Gazprom says EU move will raise gas price

Gazprom, Russia's state controlled gas exporter, has said attempts by Brussels to crack down on its pricing model will backfire - and trigger higher average energy costs across Europe.

Alexei Miller, chief executive, issued the warning on Monday as the European Union prepares a landmark antitrust case over accusations that Gazprom overcharged customers in eastern Europe.

Brussels is also drawing up plans to challenge Gazprom's ability to charge widely divergent prices across the EU, by giving the European Commission oversight over the gas company's contracts. EU officials are encouraging gas purchasers to give themselves more leverage in negotiations with Russia by clubbing together to buy their gas jointly, in higher volumes.

Several eastern European countries - particularly the Baltic states and Poland - insist that Moscow has historically used gas prices as a political weapon, charging them considerably more than it charges Germany.

But Mr Miller defended the company's pricing model and explained that prices differed because Europe was a "fragmented market" where the energy mix varied sharply by country.

"We do not understand why we are blamed for setting different prices," he said. "If the European Commission will insist on equal prices, the common price is not the lowest price, it will most obviously be the highest price."

While the EU overall gets about one-third of its gas from Russia, the dependence in some eastern European states is closer to 100 per cent.

EU officials have wanted Gazprom to shift to a pricing system that does not deviate too widely from Germany's low prices. In 2013, Germany's second largest utility, RWE, won an arbitration court ruling forcing Gazprom to include market pricing in its rates. But Mr Miller said Germany - Europe's biggest economy - benefited from lower prices because of its energy mix and the role played by utilities in its supply chain.

"Germany is a good example of this, the lowest prices have been set for German consumers," he said. "We have studied the German market and understood what role gas plays in the German market," he said.

Referring to the pressure being put on Gazprom by the European Commission to stop indexing gas prices to oil, Mr Miller cited the example of Asia, where oil indexation is prevalent. "This is something we should take into account," he said.

Despite his warning about prices, Mr Miller struck a more conciliatory note about a broader rapprochement between the EU and Gazprom. Although pricing is the most prominent element of the EU's antitrust concerns, Brussels is also seeking agreement with Russia over issues such as the exclusion of Gazprom's rivals from the market and attempts by Moscow to block resales of gas.

Mr Miller said that he was optimistic that the European Commission could still make some "constructive changes" on its stance.

"I am sure that the trust will be rebuilt, we had some trust problems," he said. "Gazprom is certain that nothing can happen to prevent Gazprom and the EU, as a consumer, from continuing to be important and key partners in the area of the gas market. We know that Russian gas will not be replaced," he said.

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