Energy

Nord Stream Two Company Threatens To Sue The European Commission

Analysis 13 May 2019
 Nord Stream Two Company Threatens To Sue The European Commission

The European Commission and its president, Jean-Claude Juncker, are bracing for a May 13 deadline, presented to them on April 12 in a quasi-ultimatum form by Nord Stream Two project company CEO, Matthias Warnig (112.international, April 23). On the company’s behalf, Warnig threatens to sue the Commission, unless the latter seeks an amicable settlement with the project company.

Warnig’s letter takes issue with the European Union’s recently adopted amendments to the Gas Directive, whose already finalized version is due to enter into force this coming summer (exact date not yet fixed). The amendments extend the applicability of the Gas Directive (i.e., the EU’s energy market legislation) to the import pipelines built in the territorial sea of EU member states (not only on land as was hitherto the case).

That would mean—as Warnig’s letter recognizes with barely disguised concern—that the North Stream Two pipeline’s section in the German territorial sea would be subjected to the Gas Directive’s provisions on the unbundling of transmission from ownership, access for third-party natural gas suppliers, and transparent regulation of transportation tariffs. The gas-importing member state (Germany in this case) could grant derogations from these provisions for pipeline projects in its own territorial sea, but the European Commission would have to vet such derogations. Crucially for Nord Stream Two, derogations may only be considered for “completed” pipelines.

Aware that Nord Stream Two can no longer be “completed” on schedule (December 2019), let alone before the EU’s Gas Directive amendments take effect (summer 2019), the project company quibbles with the European Commission over the definition of “completed.” It questions whether this means fully completed, or almost fully, or completed in the German territorial sea (which is at stake in this discussion) even if not completed elsewhere on the Baltic seabed (Kommersant, April 24). But, irrespective of definition, Warnig’s letter “requests that the EU confirms that Nord Stream Two will be treated as ‘completed’ and falling within the derogation regime.” The project company wants derogations in order “to allow recovery of the investment made and to protect legitimate expectations of investors.”

Accordingly, the Nord Stream Two project company notifies the European Commission of the latter’s “possible breach of the Energy Charter Treaty”; it alludes to taking the EU to investor dispute settlement tribunals; and it serves this letter to the EU as a “notice of dispute” under that Treaty. Nord Stream Two wants the EU to “attempt to reach an amicable settlement,” and to answer by May 12.

Russia is not a party to the Energy Charter Treaty, however. It had signed the original treaty (1994) but never ratified it; Moscow accepted it provisionally, selectively at its discretion, until 2009, when Russia dropped out officially (Energycharter.org, accessed May 7). Moscow deems this Treaty as constraining Gazprom’s and other Russian state-controlled companies’ anti-competition practices in Europe. In the case of Nord Stream Two, the project company is the full owner and operator of the entire pipeline from Russia to Germany, on the Baltic seabed. Gazprom is the sole shareholder (100 percent) of the project company (Gazprom.com, accessed May 7), but the project company is formally registered in Switzerland, a state-party to that treaty. Hence, the Nord Stream project company claims to be deemed “an investor within the meaning of the Energy Charter Treaty,” in the context of possible litigation against the EU.

The European Commission has not yet responded publicly to this litigation threat. Meanwhile, Günther Öttinger, currently the European Budget Commissioner and former Energy Commissioner, has rebuffed the threat. In his view, the Nord Stream Two pipeline can only be allowed to operate if it “fully conforms” to the Gas Directive’s anti-monopoly provisions—unbundling, third-party access, transparent tariff regulation—that have been extended to pipelines in the territorial sea by the EU (see above). Although he does not believe in stopping this project, he insists on bringing it under the EU’s jurisdiction. Alluding to the German energy regulator Bundesnetzagentur’s bias, Öttinger warned that the European Commission would scrutinize any decision by the German regulator; and he regretted the fact that Germany “does not show the appropriate respect” for the EU’s energy market legislation (Berliner Morgenpost and Funke Media Group, April 29).

For his part, Manfred Weber, the leader of the European People’s Party (EPP) and its Spitzenkandidat (heading the electoral list) in the ongoing election campaign for the European Parliament, considers it still possible to block Nord Stream Two, even at this late stage. A frontrunner for the presidency of the European Commission under the Spitzenkandidat system, Weber promises to “use all legal instruments available and seek all opportunities to stop Nord Stream Two. I oppose this project. It would increase the EU’s dependence on Russian fuels, but we need less dependence. I will try my best, although the project is already at an advanced stage.” Weber points out that he is “not Germany’s candidate, but the EPP’s candidate to the European Commission’s presidency. When thinking of Europe, we must think of not being dependent on Russian gas … I want to deal with European issues from a European standpoint. [On] Nord Stream Two, and a lot of controversial points on the table, I don’t support my German government on these points” (Politico, France 24, Polska Times, April 23).

Weber had already expressed this view on Nord Stream Two within the European Parliament as EPP leader. Several prominent Christian-Democrat politicians also dissent from German Chancellor Angela Merkel’s support for this project. Such critics include the Bundestag’s foreign policy commission chairman Norbert Röttgen, as well as Öttinger in Brussels (see above), although the critics differ among themselves over whether Nord Stream Two ought to be either stopped outright or subjected to the EU’s regulatory system. For now, however, the project’s critics do not form a critical mass within Germany’s Christian-Democrat/Christian-Social party. Support for Nord Stream Two is one of the rare issues on which Merkel is acting in full consensus with the Social-Democrats in the governing coalition.

Merkel’s chosen successor as party leader, Annegret Kramp-Karrenbauer, has responded to Weber indirectly: “We stand by the Nord Stream Two Project” (DPA, Bild, May 2). Merkel herself is not going to air her disagreement with Weber on this (or any) issue during the EPP’s election campaign for the European Parliament. The two are scheduled to make a joint campaign appearance. She will avoid contradicting Manfred Weber publicly, while siding with Matthias Warnig in practice.

Republished from www.jamestown.org.

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