over gas pricing

The European Union antitrust regulator yesterday threatened to take action against Russian state-owned energy giant Gazprom for blocking competition and imposing unfair prices in the natural gas markets in Central and Eastern Europe.

''We suspect that Gazprom has been hindering the free flow of gas across member states and the diversification of sources of supply. We also suspect that it has imposed unfair prices on its customers," said Joaquín Almunia, commissioner at the European Commission (EC).

''It would be premature to anticipate when the next steps might be taken, but we have now moved to the phase of preparing a statement of objections.''

Statement of objections is the first step in any legal proceedings and Gazprom may be fined up to 10 per cent or nearly $15 billion of its 2012 revenues of $148 billion if found guilty.

In September 2012, the Brussels-based regulator had opened formal proceedings to investigate whether Gazprom may be abusing its dominant market position in upstream gas supply markets by hindering competition in Central and Eastern European gas markets in breach of EU antitrust rules.

The investigation follows unannounced raids the EC made in 2011 on natural gas companies across Europe, including Gazprom affiliates, for anticompetitive practices.

As the case gathered momentum, Gazprom warned Almunia that it had the ''status of a strategic organization'' in Russia - an apparent reminder that the company is controlled by the Kremlin.

The EC was investigating three suspected anti-competitive practices by the Moscow-based energy giant in Central and Eastern Europe in countries like Poland, the Czech Republic, Slovakia, Bulgaria, Hungary, Estonia, Latvia and Lithuania.

The investigation is expected to end in spring 2014.

The EC alleges that Gazprom has divided gas markets by hindering the free flow of gas across member states, may have prevented the diversification of supply of gas, and has imposed unfair prices on its customers by linking the price of gas to oil prices.

Gazprom is the sole supplier to Bulgaria, Estonia, Latvia, Lithuania and Slovakia, and supplies 82 per cent of Poland's gas, 83 per cent of Hungary's and 69 per cent of the Czech Republic's gas needs.

Gazprom, charges its Eastern European customers more compared to those in Germany, Italy or France, although transporting gas from the Siberian gas fields to Western Europe is farther compared to Eastern Europe.

Eastern European countries have less alternatives for gas supplies compared to their Western counterparts and Gazprom has been charging them more since they are totally depended on Russian gas that flow through the pipeline installed during the Soviet Union days.

Lithuania pays for gas approximately 30 per cent more compared to other European countries.

Gazprom, the world's largest gas producer, came into the limelight after it cut supplies to south-east Europe in 2006 and 2009 in the middle of winter on pricing issues with Ukraine.

Some of the countries that totally depend on Gazprom gas supplies have become very vocal on the company's business practices and have urged the EC to implement competitive energy prices and transparency in the Eastern and Central European region.

Gazprom has denied accusations of breaching EU competition rules, and has said that the investigation is driven by political motivations, not economic performance.