Naftogaz official complaint against Nord Stream 2 transferred to the European Commission

The complaint outlines potential incompliance with the Energy Community regulatory requirements and significant competition concerns

On 5 January 2016, the Energy Community Secretariat officially transferred the complaint of Naftogaz against the Nord Stream 2 project to the European Commission. The complaint against the planned Nord Stream 2 project advances two types of claims: the project’s potential incompliance with the regulatory framework of the Energy Community as well as its incompatibility with the proper functioning of the Energy Community gas market due to the significant competition concerns it poses.

The Energy Community Secretariat transfers only those claims which relate to a potential breach of EU law by EU Member States. Complaints based on the Energy Community law are being dealt by the Secretariat. This is the second case in the history of the Energy Community Secretariat when a claim of such nature is transferred for review by the European Commission.

Naftogaz claims that the Nord Stream 2 project as currently designed does not meet the unbundling requirements applicable in the Energy Community and the EU. Moreover, it shall not be exempted therefrom as the project would not enhance competition in the relevant gas market, would worsen the security of supply and would be detrimental to the efficient functioning of the Energy Community gas market.

The Nord Stream 2 project is aimed at destroying the opportunity to quickly create a liquid and interconnected gas market in the Energy Community with virtually no additional investment. Ukraine’s gas transit route and its gas transmission system are integral components of this project. If reasonable volumes of Russian gas are transited through Ukraine and the virtual reverse flow is enabled at all interconnection points between Ukraine and the EU, the gas markets of Central, Eastern and Southern Europe will be smoothly integrated with the rest of the Energy Community. The advantages of Ukraine’s gas transmission system were, in particular, endorsed in the European Commission’s State of the Energy Union 2015.

The Nord Stream 2 project is also likely to be anti-competitive either as a collusive action to prevent, restrict or distort competition or as an abuse of dominance in the Energy Community. In this respect, the patterns and efficiency of use of the existing gas infrastructure must be scrutinized.

In its statement, Naftogaz points out that the Ukrainian gas transmission system is a direct, reliable and competitive route for delivering Russian gas to the EU. It is also the only delivery route for Russian gas to the EU that is not controlled by Gazprom.

The complaint was submitted by Naftogaz on 21 December 2015 pursuant to the Energy Community Dispute Settlement Rules under which any private party may initiate dispute settlement proceedings against actions in violation of the Energy Community law. The European Union is the Party of the Energy Community. In case the alleged breach is opposed to an EU Member State, the Energy Community Secretariat forwards the complaint to the European Commission.

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