By Chris Mularczyk
The Polish monopolies and mergers body UOKiK has slapped a maximum fine on Gazprom of EUR 6.5 bn and smaller fines on companies participating in the Nord Stream 2 gas pipeline project.
Tomasz Chróstny the CEO of UOKiK announced on Wednesday imposing a penalty of EUR 6.5 bn on Gazprom and cc EUR 50 mln worth of fines on companies which are participating in the construction of the German-Russian Nord Stream 2 (NS2) gas pipeline.
UOKiK has imposed maximum fines envisaged on six companies for acting without permission of the Polish anti-monopoly body. Affected are the French Engie Energy. German Uniper, Austrian OMV, Dutch-British Shell and German Wintershall.
The unprecedented decision includes the order to nullify the contracts signed for the financing of the gas pipeline. The companies are accused of acting as a cartel which did not form a company in signing contracts jointly but put together a scheme to work around the anti-monopoly regulations. The deliberate actions of the six companies were in contravention of anti-monopoly regulations which reduced competition in the gas market that has a significant impact on the Polish economy.
This is not the first such action by UOKiK. In May 2018 it took action against Gazprom and five other entities when construction of NS2 began. In August of that year, Gazprom was fined over USD 50 mln and in November 2019 the Polish regulator imposed a fine of over USD 40 mln on Engie Energy for refusing to disclose documentation.
The politics of NS2
The NS2 project has been controversial for years. The US has threatened sanctions against firms participating in it. Germany and Russia argue that it is purely an economic venture, but for Poland and the US its character is political because it by-passes eastern countries that were transit sites and make EU states dependent on Russian gas. That dependence could be used by Russia for political ends with supplies being used as bargaining counters.
Wednesday’s decision by UOKiK ratchets up the pressure on the NS2 project. The pressure which the EC failed to increase when it backed off from penalising Kremlin's gas conglomerate two years ago during its antitrust case on the abuse of dominance in the EU gas market.
The ruling was not consulted with the EC. European Commissioner Margrethe Vestager said that the case was new to the EC and there had been no contact with UOKiK over the matter.
The reason for this may be that Poland was disappointed by the EC’s soft treatment in the antitrust case in which it forced Gazprom to change the ways it does business in Central Europe but did not punish the Russian monopolist with a fine.
UOKiK bases its reasoning for the maximum fine sought on EU law which obliges all mergers to be notified to competition authorities. The companies involved have evaded that need by coming up with an arrangement under which the NS2 company would be wholly owned by Gazprom with the 5 other companies providing loans representing half of the construction costs.
According to the contracts signed the five companies could become shareholders in NS2 if Gazprom does not repay the loans. This means that the companies are in essence ‘quasi-shareholders’ implementing a joint venture without the consent of the competition authority.
Gazprom and the five other companies involved are going to appeal against the ruling. The appeals process is likely to last up to five years. If the UOKiK decision sticks in the international courts the next step would be to execute the amount due from Gazprom. In the case of Ukraine’s Naftogaz, the Ukrainians were able to reach for the company’s non-Russian assets.
There is one weakness in the UOKiK case which Gazprom and its allies will play on. Since Poland is no longer dependent on Russian gas, where is the problem for it that others are importing Russian gas? In what way does that import affect the Polish market? How does it impact on the security of Poland’s supplies since Poland has already diversified those supplies?
Poland stronger because of diversification
Poland is increasingly confident in challenging Gazprom for two reasons. The first is because opposition to NS2 coming from the US is bipartisan in that country. Second, Poland by importing LNG from the US and Qatar and the construction of the Baltic Pipe which will pump North Sea gas into Poland is making itself independent of Russian gas, which it will stop importing after 2022.
But Poland remains committed to stopping the NS2 project as it hurts its neighbour Ukraine in cutting it off from gas transit from Russia. It also helps Russia to finance its state budget with the military spending that entails that Warsaw sees as a threat. And by making western Europe more dependent on Russian gas it creates a danger Europe will have little interest or will in blocking Russian expansionism in Eastern and Central Europe.
The NS2 project is currently delayed as a result of US sanction threats against companies engaged in the construction of the pipeline. But the project is near completion and Germany is still committed to it. The UOKiK move however potentially increases the cost of the project, putting its economic viability under question.