Treating Gazprom like Microsoft?

September 3, 2007

…. Katinka Barysch, Chief Economist of the Centre for European Reform, published a brilliant piece in the FT today on how Europe can to respond to Gazprom. The last months in Russia have shown that the country is reverting its trend to political and economic liberalisation. The current nexus of apparently mutually reinforcing monopoly power in the Kremlin combined with monopoly power in the energy sector, represented by Gazprom, is increasingly worrisome (please see a small piece by me this summer  in Stirred Up on the matter for a little bit of background – no self-promotion meant here…).

Katinka Barysch argues that one of the answers of the EU to Russia’s energy policies namely is… reform and liberalisation in Western Europe’s own energy market.

On the day the merger between Suez and Gaz de France is announced (Le Monde, and FT), a political move with a background of economic nationalism – the French government lobbied for this solution to avoid Suez being taken over by the Italian Enel – there is doubt, however, that minds are ready for that in key European countries. In his recent disclosure of his foreign policy line, President Sarkozy, though, has clearly shifted French policy towards Russia towards a tougher stance. How will he handle potential conflicting interests here? More disciminatory politics à la russe? Anyway:

“The Commission is now thinking about banning Gazprom from investing in the EU until Russia allows more European investment upstream. However, the EU cannot adopt the Russian approach to reciprocity without compromising its own free-market principles. EU rules forbid discrimination against an investor on the basis of nationality. It would also be hard to pull off in practice. Would Gazprom’s joint ventures in Europe become illegal? Who would tell European energy companies which assets they could and could not hand over to Gazprom?

The only way forward is to make sure that if Gazprom invests, it plays by European rules. Given the company’s record of shoddy management, asset grabbing and political meddling, Europeans may be forgiven for asking whether it understands market principles. Thankfully, the EU has the instruments to enforce competition, transparency and fair play. In March, EU leaders asked Neelie Kroes, the competition commissioner, to investigate whether Gazprom’s growing role could impede energy market liberalisation. When Mr Putin complained, Ms Merkel is said to have replied that Gazprom should consider it “an honour to be treated like Microsoft”. (highlighted by me…)

Therefore:

“If the Europeans are worried about Gazprom’s role, they need to back the Commission’s efforts to speed up liberalisation of their own gas market. On September 19 the Commission will release a new draft law on “unbundling”, to prevent a single company from producing, transporting and selling energy. So far Germany and France have opposed unbundling. They should think again. By giving competing energy companies access to Europe’s pipeline networks, unbundling would all but rule out market abuse by big, vertically integrated companies – not only EU ones such as Gaz de France and Eon-Ruhrgas, but also Gazprom. Moreover, since more competition would mean lower profits in downstream markets, Gazprom could lose interest in EU assets and instead invest at home, where it is needed.”

Thank you Ms Barysch.

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