Energy: EU Throws Down Gauntlet To Russia's Gazprom

European Commission President Jose Manuel Barroso (right) and Energy Commissioner Andris Piebalgs in Brussels today (epa) The European Commission today took its first steps to forge a unified energy policy across the 27-nation bloc and lessen its dependence on foreign firms such as Russia's Gazprom. The EU's executive branch said Europe's energy markets must be liberalized, yet remain closed to ownership by foreign companies whose countries of origin do not respect EU competition rules. Some are calling the proposals among the most controversial decisions to come out of Brussels in years.

September 19, 2007 (RFE/RL) -- Under the hard-fought proposals, the EU's executive body says it seeks to boost competition by breaking up utilities that control both the production as well as the delivery of energy. In practice, that means firms that produce power, such as Italy's ENI or E.ON of Germany, would have to sell off the supply side of their business -- their gas pipelines or electric grids -- or else hand them over to an independent operator.

European Commission President Jose Manuel Barroso says the proposals are meant to open up Europe's gas and electricity market to more competition. But not everyone's being invited in.

The rules would bar foreign companies, such as Russia's Gazprom or Algeria's Sonatrach, from controlling energy networks -- unless their home nations agree with the EU to open up their home markets in "reciprocal" fashion.

Addressing a news conference today in Brussels, Barroso did not cite Gazprom, which supplies 25 percent of Europe's gas. But the state-controlled energy giant -- accused of using energy policy as a political weapon for the Kremlin in countries such as Ukraine, Belarus, and Georgia -- was clearly on Barroso's mind:

"Individuals and countries should not be able to acquire control over a [European] community [energy] transmission network unless there is an agreement between the community and the company's country of origin," he said. "This is simply to ensure that the unbundling rules will be respected. Once again, the aim is not to prevent these companies from playing a greater role on European Union markets. On the contrary, it is to make sure that all follow the same rules."

Easy Access

The EU has long frowned on Russia's refusal to open its energy sector to foreign investors while state-controlled Gazprom has easy access to the EU market. But Joerg Himmelreich, a Berlin-based energy security analyst, says Russia is unlikely to change its position despite the new European approach.

"For [Russia], it will be unacceptable in the near-future that foreign companies will get access to the downstream, to the transport, to the transmission part," Himmelreich says, "because if you have the transmission part, you say what price you charge the customer. And this is used [by Russia] as a political instrument in the region, and so from Russia, [President Vladimir] Putin and his potential successor will never allow this."

Recently, Gazprom has exploited the lack of a unified EU energy policy to cut major bilateral deals with nations across Europe. Gazprom now boasts a presence in 17 EU countries through joint ventures, subsidiaries, or stakes. And the Russian behemoth, which still has to sell its gas at the EU border, has gained control of some distribution networks -- such as in Italy this year -- to pair with its formidable supply capacity.

'We Share The EU's Goal'

In a statement today, Gazprom spokesman Sergei Kupriyanov said his company was a reliable gas supplier and a major investor in the infrastructure that brings gas to Europe. "We share the EU's core goal of ensuring long-term security of energy supply to the EU," he said.

But in its report today, the European Commission bluntly noted that all non-EU companies will have to "comply with the same unbundling requirements as EU companies."

In Europe, Gazprom's most notable distribution deal is perhaps Wingas, its joint venture with Wintershall, Germany's largest producer of crude oil and natural gas. Fifty percent of Wingas is owned by Gazprom, and the firm controls 2,000 kilometers of pipelines in Germany, as well as Europe's largest underground gas depot.

But now, Gazprom faces the breakup of that deal -- and many others. So do the proposals reflect a new confrontational attitude in Europe toward Russia?

Defense Mechanism

Himmelreich, who studies energy security at the Berlin office of the German Marshall Fund of the United States, doesn't think so. Instead, he says that after Gazprom in recent years cut or limited supplies to Ukraine, Belarus, and Georgia, the EU is realizing that it needs to safeguard against similar potential backlashes by Moscow.

"You may call it to some extent confrontation," he says, "but I would say more it's a kind of defense. It's defending the private competition in Europe against external interference by state-owned political vehicles like Gazprom."

To be sure, opposition to "unbundling" is high among European energy firms as well, particularly in Germany and France. But they do have some time on their side. The proposals must still be approved by the European Parliament and the EU Council of Ministers. Analysts expect the debate to remain fierce, but that the proposals will end up being implemented, even if the process takes more than two years.