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Energy 5 February, 2018 10:00 am   
Editorial staff

Warsaw Institute on lex Nord Stream 2: EC will defend EU gas market

Written statement submitted by the Warsaw Institute Foundation – our opinion on the Commission proposal for a Directive amending Directive of the European Parliament and of the Council 2009/73/EC.

The Commission proposal for a Directive amending Directive of the European Parliament and of the Council 2009/73/EC herein also referred to as the “Amending Directive”, “Gas Directive” and “Amended Gas Directive” respectively. The key observations that we have are discussed below.

First of all, the Amending Directive appears to further the goals enshrined in the 3rd  Energy Package and contribute towards a more safe and competitive gas market in the EU. We also believe that the adoption thereof is in the interest of the Member States, including Poland and other countries of the region.

Nonetheless we would like to emphasise, we believe, that the current Gas Directive has already been applicable to the whole territory under the EU jurisdiction. This follows the longstanding practice of extending the EU law applicability upon territorial waters and exclusive economic zones (an illustration of which can be found in the C – 6/04 Case, European Commission v. the United Kingdom, supported by the opinion that the AG Kokkott has provided in this case). Accordingly we believe that the Amending Directive should rather be seen as a technical (clarifying) document, then as a material change of the law that is in place at the moment. We believe that some of the views expressed by the European Commission confirm that it shares the view presented above. As a result we do not deem it necessary to implement a special, more lenient, legal regime for the infrastructure that has been built before the Amending Directive comes into force. If such measures are nonetheless implemented, this should only be for the time needed to allow the subjected undertakings to adapt to the, now clearly stated, law. In introducing any exceptions due consideration shall be given to the needs of energy safety and gas market competition.

Lex Nord Stream 2

In so far as point (5) of the recitals to the Amending Directive is concerned, we believe that an express stipulation that in case of offshore pipelines the EU jurisdiction shall extend to the territorial waters and exclusive economic zones should be included in the enacting terms. This would help to avoid a potential doubts as to the legal effects of legal power that this provision has (see Case C – 162/07 Nilsson and others). Some experts also argue that the Amended Gas Directive shall also expressly apply to pipelines located on the continental shelf, as this is where most of the pipelines are. It seems that this would contribute towards the efficiency of the Amended Gas Directive. However, it has to be acknowledged that this would greatly extend the degree of control that countries normally exercise over the continental shelf (for example as per the Montego Bay Convention). At the same time it has to be noted that the European Union has already exercised a territorial extension in the past. It would seem that the significance of the energy union and the direct impact that the situation in third countries jurisdictions (which are connected with the EU system) may have over the common market, justifies exercising the territorial extension in case of the Gas Directive too. This view appears to be supported by J. Dudek and A. Piebalgas, who seem to argue in favor of using territorial extension for Nord Stream II (see. J. Dudek, A. Piebalgas, Nord Stream 2 and the EU Regulatory Framework: Challenges Ahead, FSR Policy Paper).

It could also be argued that in deciding whether to grant temporary exemption from the Gas Directive requirements, the willingness of the home country of the enterprise concerned to undertake efforts to make its’ law applicable to those pipelines that export to the EU compliant with the key principles of the Amended Gas Directive, should be an important factor. Although one has to acknowledge that this could have an adverse impact on for example the Russian companies that operate in a vertically integrated form and without a TPA mechanisms.

In so far as the most important change included in the act is concerned i.e. the change of the interconnector definition (Article 2 Paragraph 17 of the Gas Directive), we observe that it is beneficial for the EU Member States, including Poland, in so far as it extends the interconnector definition. Upon change it will not only apply to lines that cross or span a border between two Member States, but also to those that do so between a Member State and a third country. At the same time the European Commission has proposed that the “purpose requirement” be removed from the definition. Accordingly it will no longer be the case that the sole purpose of an interconnector has to be connecting the national transmission system. As a result the exemptions that can now be awarded under Article 36 of the Gas Directive to major new infrastructure, will also become available to the infrastructure that does not contribute to the greater integration of the common market. By way of example this could be the case with Gross Köris, the German exit point of the OPAL Pipeline (as observed by Professor M. Szydło in M. Szydło, Zmiana dyrektywy gazowej: Zagrożenie czy wsparcie dla Nord Stream 2 (ANALIZA)). It could be argued that in such cases such exemption should not apply or that if it does this should be subject to not only the negative impact on the common market being absent, but subject to one being able to demonstrate a positive impact.

Furthermore, taking into account the fact that Amending Directive is mostly technical in nature, we recommend that the exemptions from the unbundling requirements stipulated in the Amended Gas Directive be given on the ground of such infrastructure belonged to the integrated undertaking on the date of adoption of the Amended Directive only in exceptional cases, if at all. We also believe that because of this being a major exemption from a fundamental principle of the Gas Directive the granting of such exemptions should be the prerogative of the European Commission. The cross border impact that such pipelines and exemptions may have does also justify that such decision be taken at an EU level. We also believe that making the European Commission responsible for such decision will prevent self-serving actions, which might be taken by some of the Member States, and consequently ensure that the interests of the EU are better secured. This will also ensure that the effective judicial control over such exemptions is exercised not only at the domestic but also at an EU level. In the long term the Amended Gas Directive should also aim to unify the legal regime within the EU. Accordingly any exemptions and especially those that are to be given to the infrastructure that already exists (and to which the “incentive argument” does not apply) should only be given for the limited time, and the maximum time-frame of such exemption should be expressly stipulated in the Amended Gas Directive.

It is also worth emphasizing that the wording of the Amending Directive is not always coherent. For example whereas the Article 49 of the Amended Gas Directive uses the term “first interconnection point” other parts of the Directive speak of the “first interconnection point with the Union network”. There seems to be no reason for such a distinction and accordingly the wording should be unified. If this is not done one could understand that Article 49 does also apply to connections with systems other then the network system and other then the ones that are within the EU. This is unjustified and could potentially lead to abuses.

We would also like to propose that in deciding whether to exempt an undertaking from the Gas Directive requirements the home regulations of the undertaking should be taken into account, with fair, transparent and competitive markets being promoted. We also believe that the decision should take into account the need for diversification (and the level of dependency from the particular supplier that already exists). The transparency of undertakings operations and the competition law track record should also have impact on a final decision as to whether to give an exemption.

Finally, we believe that there is no need for a long vacation legis in the Directive, because as we have already stated we believe that the Amending Directive in most cases does no more then clarify the law that is already currently in place. We also believe that if one allows for major projects that are currently under consideration to escape the regulation of the Amended Gas Directive, this will greatly hinder the unity of the European gas market, the legal benefits of the Amending Directive and the goals sought by the energy union.

The Warsaw Institute