Brussels, 06 October 2003
Commission reaches breakthrough with Gazprom and ENI on territorial restriction clauses
The European Commission's competition services have reached a settlement with the Italian oil and gas company ENI and the Russian gas producer Gazprom regarding a number of restrictive clauses in their existing contracts. Under the settlement, ENI will no longer be prevented from reselling, outside Italy, the gas it buys from Gazprom. The latter will be free to sell to other customers in Italy without having to seek ENI's consent. ENI also committed to offer significant gas volumes to customers outside Italy, which will be beneficial for gas competition in Europe. Finally, ENI agreed to increase capacity on the pipeline that transports Russian gas to Italy via Austria. It will also support the introduction of a regime, which will facilitate access to this pipeline for third parties. The settlement marks an important milestone towards the enforcement of competition rules in the sector and the creation of a European gas market. It is expected that similar clauses in a few other Gazprom contracts as well as in contracts between Algerian company Sonatrach and its European customers will soon be eliminated to the benefit of competition and gas users in the EU.
Competition Commissioner Mario Monti welcomed the settlement saying: “I am pleased that we were finally able to bring this issue to a good end. We hope that Gazprom will soon bring its contracts with a few other European importers in line with EU law. We also encourage Sonatrach to follow the same path. The Commission's action aims to increase competition between European gas suppliers to the benefit of European consumers. It has no impact on the producers' ability to sell their gas in the Union under long term contracts. To the contrary the settlement strengthens the legal certainty of these contracts ».
The Commission's Competition Directorate General has been investigating territorial sales restrictions in supply contracts between gas producers and European wholesalers for some time. The clauses prevent wholesalers from reselling the gas outside the countries where they are established, which represents a breach of European competition law and undermines the on-going creation of a European gas market.
The investigations concern the Russian company Gazprom, Sonatrach of Algeria and a large number of their European customers. In December 2002, the Commission settled a similar case concerning the Nigerian gas producer Nigeria LNG Ltd (see IP/02/1869).
The settlement of the Gazprom/ENI case is very significant because of the huge volumes of gas involved. ENI is one of the biggest European customers of Gazprom with approximately 20 billion cubic meters of gas bought every year and the first of the European importers to have reached a settlement with Gazprom, Europe's largest external gas supplier.
The following arrangements were agreed upon either between the companies directly or between the companies and the Commission services:
In addition to these contractual issues, ENI also agreed to offer significant gas volumes to customers located outside Italy over a period of five years. The primary beneficiaries are likely to be customers in Austria and Germany, where ENI recently acquired together with Energie Baden Württemberg (EnBW) - a controlling stake in the Southern German company GVS (see IP/02/1905) and ENI might use this company for its German expansion strategy. If ENI has not sold sufficient volumes during the first half of the commitment period, which started on 1 October 2003, it will organise an auction offering certain gas volumes at Baumgarten, the border point between Austria and Slovakia, where Russian gas is delivered to a number of European customers. All these measures should enhance liquidity in the European gas market.
ENI also undertook to promote an increase of the capacity in its majority-controlled Trans Austria Gasleitung (TAG) pipeline, which runs through Austria and is used to transport all Russian gas destined for the Italian market. The expansion has to be completed between 2008 and 2011 depending on certain Italian market developments.
ENI finally offered to promote an improved third party access regime (TPA regime) facilitating the use of the TAG as a transit pipeline. This commitment includes amongst others the introduction of one-month transport contracts, an effective congestion management system, the introduction of a secondary market and the regular publication on the Internet of the available capacity. The new TPA regime will be inspired by the Guidelines for Good Practice developed by the European Commission, European Regulators and European gas industry (“Madrid Forum”).
In view of these benefits for European gas consumers, the investigation into territorial sales restrictions contained in the gas supply contracts between Gazprom and ENI has been closed.
At the same time, the competition services decided to close their probe into the gas supply relationship between Gazprom and Gasunie of the Netherlands after verifying that their contracts do not contain territorial sales restrictions and after Gasunie explicitly confirmed it was free to sell the gas delivered by Gazprom wherever it wishes. In this respect it is important to note that the gas is delivered to Gasunie at the German Dutch border.
The competition services continue, however, their investigation regarding other contracts involving Gazprom. But they are confident that Gazprom and the importers concerned, most prominently two companies in Germany and Austria, will soon find an agreement with Gazprom leading to the deletion of the contested clauses.
The Algerian Energy Ministry and Sonatrach recently informed the Commission services that Sonatrach will no longer introduce any provisions limiting cross border sales into its future gas supply contracts with European importers. The Commission services welcomed this constructive step. It is the Commission's services' understanding that this commitment includes territorial sales restrictions as well as so-called profit splitting mechanisms, which oblige the customer to share part of the profit with Sonatrach when reselling the gas outside its traditional supply area.
Sonatrach also indicated its readiness to discuss the modification of the existing contracts with its European customers, but progress has been until now rather slow. The Commission services therefore called on the parties to intensify negotiations in good faith and to establish an ambitious timetable in order to reach an agreement soon.